Paul Zimnisky: Diamond Supply/Demand Will Balance By Mid-2016

Finance and Trade
12/12/2015 16:40

Analyst Paul Zimnisky analyses fundamental supply/demand developments in 2015 and surmises that the diamond industry will see a balancing out of goods to market and demand by the middle of next year, as inventories drop while manufacturers have cut back on production. He notes that while a moderate net decrease in Chinese demand for diamond jewelry is expected this year, "it is important to remember that demand is still relatively stable ... the change in the rate of growth of demand is ebbing as the region transitions to a more of a consumer driven economy (which should eventually have a longer-term positive impact on luxury discretionary items like diamonds). The underlying Chinese appetite and ability to purchase diamonds is by no means going away." 

Demand for diamonds over the last year-and-a-half has not been strong enough to digest the supply overhang that resulted from excessive speculation through expansion that began 5 years prior, but market forces will ultimately correct the situation. Zimnisky concludes that, according to 30-years of data from both ALROSA and De Beers, the industry historically reaches catharsis after 18-24 months of declining diamond prices and subsequent production response, which would indicate an end to the current downturn sometime around the middle of 2016.