Diamond markets were steady in September. Sentiment improved as trading at the Hong Kong Jewellery & Gem Fair, a bellwether for the industry, was better than expected even though buyers refrained from large inventory purchases. The polished market was supported by relatively high rough prices as suppliers held polished prices firm, preferring to delay sales rather than suffer losses from expensive rough.

The RapNet Diamond Index (RAPI™) for one-carat, GIA-graded polished diamonds declined 0.2% in September. The index dropped 2.7% in the third quarter and is down 2% since the beginning of the year.

RapNet Diamond Index (RAPI™)
September 3Q 2016 YTD
Jan. 1 – Oct. 1
Changes at Oct. 1
RAPI 0.3 ct. 0.3% -1.5% 0.3% 6.5%
RAPI 0.5 ct. -0.2% -0.6% 3.5% 6.2%
RAPI 1.0 ct. -0.2% -2.7% -2.0% -1.8%
RAPI 3.0 ct. -0.2% -1.5% -9.8% -10.6%

Copyright © 2016, Rapaport USA Inc.

The Hong Kong show signaled three trends affecting the diamond market: Dealer demand improved but sales were limited. Manufacturers increased polished production even though profit margins tightened. Chinese demand stabilized at levels well below those of the expansion years.

The diamond market is readjusting to lower retail inventory requirements, particularly in the Far East where jewelers have halted or scaled down their store expansion programs. Chinese buyers shifted to lower price points and are more selective as they restrict inventory purchases. U.S. retailers maintained inventory levels consistent with last year ahead of the fourth-quarter selling season.

Polished inventory is growing as manufacturers raise production before Indian factories close for the Diwali festival, despite tight profit margins. The number of diamonds listed on RapNet rose 4% in the third quarter and was up 22% from January 1, 2016. Rough trading was buoyant in September with prices firming and premiums rising on the secondary market.

Polished manufacturing is expected to soften for the rest of the year as dealers concentrate on filling final Christmas orders. A buildup of inventory is anticipated as demand remains relatively sluggish. The season is not expected to be stellar as consumer spending is cautious amid economic volatility and political uncertainty while the industry’s generic marketing campaign is yet to gain traction.