Is Midstream in danger of collapse?
The
midstream,
not
profitable enough!
Diamond
markets are under pressure as profit margins have tightened and the trade war
with China has fueled uncertainty. US jewelry sales are robust, but the
midstream is not profitable enough to support a sustainable supply chain.
The
RapNet Diamond Index (RAPI) for 1-carat diamonds fell 0.7% in May and is down
1.7% since the beginning of the year. Diamond trading was weak at the JCK Las
Vegas show. Demand is selective, with buyers avoiding inventory purchases.
Jewelry retailers are taking more goods on memo. Polished suppliers are
offering technology and source verification as a value-added service.
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.
Cutters
are operating at lower capacity as they try to reduce inflated inventory. The
number of diamonds on RapNet declined 2.6% to 1.5 million stones in May, but
was up 16% from a year earlier on June 1.
Manufacturers
are rejecting high-priced rough that has made polished production unprofitable.
De Beers and Alrosa are carefully managing production and price levels amid
this year’s slow rough demand, as outlined in the May edition of the Rapaport
Research Report.
“Diamond
demand is relatively good, but the middle markets are in danger of collapse,”
said Martin Rapaport, Chairman of the Rapaport Group. “We are reaching the
point where there is insufficient liquidity to support the flow of diamonds
through the supply chain. If the trade does not change its business practices
and adapt to new realities, the diamond industry will suffer extreme financial
and regulatory disruption. Manufacturers will stop cutting.”
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