Diamond prices decline in December amid ‘India liquidity crisis’

Polished diamond prices softened in December as Indian liquidity dried up due to the government's demonetisation policy, which eliminated 500 and 1,000 rupee notes. The RapNet Diamond Index (RAPI), from the Rapaport Group, found the price of 1-carat, GIA-graded, polished diamonds fell 1.3% during the month, while 3-carat diamonds and 0.50-carat diamonds fell 1% and 2.2%, respectively. Meanwhile, 0.30-carat diamonds were the only category to record an increase in price, edging up 0.2%. Overall, the price for 1-carat diamonds declined 3% in the fourth quarter of the year and 5% for the full year. According to the report, sentiment in the industry improved despite the slowdown as US consumer confidence rose. It said record equity prices and the Federal Reserve’s decision to raise interest rates signal an improving economic outlook in the US, as well as the strong dollar which is expected to increase domestic spending. Despite this, Rapaport said other markets remain cautious. Chinese tourist spending was restrained as the yuan currency depreciated 7%, but expectations are positive for sales in mainland China as it enters its New Year on 28 January. Indian jewellery sales slumped and are expected to remain subdued during the first half of the year due to demonetisation. Demand fell for lower-quality diamonds, typically supplied to India’s domestic market. With a “very little” quantity of new supply available, rough demand slowed and polished inventory declined. This was seen on Rapnet - Rapport’s diamond trading network - where the number of diamonds listed fell 7% in December - but rose 21% throughout 2016. The report said it expects polished trading to improve in the first quarter of 2017 as jewellery retailers replenish stock sold during the holiday shopping season. At the same time, rough demand is also projected to rise as manufacturers ramp up production to meet short-term polished demand. It warned that miners must resist the temptation to raise rough prices in order to “preserve midstream profitability and sustain growth in the long term”.