Diamond market sentiment was positive for most of January but weakened as the outbreak of the coronavirus in China resulted in a shutdown of retail stores over the important Chinese New Year period. Prices were supported by shortages, particularly of 0.30- to 0.49-carat, D-F, IF-VVS2 goods, with inventory of fine-cut RapSpec A3+ diamonds declining. Collection-quality diamonds above 3 carats (D-E, IF-VVS2) remained weak. The RapNet Diamond Index (RAPI™) for 1-carat diamonds slid 0.4% in January, while the 0.30-carat index rose 4.1%.
Far East demand turned sluggish toward the end of January due to uncertainty surrounding the coronavirus and the ongoing protests in Hong Kong. Travel restrictions are likely to affect global trading, while weak jewelry sales over the January 25 lunar festival will impact first-quarter inventory replacement.
The recent influx of rough to the market, coupled with the weakened outlook for China, raised concerns that the trade would return to a polished oversupply. De Beers sales rose 9% year on year to $545 million in January, with firmer prices on select boxes of commercial-quality diamonds.
Mining companies are holding large quantities of rough they couldn’t sell in 2019. Rough production is projected to decrease approximately 6% this year, although the mining companies have enough inventory to offset the decline. Alrosa began the year with a stockpile of 22.6 million carats.
The diamond trade must be careful to balance supply and demand in the current volatile environment. While the year began with an optimistic outlook for China, the coronavirus outbreak may result in a slowdown in the market there. To support polished prices, the industry must invest in marketing to broaden the range of diamonds that are in demand. Manufacturers must also refrain from buying too much rough as an oversupply of polished will exert additional pressure on prices. ( Rapaport)