Polished diamond market sentiment improved in December as shortages supported prices and dealers filled last-minute holiday orders, states diamond trading services provider Rapaport.

The company says that, according to initial reports, the US holiday season jewellery sales were positive, with general retail sales up about 8% and online mobile sales up 50% to 60%.

However, Rapaport notes that there is still very limited dealer and retailer diamond inventory buying, owing to uncertainty about US post-holiday demand and the Chinese New Year, which will occur on February 8.

The RapNet Diamond Index (RAPI) for 1 ct, Gemological Institute of America-graded diamonds rose 1.5% in December. RAPI for 0.3 ct diamonds advanced 4.7% and RAPI for 0.5 ct diamonds grew 3%. However, Rapaport notes that the RAPI for 3 ct diamonds fell 0.1% last month.

For the full year of 2015, RAPI for 1 ct diamonds declined 5.8% and the RAPI for 0.3 ct diamonds declined 13.4%, while RAPI for 0.5 ct diamonds “slumped” 14.5%. Additionally the RAPI for 3 ct diamonds fell 14.5% in 2015.

Rapaport further notes that there is a shortage of select diamonds as suppliers have gradually sold off better-quality inventory and manufacturers have limited polished production owing to high rough prices.

“Manufacturers in India kept their factories operating at about 30% below capacity after they returned from the November Diwali break. Diamond miners De Beers and Alrosa kept rough prices stable throughout the fourth quarter but both companies reported that rough prices dropped 15% during the full year,” the company says.

Rapaport estimates that De Beers’ rough sales fell 45% to about $3.6-billion in 2015, from $7.11-billion in 2014, with a 70% sales decline in the second half of the year.

The company says that sightholders expect De Beers to reduce prices by 5% to 7% at the next sight, which will take place this month. Rough demand is anticipated to increase as manufacturers raise polished production to fill the shortages in the market. “However, rough buying is expected to remain below levels seen in previous years.”

Rapaport highlights that dealers are uncertain whether the polished market will continue to be supported by supply shortages, or if trading will become demand-driven as retailers refill inventory sold during the holiday season.

Further, the company comments that, while Far East demand improved ahead of the Chinese New Year, sentiment remains cautious, owing to slower economic growth and the Chinese government’s anticorruption campaign.

Rapaport points out that the 7% slump in stocks on the Shanghai Stock Exchange on January 4 fuelled further caution.

“The industry ended a tough 2015 on a positive note. “To maintain the momentum, the trade will need to ensure profitability with lower rough prices, while polished prices, must be supported by stronger consumer demand,” the company concludes.