Diamond-market sentiment was weak in July due to tight profits and liquidity. The pressures facing cutters and dealers resulted from high rough supply at inflated prices during 2017 and 2018, even as polished prices were softening.
The RapNet Diamond Index (RAPI™) for 1-carat polished fell 0.9% during the month. The index was down 4% since the beginning of the year and 6.1% over the past 12 months.
The midstream is being squeezed and is bearing the risk of holding inventory: Miners are maintaining high rough prices, while jewelers are holding fewer goods in inventory and taking more on consignment. Over the last decade, manufacturers focused on raising credit rather than profit as miners pushed rough supply, but now the lack of profit has led banks to cut lending.
Rough sales plummeted as sightholders rejected goods at prevailing prices. De Beers’ $250 million July sight was its smallest in over three years. Polished inventory remains inflated, even as manufacturers reduced production an estimated 30%.
Polished trading has been quiet, with US jewelers assessing their holiday-season requirements. Far East demand is cautious due to US-China trade tensions and currency devaluation. Meanwhile, political protests have negatively impacted Hong Kong wholesale and retail sales.
Dealer trading has also declined, with manufacturers going directly to retailers in a bid for better profits, as outlined in the July Rapaport Research Report. The industry needs a vibrant middle market, but dealers are hesitant to buy while prices are falling and polished is in oversupply.
To restore profit, the trade needs to reduce rough prices, as well as raise diamond-jewelry demand through marketing. Greater profitability will improve midstream liquidity, and the focus will shift toward boosting consumer spending rather than credit. In turn, a profitable midstream will restore polished price growth.