Diamond dealers remained cautious in February amid excess supply and selective demand
Diamond dealers remained cautious in February amid excess supply and selective demand. Suppliers had low expectations for the important Hong Kong International Diamond, Gem & Pearl Show, as economic and political factors have impacted sentiment in China.
There was stable demand at the show for 0.70- to 1.99-carat, F-J, VS2-SI2 diamonds, with the RapNet Diamond Index (RAPI™) for 1 carat up 0.1% in February.
Buyers did better than sellers at the fair. Far East jewelers were looking to restock 0.30- to 0.49-carat goods after the Chinese New Year, but were prepared to walk away if their low offers weren’t met. Suppliers are holding large inventory; the volume of diamonds listed on RapNet as of March 1 was up 17% year on year at 1.49 million, with the number of 0.30-carat stones having risen 80%.
The industry is adjusting to higher supply levels that hit the market in 2017, when three new mines came on stream. Global rough production remains high, even though it fell an estimated 3.2% to 146 million carats in 2018 and is expected to drop another 4% to 140.1 million carats this year, according to February’s Rapaport Research Report. Projections show rough sales volume rising about 2% in 2019.
However, that may be too much for the market to absorb. We believe the mining companies have over-projected the volume of rough they can sell in 2019, especially at current price levels. The market is saturated with polished that is difficult to move, and manufacturers are struggling to make a decent profit from current supply.
A correction is due. Manufacturers should not be too aggressive in the rough market as long as polished demand is sluggish, and miners should lower their expectations. Reducing rough supply along with prices will help restore profits throughout the pipeline.