Diamond markets under pressure – Rapaport

Rapaport published a report stating that diamond markets are under pressure as profit margins have tightened and the trade war with China has fueled uncertainty.

The international firm revealed that the RapNet Diamond Index, known as RAPI, for 1-carat diamonds fell 0.7% in May and is down 1.7% since the beginning of the year.

RAPI is the average asking price in hundred $/carat of the 10% best-priced diamonds, for each of the top 25 quality round diamonds offered for sale on the Rapaport Diamond Trading Network.

Stones weighing 3 carats saw the most dramatic change, with a 4% drop in May and a 9.8% drop since the beginning of the year.

To try to boost sales, polished suppliers are offering technology and source verification as a value-added service

Diamonds of 0.30 carats sunk by 3.7% in May and 9.4% since the start of the year, while 0.50-carat rocks fell 1.7% last month and 2.9% year to date.

"There is good demand for 0.60- to 1.99-carat, F-J, VS2-I1 diamonds. Buyers are insisting on well-cut stones. Polished below 0.50 carats is slow due to excess supply, weak Chinese demand and tight Indian liquidity," the report reads.

According to Rapaport, this state of affairs has pushed cutters to operate at lower capacity as they try to reduce inflated inventory, while manufacturers are rejecting high-priced rough stones that have made polished production unprofitable.

"De Beers and Alrosa are carefully managing production and price levels amid this year’s slow rough demand," the document states.

In the view of the firm's chairman, Martin Rapaport, if the trade does not change its business practices and adapt to new realities, the diamond industry will suffer "extreme financial and regulatory disruption."

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Polished diamond prices drop in April – Report

A report published by Rapaport this week reveals that polished-diamond prices declined in April with 1-carat diamonds sliding 1% year-to-date and 3-carat diamonds falling by 6.1% year-to-date.

Right behind 3-carat diamonds, the price of 0.30-carat diamonds fell by 5.9% year-to-date, while 0.50-carat diamond prices dropped by 1.2% year-to-date.

According to Rapaport, the fall is caused by continued oversupply and selective Far East demand.

“Large inventories of lower-quality old goods are available, and suppliers are willing to discount them to raise cash. Liquidity is tight, as Indian credit lines declined after the March 31 fiscal year-end. Manufacturers reduced rough purchases in the first quarter, hoping to ease liquidity concerns by depleting polished stock,” the report states.

Demand is down everywhere but in the US, where purchases of 1.00 to 1.50-carat diamonds remain steady ahead of the summer wedding season.

But manufacturers' strategy may not be working as supply of polished gems continues to rise. Rapaport says the volume of diamonds listed on RapNet as of May 1 was up 7% since the beginning of the year, coming to 1.6 million stones valued at $8.23 billion.

Demand, on the other hand, seems to be down almost everywhere. The international firm’s document mentions that combined rough sales by De Beers and Alrosa dropped 19% by volume and an estimated 30% by value in the first quarter.

“Mining companies are planning to reduce supply, with global production down approximately 6% during the period.”

Rapaport’s analysis is based on the RapNet Diamond Index (RAPI), which is the average asking price in hundred $/carat of the 10% best-priced diamonds, for each of the top 25 quality round diamonds offered for sale on the Rapaport Diamond Trading Network.

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Rapaport proposes diamond industry optimization plan to government of Sierra Leone

During a trade mission to Sierra Leone that involved a group of 29 international diamantaires and jewelers, Martin Rapaport, Chairman of the Rapaport Group, presented a proposal to the government of Sierra Leone that, in his company's view, would optimize the country's diamond industry.

In a media statement, Rapaport said the proposal includes a systematic and sustainable business model that "will optimize the benefit of Sierra Leone’s alluvial diamonds for the diggers, their communities, and the government."

The plan involves giving artisanal diggers the opportunity to sell the diamonds they find through a legitimate government channel.

"The weekly auctions will provide consistent cash flow to the artisanal sector every Thursday. This cash flow will support a strong microeconomic grassroots multiplier effect."

Such channel would be a diamond auction center in Koidu, Kono district, where the famous 709-carat rough "Peace Diamond" was found in 2017.

The center would act as a hub where artisanal diamond diggers or finders will deliver the diamonds they find to a “government receiver,” as it is contemplated in section 167, subsection 5 of the Sierra Leone Mines and Minerals Act 2009.

The receivers would then have to supervise a weekly transparent and competitive public auction where the diamonds may be sold to the highest bidder.

"This will ensure that the diggers and the government get fair market value for their diamonds. The auctions will be open to all sellers, including licensed and unlicensed diggers. Bidding will be restricted to licensed dealers and exporters," Rapaport's proposal reads.

Based on the model used for the sale of the Peace Diamond, the international trading organization says the strategy requires some legal changes to be implemented.

"The law requires that 60% of the value of the diamonds be given to the government. There should be a provision ensuring that 25% of the 60% (i.e., 15% of the value of the diamonds) goes to the communities where the diamonds were found. Furthermore, the 40% given to the diggers should be tax-free. Such benefits to the community will ensure there is incentive for the diggers to bring their diamonds to the government," the document reads.

According to Rapaport, the proposed model should guarantee that government diamond revenue provides vital infrastructure to the communities where the diamonds are found.

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Diamond prices sliding – report

A report made public today by Rapaport states that polished-diamond prices softened in January, with 1-carat stones falling by 0.4% last month and 1.8% compared to January 2018, while 3-carat gems fell by 1.8% last month and 5.9% compared to last year.

Smaller diamonds saw a less steep decline in prices as 0.5-carat rocks fell by 0.3% in January 2019 and 0.1% when compared to last year, and 0.3-carat diamonds dropped by -0.8% in price last month and -4.1% year-on-year.

The analysis is based on the RapNet Diamond Index or RAPI, which is the average asking price in hundred $/ct. of the 10% best-priced diamonds, for each of the top 25 quality round diamonds offered for sale on RapNet – Rapaport Diamond Trading Network.

According to the firm, the reasons behind the sliding prices are that the US restocking proved slower than expected after the holiday season and the vacation that Far East buyers took ahead of the Chinese New Year.

“Although polished prices declined in the second half of 2018, inventory levels have remained high: The number of diamonds on RapNet as of February 5 was 26% higher than a year ago, coming to 1.5 million. In January, rough trading was slow, as De Beers and Alrosa left prices unchanged,” the document reads.

Focus in India

Rapaport also reports that bank credit to India’s diamond trade declined by up to 30% in the past year and currently stands at $5 billion to $5.5 billion. Several situations are behind this drop, among them the fact that bankers decided to raise the industry’s risk profile following the $2 billion alleged fraud of Punjab National Bank by jewelers Nirav Modi and Gitanjali Gems.

Besides that scandal, credit-granting went down because state-owned banks are adopting a more conservative approach across all industries in response to a rise in non-performing assets in the country and, in parallel, the rupee was depreciated by 12% against the US dollar in 2018, which reduced credit in dollar terms since Indian credit lines are set in rupees.

“Indian diamantaires need to improve transparency and profitability to gain favor with the banks. A shift to a more conservative lending environment in India will exert additional pressure on the trade in 2019 but will be a positive development in the long term. With reduced bank credit, businesses will have less money to spend on non-profitable rough, helping to shift their mindset away from turnover and toward bottom-line profits,” Rapaport states.

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