•   Jewellery Manufacturing Precinct, Superblock Building OR Tambo International Airport Special Economic Zone(ORTIA SEZ PRECINCT 1) Bonaero Drive, ACSA Precinct Bonaero Park 1619
  •   011 334 2691
  •   infosdt@statediamondtrader.gov.za

Market Intelligence Briefings

Market Intelligence Briefings – February 2014

1.1 Risk Implications

There are risk implications in not following market trends as this will have direct impact in the decisions of the institution to purchase or sell rough diamonds profitably. It is crucial to understand the diamond trading trends to apply correct discounts and price diamonds accurately. Over the years it has been noted that the appetite of polished consumers changes and varies. Furthermore, the volatility of the Rand/Dollar exchange rate always has direct impact on sales and purchasing and therefore these need to be tracked.

1.2 Operations Implications
1.2.1 General Trading Environment

The analysis has indicated that the general diamond market has been on a negative slope for almost three years in a row. This inverse trade has been noticed within different trading centres with unique market difficulties. Consequently, the 2018/2019 financial year regurgitated/echoed the negative effects of the previous years. For most part of the year, trading of -3+11grs has been negatively affected by liquidity issues in India, as banks tightened credit lending. Additionally, the immerging of synthetic/lab grown diamond within the trade inversely affected the trade of the melee goods. The downward economic growth of Asian countries as well have expressed challenges towards trading of diamonds in general. It has been an ongoing observation that countries such as China and Hong Kong maintained its change of demand by competing with USA on low clarity goods (SI2, I1 goods).

The exchange rates also have been among factors leading to market challenges, were potential yuan devaluation raised local prices particularly between China and USA. Devaluation of Rupee also contributed to the liquidation in India while the Rand/Dollar exchange rate, imposed pressure on the South African diamonds trade.

The major diamonds and jewellery shows did not as well maintain its known trading position but served more as a market gauge and indicator. Although the results of the Las Vegas show were not that good, expectations rose for US demand ahead of the fair, and thus led to increased polished demand towards its commencement. Additionally, the industry remained optimistic for the September 2018 Hong Kong Gem & Jewellery Show, hoping that the Chinese demand will return after slowdown of the past few months prior to the fair. However, the show reflected further uncertainties, especially regarding to the United States and China trade tensions. Similarly, the March 2019 Hong Kong Gem & Jewellery Show did not yield positive outcomes as the industry anticipated.

1.2.2 Polished Diamond Market

Nonetheless, given the negative affect of the market, sentiments have been firm on selected categories of goods especially those considered to be commercial. These are goods between 1 and 3 carats of H to J colours, VS1 to I1 clarities. Demand for diamonds of +5 carats continued to be soft in the market and mostly trade on specific demand. Dealers have been negotiating deep discounts below Rapaport price list for diamonds that are fluorescent diamonds and those with black spots in them.

1.2.3 Rough Market

With all transpiring with the market, the rough diamond market has maintained stability in most categories of diamonds but, manufacturers exercised extremely cautiousness in avoidance of building up excess inventory. On average the prices of rough diamonds increased between 4 and 6 percent in response to the shortage of rough supply from primary sources (De Beers and Alrosa). High rough prices resulted in squeezing of manufacturing profits and forcing factories to operate below full capacity. Trading in the secondary market (tenders) has been slow as well, with buyers bidding to fill orders and De Beers allowing sightholders to defer small and lower value rough.

1.2.4 State Diamond Trader

Unfortunately, State Diamond Trader is a global player and is therefore not immune to dynamics that transpires within the trade. Nonetheless, the organisation managed to survive the year, although it could not meet 100% of its targeted budget.

The purchasing negotiations with producers were difficult right through the year because of high rough prices, and the same difficulties were again encountered during sales negotiation with clients. In their workings, clients turn to negotiate for high discounts below Rapaport price list, which unfortunately is difficult to achieve during purchasing negotiations with the producers. Nonetheless, most of small producers’ productions were purchased for primary allocations, however, difficulties were experienced during the sales to clients on Pre-Finance.

1.2.5 Forecast

The global economic condition is not promising any extreme upswings in a near future, particularly for the luxury products such as diamonds and diamond jewellery. The advancement of technology as well within industry is expected to encourage the outbreak and acceptance of synthetic lab grown diamonds as a long-term market challenge. This assumption follows the De Beers Group announcement earlier in the year launching a new initiative called Lightbox Jewellery marketing a brand of laboratory-grown diamond jewellery. The Lightbox’s intention is to offer consumers high-quality, fashion jewellery designs at lower prices than natural diamonds.

Large producers of diamonds such as Alrosa and De Beers continues to indicate their intention of reducing rough production, with De Beers already having estimated a 40% reduction in production for the year 2019/2020. These trends are expected to have an impact on the price of rough and thus continue to impose pressure on manufacturing profit. As such, Dealers are expected to continue being selective in their purchase and trade to fill orders in avoidance of building up inventory.