Sarine Technologies Ltd., a leading producer of diamond and gemstone manufacturing equipment, reported some positive developments in the diamond industry, such as rough diamond sales by major producers totalling an estimated $500 million in August and polishing activity back to 70-80% of levels prior to Covid-19 shutdown.
Sarine stated that De Beers’ August 2020 rough diamond sight was estimated to have been just under $300 million, which was in line with its sales cycle of August 2019 ($287 million). However, it should be noted that 2019 was also a weaker than normal year due to rough diamond inventory and pricing issues - the relevant sales cycles in 2017 and 2018 were both just over $500 million. Similarly, Alrosa has reportedly sold rough diamonds valued at some $200 million during their August sales cycle. According to Sarine, the two factors that drove this significant rebound were price reductions of between 6% and 10% by the major producers and the growing confidence in the midstream that retail activity will continue to recover as the end-of-year holiday season nears.
Indeed, latest retail data from major retailers, such as Tiffany & Co. and Chow Sang Sang, show a near total rebound in retail activity in the Asia Pacific market, with Tiffany reporting revenues and profits similar to those of 2019 and Chow Sang Sang reporting activity back to 95% of pre-Covid- 19 levels. However, it must be noted that retail activity in the key US market, accounting for some 40% of global demand, is still under pressure, as also evidenced by Tiffany's numbers. We again reiterate that the resurgence of US retail activity is key to a full recovery of the diamond industry value chain, Sarine said.
Data available to us from our installed base of Galaxy® family inclusion scanning systems and our ubiquitous online rough planning systems, on which over 70 million stones are processed annually, indeed confirm that manufacturing activity in the midstream has significantly increased. Our data from the second half of August, even before the latest rough sales cycle, show that polishing activity is now at an average 70-80% of pre-shutdown record levels reached in January and February of this year. This is in stark contrast to the 20-40% level of activity we saw in the months of June and July, which were still impacted by periodic government-directed limitations and shutdowns.
Having noted the above, we would like to caution that business conditions are still not optimal. Consumer demand in countries hit hardest by the Covid-19 pandemic has been supported also by government largesse, which will not be sustainable indefinitely. Though inventories at the midstream level have been significantly reduced due to the near cessation of new polishing activity for over four months, and indeed at wholesale levels there are shortages of specific categories of polished goods, there are still significant inventories in a range of categories (e.g., smaller goods) spread throughout the pipeline from manufacturer to retailer. All these factors, and the overall caution they instill in the pipeline, still impede our business results, significantly so as pertaining to new equipment sales. We are therefore still managing our expenses very cautiously.
Source: GJEPC 7-9-2020
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