Rough Diamond Reductions 'Will Come With a Cost'

Finance and Trade
17/12/2015 16:06

"Now that 2015 is coming to an end, mining companies are reportedly preparing to reduce rough diamond prices in January," writes Avi Krawitz. "Having held off from doing so in the fourth quarter of this year, the industry may be missing an opportunity to capitalize on an expected seasonal improvement in polished demand at the beginning of 2016. After all, U.S. jewelers will, in theory, need to replenish goods they sold during Christmas while Far East jewelers will place orders around the Chinese New Year. But while De Beers and ALROSA rough prices remained stable in the fourth quarter and supply was constrained in the past six months, manufacturing was kept to a minimum. As a result, a shortage of polished diamonds is likely to develop in January which will constrain trading during what should be the market’s busiest period.

He writes that based on conversations with sightholders and dealers, Rapaport News estimates the De Beers December sight was valued at around $180 million. And ALROSA’s sale was also subdued as the Russian miner maintained prices and allowed clients to defer up to 70 percent of their allocations. Manufacturers apparently instead turned to the auction circuit saying there is better value in that rough than in the De Beers or ALROSA contracted supply. Smaller manufacturers also bid strongly since they couldn’t find sight goods on the secondary market. The volume of rough on the market is significantly below the level in previous years and manufacturing has, consequently, slumped about 30 to 50 percent from December 2014.

"At least January might provide an interesting temporary reprieve for the diamond trade as polished prices firm up and rough prices decline. But while polished trading has historically been at its strongest in the first quarter, it’s just not clear whether diamantaires will have the goods to take full advantage of that seasonality this time round. There may yet be an opportunity cost to the recent stand-off in the rough market, Krawitz concludes.