Trade Report: China Rebound Lifts Sentiment
While still weathering global economic challenges, the trade hopes the end of Covid-19 restrictions on the mainland will boost sales.
The diamond market showed signs of recovery in January as China opened up following Covid-19 lockdowns. Retailers made final orders ahead of the Lunar New Year, which occurred on January 22.
The industry reflected on a mixed US holiday season. High-end demand was fairly strong, because the wealthy still had spending power. The mid-market segment was weaker due to inflation, higher interest rates and economic uncertainty.
“We knew it could be touch and go for final holiday sales given early shopping in October that likely pulled some sales forward, plus price pressures and cold, stormy weather,” said National Retail Federation (NRF) chief economist Jack Kleinhenz. “The pace of spending was choppy, and consumers may have pulled back more than we had hoped.”
Retail sales data reflected this. Revenue across all product categories — adjusted for seasonal variation — fell 1.1% in December compared to the previous month for a total of $677.1 billion, the US Census Bureau reported. Jewelry sales dropped 5.4% year on year between November 1 and December 24, according to separate data from Mastercard SpendingPulse.
“Despite rising incomes and excess savings, American consumers are tightening their belts in the face of still-high inflation, rising credit costs, and shrinking wealth,” commented Sal Guatieri, senior economist and director at investment bank BMO Capital Markets.
Smaller polished strong
Polished prices fell in the larger sizes, with the RapNet Diamond Index (RAPI™) for 1- and 3-carat diamonds slipping 0.5% between January 1 and 18. The smaller categories that represent a large segment of Chinese demand rebounded from their recent lows: RAPI for 0.30-carat stones grew 2.1%, and the index for 0.50-carat diamonds edged up 0.1%.
This reflected a slight lessening of the distinct market split that had been present in recent months. Since around October, polished above 0.30 carats — and the corresponding rough from about 1 carat and up — had been slow due to a lack of Chinese demand and shaky US spending. Melee remained strong during that period, supporting the market for rough under 0.75 carats.
While this trend largely persisted in January, the end of China’s zero-Covid policy and the post-holiday restocking lifted sentiment somewhat, even in the segments that had been weak. Polished inventories in the midstream fell from the high levels that they had seen in the second half of last year.
In addition, China’s gradual recovery appeared to fuel sales of 0.30- to 1-carat, D- to F-color, internally flawless to VVS1-clarity, triple-Ex diamonds in the major trading centers. Prices increased in these areas in the first half of January, while lower colors and clarities weakened.
De Beers adjustments
De Beers cut prices of 0.75-carat and larger rough at its January sight, with the 2-carat goods seeing the sharpest reductions, according to clients who spoke on condition of anonymity. The cost of smaller stones increased, they reported. During sluggish markets, the miner often waits for conditions to improve before adjusting prices.
“Things are a bit better than they were four or five months back, but that is because of low [polished] production, not because of an improvement of the market,” a manufacturing executive commented. “So the challenges remain.”
It’s still unclear whether the first quarter will see the strong post-holiday inventory replenishment that occurred in each of the past two years. Dealers expect the Chinese lunar festival to be slower than in 2022 because the country is still recovering from its latest Covid-19 outbreak.
“We are cautiously optimistic that the resilience seen in the luxury-goods market, together with the easing of lockdown restrictions in China, will lead to a stabilization of prices in the early part of…2023,” stated miner Petra Diamonds on January 17.