New York: Diamond manufacturing profits were squeezed in January amid strong rough demand while polished prices softened. Polished trading was cautious after disappointing U.S. holiday jewellery sales, while the rough market was driven by expectations jewellers will replenish inventory sold during the season.

The RapNet Diamond Index (RAPI) for 1-carat diamonds fell 0.9% in January and was down 6.8% from a year ago.

According to the Rapaport Monthly Report – February 2017, polished supply is projected to rise in the first quarter following a spike in rough demand. Manufacturers ended last year with low inventory, having reduced production since Diwali, and are ramping up operations to satisfy an expected rise in polished trading.

De Beers sold $720 million worth of rough in January, its largest sight since July 2014, according to Rapaport records, with average prices rising 2% to 3%.

Mining companies are preparing for higher rough demand this year and are raising rough production. Global output was flat in 2016 as declines at De Beers and ALROSA were offset by increases at Rio Tinto, Dominion Diamond Corporation and Petra Diamonds. Rapaport expects global production to rise 5% to 10% this year considering the new mines and expansion programs in place.

Polished suppliers are expected to resist buyers pushing for deeper discounts following the increase in rough prices. That may be challenging as additional supply becomes available. The industry should tread cautiously in the rough market, as it did last year, if polished demand and price stability is to be sustained throughout 2017, Rapaport says.