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Post Vacation View of the Market

Post Vacation View of the Market

The summer vacations are behind us, and the diamond industry is already in full motion. The range of activity is large, and as we start thinking (and working) towards the important November-December holiday season, it is worthwhile to take stock of where we are, and where we are going.

Summertime is a time to relax and unwind. It is also a good time to contemplate the past year, and plan ahead for the next one. So far this year, we had a very difficult market. Valentine’s Day diamond jewelry sales in the US were slow, and demand for diamond jewelry on Mother’s Day was weak. As consumer demand declined, polished diamond prices continued to fall across the board. At the same time, we saw a rise in rough diamond demand from the manufacturing section of the diamond pipeline. The natural result was a sharp rise in polished inventories held by the midstream.

Other trends of the past year included poor spending on marketing, and a decline in sales by the leading (and publically held) specialty jewelers in the US as well as in China, the two leading consumer markets. These declines further hurt the diamond industry, because they not only resulted in a decline in wholesale polished diamond purchases, they also resulted in a large scale of returned goods from unsold jewelry items. This exacerbated price declines and stock levels among wholesalers in India, Israel, and Belgium.

It is not unusual for business failures to be announced after the long Diwali and summer vacations, and there are a few reasons for this. Because vacations are quiet times for businesses, and cash flow drops to a trickle or stops completely, they further worsen a bad situation. Also, as mentioned above, vacations are a good time to take stock of what is happening in a business. An owner of a struggling business may realize that it has reached its end, and see calling it quits as the only choice left. For whichever of these two reasons, a number of companies came back from this summer vacation and announced their closures. They include a large company and a mid-size company in India, a small one in Israel, and a number of others that did not announce insolvency, but are simply selling off their inventory, paying off their debts, and quietly going home. The large business falls always have a lingering effect, and the jittery midstream diamond market is waiting for the other shoe to fall. It is inevitable.

As September rolls in, a lot is happening, not only wound licking. In the rough diamond sector, a De Beers Sight took place, and many tenders are underway, including Mountain Province Gem Diamonds and Stornoway. In addition, a couple of sales weeks are being held, first by Rio Tinto, and then by ALROSA. Although demand for rough is not currently high, a large supply of rough diamonds is coming into the market. Jewelry manufacturers are in full swing, busy with creating and supplying the jewelry items that will be offered at stores during the holiday season. It won’t be long before retailers start buying loose polished diamonds to prepare for the holiday season. They set center stones in rings to provide very quick response to specific orders, as well as make some made-to-order jewelry items in their own workshops. Polished diamond wholesalers are preparing to meet the expected demand from these retailers, often independent specialty jewelers.

At the same time, everyone has the holiday season in mind. Some are preparing marketing plans – especially retailers, but not only. De Beers announced just last week an increase in its marketing budget. Large retailers are busy with their designs, planning marketing spend, scripting commercials, and putting the final touches on planned offerings and ads.

Looking Ahead

I wish everybody the best of luck for the rest of the year and beyond. If you follow my writings regularly, you will be familiar with my deep concerns about the market. I still hold those concerns, and there is little that is giving me reason to expect that much will change, at least near-term. That said, the Jewish New Year is fast approaching, and when a new start is ahead, we tend to look for and expect matters to improve. I, too, don’t want to be solely focused on the negative, but be realistic. As everyone is thinking about the holiday season, and with at least some hope, I want to do the same.

To improve consumer demand, I would like to see much more consumer marketing. The kind that inspires, sends people to stores looking for diamond jewelry, and results in improved demand. I want to see more brands, higher-end goods, and innovation in the retail sector. If consumer demand improves, than inventory levels in the midstream of the diamond pipeline will decrease, elevating some of the financial pressure manufacturers and wholesalers are bearing. If played right, this will also give the midstream an opportunity to push up prices, at least a little, and provide better margins.

Usually, when inventory levels decline and polished diamond prices rise – especially if shortages are created in the market – demand for rough diamonds increases, and with it, prices of rough. Buyers almost jump on the goods. My hope is that if consumer demand recovers, manufacturers will show a level of restraint that will allow them to buy the rough diamonds they need, without creating the kind of rush for the rough that results in price hikes by producers, or large premiums in the secondary market of rough diamond suppliers. Such an outcome is not healthy economically, because it will leave us with the same kind of margins and fiscal suffocation that we are trying to climb out of.

Prudence is something I would like to see from diamond producers. If manufacturers buy more rough, it is tempting to increase rough diamond prices. Producers have agreed to invest more in generic diamond promotion. It is my hope that this investment bears fruit, and brings a change in the way the consumer markets, especially in the US but in Europe, India and the Gulf too, consider diamonds and diamond jewelry.

Finally, it is my hope that the industry finds new and innovative ways to work out problems. The solutions need to be long-term, relevant, and effective, touching on financing, manufacturing, supply, and any other issues facing the industry. May we start this important September to December period on the right footing, and use it as a way to move forward successfully.

      The views expressed here are solely those of the author in his private capacity. No one should act upon any opinion or information in this website without consulting a professional qualified adviser.


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