Time to Stop and Reassess, Says Laniado

Finance and Trade
22/02/2016 12:06

Diamond industry veteran Ehud Laniado said he and other market players expected the strong demand seen in January for rough diamonds to fizzle out before February, but instead the increase in demand has been sustained. He says current market conditions are characterized ongoing strong demand from De Beers’ Sightholders, with the second Sight of the year, opening today (Monday), expected to be similar in size to the January Sight, at around $500 million. In addition, attendance at rough diamond tenders seems to be breaking records and recent tender results have been higher than expected and "there are still polished diamond shortages in several specific categories, which has appeared to flame demand for rough diamonds".

He adds that the small volumes of supply in the fourth quarter of 2015, together with the better than expected retail sales during the holiday season, have improved cash flow for diamond manufacturers and wholesalers; that credit line usage in Belgium has decreased to an estimated 50% according to market sources; that Indian banks have recently been supplying local traders and manufacturers with large quantities of financing, estimated in the hundreds of millions of dollars; and that prices of polished diamonds in the 0.14-0.50 carat, one-carat, and several larger size categories have increased in recent weeks, in some cases, significantly so.

However, he asks where the justification is for a possible sale of $3 billion of rough in the first quarter when retail sales in the United States and for the Chinese New Year were far from dramatically higher. "The improving prices relate to goods that are in short supply, not for any other goods. Therefore, demand for rough diamonds that yield the polished items in short supply is reasonable. Demand for all other rough goods is anything but. Inventories, we all know, remain bloated." Are we heading for another year of oversupply for rough and polished diamonds, he asks. "We must take a moment to ask ourselves many important questions and now is the time to do so, before we fall back into potentially harmful patterns.