Zimnisky does not try and wallpaper over the less than brilliant market data that has been released in recent weeks. De Beers’ rough diamond sales in dollars fell 17 percent during the period from January through through June, compared to the same six months last year, while Alrosa’s sales were down 33 percent.
According to the Zimnisky Global Rough Diamond Price Index, rough diamonds are down 2.3 percent year-to-date as of July 20, representing a 52-week low.
CONSUMER MARKET DEMAND REMAINS RELATIVELY HEALTHY
The immediate reasons for the softer market are relatively well known, stated the analyst. Inventory levels throughout the pipeline remain high, there is a continuing deleveraging of the mid-stream sector, a reduced level of credit is available to the manufacturing sector, and high uncertainty about the impact of synthetic diamond jewelry.
All this is coupled with weak downstream sentiment because of macroeconomic and geopolitical factors, such as the U.S.-China trade war, protests in Hong and France, the looming threat of hard Brexit, tensions with Iran, negative interest rates in Europe, and the growing effects of climate change
But, Zimnisky said, if you look closely at the retail markets, the situation does not seem as dire. Tiffany & Co. is predicting a sales increase of a “low-single-digit percentage” in the fiscal year ending January 2020., and the United States in general is still benefiting from a very robust stock market. June’s overall retail sales, as reported by the U.S. Department of Commerce, were up 0.4 percent month-over-month, and through June have increased by 3.4 percent percent year-over-year.
Furthermore, Zimnisky added, here are also positive developments in China. Chow Tai Fook, the country’s largest jewelry chain, opened 549 new stores in the fiscal year ended on March 31, the largest number of new store openings in a fiscal year in the company’s history.
The diamond industry is arguably approaching the final innings of a shift to a more efficient pipeline after a multiyear deleveraging of supply, wrote analyst Paul Zimnisky, in a report released in July.
Positive signs are also evident in India. According to De Beers Forevermark brand, revenue in the market rose by 36 percent year-over-year during the first half of 2019, when compared to the same period a year earlier.
THE FINAL INNINGS OF A SHIFT TO A MORE EFFICIENT PIPELINE
Even falls in diamond production need to be taken in context, Zimnisky stated. While De Beers’ parent, Anglo American did announce on July 18 its intention to reduce 2019 diamond production to approximately 31 million carats, down from a previous range of 31-33 million, there always had been an expectation that production by the company would fall by about 8 percent, because of the planned closure of certain of legacy mines. Additionally the transition to underground mining at Venetia mine in South Africa further curtailed production capacity.
And even then, Zimnisky pointed out, the 1-2 million carat fall in De Beers’ production in 2019 was negligible relative to an estimated global output of 143 million carats this year. “It serves as an important reminder that this industry remains proactive in protecting itself,” he wrote.
“While overall industry sentiment is dire at the moment, the current challenges are seemingly more deeply seated in oversupply than a lack of end-consumer demand, which is arguably a more manageable task for the industry then vice versa,” Zimnisky stated. “While each segment of the industry is going through its own catharsis of sorts, current problems appear to be most rooted in the cutting and polishing, or manufacturing, segment of the supply chain which undoubtedly makes the industry sensitive to any slowing consumer demand.”
“That said, the industry is arguably approaching the final innings of a shift to a more efficient pipeline after a multiyear deleveraging of supply. The strongest players are set to survive setting the stage for a leaner industry set on sounder footing that it has in years—perhaps the diamond industry’s version of the U.S. financial sector post-Lehman Brothers and Bear Stearns in 2008-2009,” Zimnisky concluded.