Shkadov: Large Rough Sales a Threat to Still Fragile Midstream

Finance and Trade
29/02/2016 07:44

Speaking about the approximate $1 billion of rough goods sold by ALROSA and De Beers alone in January, International Diamond Manufacturers Association (IDMA) President Maxim Shkadov writes in GemKonnect that while it is encouraging, it must be borne in mind that the midstream sector is still weak and that most diamond traders yet have to receive payment for their holiday sales. The relatively large volumes, therefore, pose a threat to manufacturers who may now face higher prices for rough diamonds. He argues that price increases must only happen after there is a healthy increase in polished sales and prices. Without this much-needed balance between rough and polished prices, the result will be the next wave of falling diamond prices.

"I therefore appeal to all manufacturers — the leading purchasers of rough diamonds — that when making a decision about buying rough, they be guided by the projected added value that the rough will bring them, and in case they do not see it, simply not to buy," he writes on GemKonnect. "Buying rough for reasons of 'just being in the game' is unwise, and that is an understatement. Contrary to times long past, the rough diamond producers do not take the profitability of the downstream market players into consideration and in the years past they have proven time and again that their own interests surpass those of their clients and that a new era is here: the era of real market relations, the era of the buyer. We all should acknowledge that the rules have changed, and the first who spoke of them was Philippe Mellier of De Beers, and I paraphrase ‘If you do not see income do not buy.’ It seems that this instruction has substituted the 'Diamonds Are Forever' slogan…"

He concludes by mentioning the results of a study the IDMA commissioned which focused on standard rough diamond assortments, their production costs and the resulting polish value. "The results of this research project are dismal and destroy any illusion anyone still may have had about profitability in diamond manufacturing. We are literally at a loss."