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Polished Prices Down Almost 9% In 2014; Lending Drops Sharply January 14, 2015 (0 comments)
New York, NY—Polished diamond prices fell 8.7% in 2014, according to the end-of-year report from Rapaport.
Key reasons include slowing demand in China, reduced bank credit, tight profit margins due to high rough prices, and grading delays, all of which are squeezing cash flow among manufacturers and drying up liquidity. Banks reduced their credit to the industry and are demanding more stringent reporting and business practices from the notoriously secretive trade. Meanwhile, inventory levels remained high across the diamond distribution chain in December, and polished suppliers lowered prices in an effort to increase turnover and raise cash.
The RapNet Diamond Index (RAPI) for one-carat laboratory-graded diamonds fell 1.1% for the month of December. RAPI for 0.30-carat diamonds dropped 3.5%; 0.50-carat diamonds declined 1.8%; and 3.0 carat diamonds fell 2%.
For the full year 2014, RAPI for 1-carat laboratory-graded diamonds fell 8.7%; 0.30-carat diamonds declined 6.5%; and 3.0-carat dropped 6.6%. Only 0.50-carat diamonds held steady; edging up a minute 0.1%.
Diamond markets were also unstable due to an imbalance between rough and polished prices. Rough prices remained relatively stable at the De Beers December sight, while sightholders rejected an estimated 20% of their allocated supply. A greater proportion of lots remained unsold at spot auctions. Rough trading was slow and prices on the secondary market softened in December, even though most boxes were offered at a loss and on generous credit terms.
Market conditions are expected to remain cautious in January as retailers assess their inventory levels following the Christmas shopping season. The diamond trade continues to be supported by the U.S. with robust economic growth, reduced unemployment, rising consumer confidence, and a strong dollar helping to lift sentiment. India is also showing signs of improvement under the new government.
Activity in China remains cautious ahead of the Chinese New Year on February 19, as economic growth has slowed and the government continues to curb excessive displays of luxury wealth. The major jewelry retailers in the region have reported high inventory levels ahead of the season as their sales slumped in 2014. But diamantaires are hoping that strong retail sales in China in the coming months, combined with a successful Christmas period, will stimulate improved trading activity.
For now, the trade must tackle those challenges that linger from 2014: tight liquidity, reduced bank credit, low profit margins, and high rough prices, to ensure growth in 2015 and beyond.