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Industry inches toward recovery

Despite a gradual return to activity, the market remains slow due to coronavirus caution. By Joshua Freedman
Jun 7, 2020 1:43 AM   By Joshua Freedman
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The diamond industry continued to stumble in May as the coronavirus reduced consumer demand and caused trading centers to close. Retailers started to reopen stores during the month, and some dealers returned to work, but no one was expecting a significant increase in business activity for a while.

Polished prices fell in all major categories except 1 carat, for which the RapNet Diamond Index (RAPI™) rose 0.1% between May 1 and 25. RAPI for 0.30-carat diamonds dropped 1.3% for the period, while the index for 0.50-carat stones was down 0.4%. Prices of 3-carat goods slid 1.4%.

India’s manufacturing sector received permission to resume operations with a limited workforce despite a government decision to extend the national lockdown until May 31. Authorities allowed exports to take place, with a small number of parcels heading to Hong Kong, but overall diamond demand remained low.

While China’s diamond trade gradually came back to life, the effects of the coronavirus continued to impact consumer spending and the wholesale business. Israel and Belgium also unlocked their trading floors in May with social distancing measures in place, though a lack of orders from key retail markets meant activity was slow.

“The industry agrees that the up- and midstream will only be reactivated when the end market is reactivated,” Liang Weizhang, general manager of China’s Guangzhou Diamond Exchange, told Rapaport Magazine.

Rough prognosis

The resurgence of some international flights made shipments easier. Yet there was little appetite for rough or polished goods, as companies already had the inventory they needed for when sales resumed. In a bid to avoid oversupply, India’s leading trade groups recommended that members stop importing rough for a month, starting June 1.

In this context, Alrosa and De Beers allowed customers to defer purchases until later in the year, and sales plunged as a result. Both miners have shaved millions of carats off their 2020 production plans, as COVID-19 has obliterated demand and affected mining operations.

However, Alrosa predicted an improvement later in the year, asserting that the current challenges were temporary. “We deal with a rare and limited natural resource, and consumers attach a high emotional value to natural diamonds,” said Evgeny Agureev, Alrosa’s deputy CEO, in a May 12 statement. “Like many other market players, we expect to see an upward trend in demand for diamonds as early as in the beginning of [the third quarter].”

Sluggish retail

For the time being, though, retail was slow. Sales at stores specializing in clothing and accessories plummeted 89% to $2.37 billion in April, according to data from the US Census Bureau. As of May, some US states were still preventing shops from opening.

Hong Kong struggled to wake up after the coronavirus shutdown, since the municipality’s luxury market relies largely on tourist spending. Concerns about a repeat of last year’s pro-democracy protests, which broke out after China proposed a controversial security bill, have also threatened to impact sales in the coming months. Meanwhile, India retail remained shut as the country battled the pandemic.

E-commerce has helped minimize the losses. The US government reported a 22% year-on-year rise in online sales across all retail categories in April. Pockets of diamond demand were visible, with US auction house Hindman noting strong sales of Van Cleef & Arpels, Cartier and Tiffany & Co. pieces at its May 14 remote jewelry sale. “Diamonds in general held their own against presale market uncertainty,” Hindman observed.

Still, the diamond business looks unlikely to recover until consumers return to buying on a larger scale.
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