US inflation, Chinese lockdowns and a summer lull have led to sluggish trading.
The diamond market weakened in July as uncertainty increased. US sentiment was mixed amid continued inflation and a seasonal slowdown. China’s post-lockdown reopening did not boost demand as much as many in the trade had hoped.
“We’ve got approximately 40% of our distribution in China disrupted,” said Jonathan Akeroyd, CEO of fashion house Burberry Group, in a mid-July analyst call that investment site Seeking Alpha quoted. “That’s either through store closures or people not going out because the city is on lockdown. Obviously, we don’t know when it will end, like most people.”
Diamond dealers in Hong Kong reported sluggish trading, while Indian manufacturers largely relied on American consumers to support the market.
Even so, US growth showed signs of waning. While jewelry outperformed other categories, sales growth slowed to 16% in June, compared with 33% in April and 22% in May, according to Mastercard SpendingPulse.
Adding to the concerns within the trade was the depreciation of the Indian rupee, which fell to a record low of INR 80 per $1 during the second half of July. This made business expensive for India-based importers, which buy goods — such as rough diamonds — in dollars from overseas.
Rough prices on the open market — outside the large miners’ contract sales — slipped by a few percentage points, industry insiders reported. Dubai-based tender house Trans Atlantic Gem Sales (TAGS) noted “a degree of fragility in the rough market” in a report on its July sale, where some 70% of available goods found buyers. Prices for sizes under 0.75 carats “held up well,” while 0.75- to 1.5-carat stones “performed less well, as did the 2- to 4-carat ranges,” management said.
“The expected recovery in the Chinese market has failed to materialize, and increasing Covid-19 cases threaten renewed lockdowns,” TAGS added.
Polished prices were down in the main categories, with the RapNet Diamond Index (RAPI™) for 1-carat diamonds falling 2% between July 1 and 24. The index for 0.30-carat stones slipped 2.4%, while the decrease for the 0.50-carat segment was 2.5%. RAPI for 3-carat goods dropped 1.7%.
The Russia effect
Sanctions on Russian diamonds have also begun to affect shipment quantities, TAGS stated. One of the apparent beneficiaries of the situation is De Beers, which has continued to report strong sales amid the shortages that the lack of Alrosa rough has created. The Anglo American subsidiary increased its 2022 production plan, predicting output of 32 million to 34 million carats for the year, up from its previous guidance of 30 million to 33 million carats.
While a deterioration of macroeconomic conditions could impact jewelry sales, sanctions and boycotts targeting Russian diamonds, as well as the development of provenance initiatives, “have the potential to underpin continued robust demand for De Beers’ rough diamonds,” the miner said.
The market has entered a quiet period over the summer. The trade is hoping momentum will return in a positive way when the vacation period ends. The focus will soon turn to the upcoming fourth-quarter holiday season.
One of the more optimistic players was Petra Diamonds, which saw an 8% like-for-like increase in rough prices at its June tender compared with the previous month.
“This growth in demand is driven by midstream inventory restocking and continued strong jewelry retail sales associated with a delayed wedding boom,” Petra elaborated. “While the diamond market is strong, macroeconomic uncertainties caused by the rise in inflation are a potential dampener of demand.”