Time to Reconsider Strategy as Diamond Trade Heads Down

Demand is falling and dragging prices down with it, leading to a decline in trade. That is the central theme of the recent past. Miners, countries and traders are all reporting a decline in activity. A worrying trend throughout the diamond pipeline.

Last week, De Beers announced that the value of sold goods in its last sales cycle declined for the third time in a row. In cycles 6, 7, and 8 (August, September, and October), De Beers sold $530 million, $503 million, and $475 million in rough diamonds, respectively. They reflected declines of 9%, 5%, and 6% compared to the preceding cycles.

ALROSA Deputy CEO Yuri Okoemov said in a recent statement that there is a further slowdown in buying activity of inexpensive stones.

Polished diamond trade of the diamond center in Antwerp also suffered. Polished diamond exports fell 2% year-over-year in September, while the value of rough diamond trade fell 15%.

Likewise, polished diamond exports from India, the world’s leading polished diamond center, fell nearly 11%. India’s imports of rough diamonds declined by 14.5%, clearly in response to the drop in imports. After all, if the world is not buying your product, it makes sense to reduce imports of your raw material.

In the US, the jewelry producers’ index has been declining with few interruptions since October of last year. The index reflects changes in manufacturers’ costs. On a year-over-year basis, the index has continuously declined since January.

In our most recent market report ,we stated that polished diamond trading in India was impacted by the price of rough diamonds and the sluggish Hong Kong show. In Israel, demand was limited and focused on very specific goods. Globally, rising demand was largely constrained to third-carat and half-carat SI goods, and 1.50-cfarat VS-SI. 

All of the above can only be interpreted as a dismal performance. Naturally, when we try to explain it, we see that the timing of a number of Jewish and Hindu holidays had an adverse effect on trade – they occurred in succession in the middle of the week which meant that there were a limited number of workdays in September. Another external occurrence was super typhoon Mangkhut that hit Hong Kong during an important trade show. True, holidays and very bad weather are out of the diamond industry’s control, but is that all it is, a streak of bad luck?

If demand in the consumer market were high, retailers would have placed orders to the midstream to replace sold items and satisfy ongoing demand. If demand and trust in the future were in place, the Hong Kong show would have seen a jump in the number of early visitor registrations, and as typhoon Mangkhut was approaching, buyers would have quickly placed their orders. They didn’t, at least not at a high volume of demand.

What we are seeing is not the adverse effect of weather or even of trade wars between the US and China. What all of the indicators above tell us is that demand for polished diamond is sinking yet again.

In our last polished diamond price report, the Mercury Diamond Global Tracker™ (MDGT™), was down 1.85% in September compared to August. This was the deepest monthly price decline since May 2015, when prices plunged more than 4%. The price of practically every size range of round-shaped diamonds declined.

For a number of years, we have seen prices sinking. It was acute in 2014 and continued throughout 2015. Although the declines moderated in 2016 and 2017, they did not stop. In early 2018, following a rise in demand in the American market, prices suddenly improved. Due to the moderation in prices over the past two years, we felt that polished diamond prices had hit the sweet spot – reaching a point that they became desirable again to consumers. That was fostered by the rise in demand during the 2017 holiday season. 

However, our optimism may have been too early. The price declines in September have practically eroded the price increases since last January, which raises the question, were the prices in December 2017 “correct,” and all the price increases since uncalled for? Maybe. But here we are on the cusp of the 2018 holiday season, and we do not yet see demand starting to come in from the retail sector. They may simply be waiting as long as possible to make sure that placing orders will be reasonable. Maybe retailers hope that polished diamond prices will further erode. Only time will tell, and we should have answers in the near future. But for now, we know something else: we are not doing well at all.

The pipeline has slowed down. Retailer demand is low; polished diamond trading has declined; rough diamond purchases are down, and we have no plan to turn matters around, save for one. The one thing that is running forward full steam is De Beers’ CVD initiative Lightbox. And that is a sad testament to our industry.

We need to take stock of what is happening and reconsider our destiny. If we don’t, our destiny will be poor, small and not very relevant.

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.