Global Market Downturn Impacts Antwerp’s H1 2019 Diamond Trade

Market Analysis
11/07/2019 13:45

A combination of factors has led to widespread uncertainty and a global downturn in the diamond industry during the first half of 2019. Antwerp - the world’s leading diamond trade centre - has not escaped its impact, particularly in the rough diamond trade. Economic uncertainty generated by an unstable geopolitical climate has also fostered a heightened sense of caution among the banks that finance the trade, as well as diamond brokers and consumers of luxury goods.  

The global diamond industry in the first half of 2019 has faced a variety of challenges leading to widespread uncertainty and declining commerce across all segments. Situated at the heart of the global diamond trade, Antwerp is exposed to and directly impacted by industry developments, wherever they occur. Over the first six months of 2019, an array of interrelated developments across the entire value chain have exerted pressure on Antwerp’s diamond imports and exports.

One of the key drivers of the first-half slowdown is the deterioration of polished diamond prices, which is affecting the ‘midstream’ segment where much of Antwerp’s business is focused. As a result of the downward trend in prices, diamond brokers are betting on further declines and are delaying their purchases from manufacturers. The manufacturers, in turn, are left holding high levels of inventory, with some forced to sell their goods at lower prices to pay off the banks - all of which has led to a decline in manufacturing. Consequently, their appetite for rough diamonds to feed their production units has diminished as well, leading to lower sales for the miners that supply them. The diamond trading centers, Antwerp included, have been caught in the middle of this vicious circle.

During the first half of 2019, the overall value of Antwerp's diamond trade has declined by 14% compared to H1 2018. The volume of Antwerp’s polished-diamond exports has declined by 13% compared to last year, while imports have fallen by 8%. The value of those exports and imports, however, declined only marginally, as the average prices of polished diamonds traded in Antwerp actually increased until the month of June, defying the global trend and indicating that Antwerp traders are focusing on higher-quality, higher-value stones. Export prices in H1 2019 increased 10.5% over last year, achieving in May the highest price per carat ever recorded ($3,082) before dropping sharply in June; the average price of polished imports to Antwerp has also risen by 9% for the year to date, despite the June downturn. As a result, the value of Antwerp’s polished-diamond trade held steady at $12.1 billion for the year to date ($12.3 billion in 2018).

The rough-diamond trade - 86% of all rough goods travel through Antwerp at some point from mine to market - is currently more challenging, as Antwerp has relinquished about a quarter of its value compared to the H1 2018. The volume of rough-diamond exports has fallen 21% and imports nearly 20%. The combination of lower volumes and decreasing rough prices has resulted is a steep decline in the value of rough exports and imports, down by 27% and 26% respectively against H1 2018. These figures mirror the sales of the leading diamond producers, De Beers and Russia’s Alrosa. The former has seen their rough sales decline 18% in the first half of 2019, with their May and June sales declining by more than 30%, reaching two-year lows despite offering lower prices to stimulate purchases; the latter has seen their first half rough sales tumble by 32% compared to last year. Across the industry, miners have been struggling low demand for smaller-sized diamonds and have been under pressure to lower prices. As the leading rough-diamond trade center, the impact of these declines is felt immediately in Antwerp.

The challenging market showed no signs of improvement in June: while the volume of rough goods traded increased substantially (+36%) compared to May, with imports surging 30% and exports rising by 42%, the miners responded to the market by lowering their prices, so the increased volumes did not equate to a surge in value. Year-over-year, rough-diamond imports in June fell 8% in volume and 21% in value, while 14% fewer rough goods were exported leading to a 26% decline in value. The global decline in polished prices also finally caught up to the Antwerp market in June, falling for the first time this year below the average values achieved in June of 2018: a 6% decline in the volume of polished-diamond imports (vs. June 2018) led to a 12% fall in the value of those imports; the 16% decline in polished exports yielded a 20% decline in value.

“The diamond industry is highly cyclical, subject to quickly-changing supply and demand dynamics, global consumer sentiment and the geopolitical and economic issues that weigh on all major industries,” says AWDC spokeswoman Margaux Donckier. “The luxury sector is always among the first to feel the impact when markets get nervous, which is what we have seen in the first half of the year. The threat of tariffs is also casting a shadow on global trade, causing greater uncertainty,” she adds. “Within the industry, the segment dealing in smaller-sized goods is clearly in a challenging phase, with some companies struggling to turn a profit. Fortunately, consumer demand for diamond jewelry continues to grow, particularly in the U.S. and China, establishing a baseline of health. We will just have to wait and see how it plays out during the rest of the year. Everyone is well aware of the issues and we are cautiously optimistic that the industry will work together to overcome this current slowdown and start to flourish again.”