Jewelry store diamond sales in the United States, the world's largest diamond jewelry market, rebounded in May, raising hopes that the global retail sector is set to recover faster than expected, according to analysts.
The COVID-19 pandemic came as a blow to the diamond industry, which some analysts had predicted late in 2019 would see a fragile recovery in 2020. The pandemic and the subsequent global lockdown reduced the supply of and demand for diamonds.
Diamond analyst Edahn Golan of Edahn Golan Diamond Research & Data told S&P Global Market Intelligence on June 30 that U.S. specialty jewelry retailers saw their sales drop about 82% between February and April. "During May, sales by specialty jewelers rose to US$1.35 billion, up more than 230% month over month," Golan said, adding that the sales were helped by the "partial removal of activity restrictions, a feeling that the worst was behind us that drove up consumer confidence, and consumer demand ahead of Mother's Day."
Golan said sales at U.S. jewelry store dropped to US$470 million in April. "Less than half a billion dollars in sales in a month is something the sector had not seen since the 1980s," Golan said, citing significant drops in trade in March and April.
Rising sales were already evident in China. "The reopening of the Chinese market in March and April showed there was pent-up demand for diamonds, and this would be seen as economies open back up," New York-based diamond analyst Paul Zimnisky told Market Intelligence on June 30.
Zimnisky said some retailers had "proved themselves quite nimble in transitioning to digital sales" during the pandemic.
Jewelry company Tiffany said in its first-quarter report to April 30 that it had seen a strong global trend in online sales that continued through May, "with global e-commerce sales more than doubling those of May 2019, reflecting significant increases across every region."
Compagnie Financière Richemont SA, parent of jewelers Cartier and Van Cleef & Arpels, said in its fiscal 2020 report ended March 31 that online sales of 19% "partially mitigated a halt in tourism and store closures, all of which affected our retail and wholesale sales."
Diamond wholesalers have not been as fortunate, Golan said. "Some trade took place from March to May when exports from Belgium to Hong Kong continued, and although officially, exports from India were blocked, in practice, cargo flights continued, some carrying diamonds destined largely for Hong Kong," Golan said.
"That trade, coupled with some demand from the U.S., generated some business for the wholesale sector of the diamond market, but not much," Golan said, noting significant drops in trade from February to April.
Reduced diamond demand continues to put pressure on the mining sector. PJSC Alrosa, for example, saw a lack of demand and the devaluation of the ruble result in reduced first-quarter revenue and an 87% drop in net profit year over year to 3.1 billion rubles. In March, De Beers SA opted not to hold its third rough-diamond sales cycle of 2020, citing prohibitions on travel and the shipping of goods.
Petra Diamonds Ltd. announced in June that it was seeking offers for a formal sale of the company or parts of its business or assets, after conducting a strategic review. In a statement March 27, the company said it was engaging with financial stakeholders on ways to mitigate the "unprecedented operating and trading environment for its capital structure, including the strategic options open to the company in relation to the maturity of its US$650 million loan notes in May 2022."
Zimnisky believes that reduced diamond production resulting from the COVID-19 global shutdown and the closure of mines such as Rio Tinto's Argyle mine could help diamond prices. The analyst said 2020 diamond production is expected to decrease to less than 110 million carats, down from over 140 million carats in 2019 and continuing a downward trend that started in 2018.
"I actually think the shock that the industry is going through is significant enough to act as a catharsis of sorts," Zimnisky said. "The significant supply cuts should be supportive of prices, but industry ultimately needs stable demand to drive diamond prices higher."
As of July 1, US$1 was equivalent to 70.79 Russian rubles.