Has the Run of Rising Diamond Prices Come to an End?

Finance and Trade
20/06/2016 13:04

Prices of rough diamonds are up almost 10 percent this year, rising every month from January to April s higher U.S. demand and output cuts by De Beers and ALROSA created stability and firmness. But that might be the end of a mini-bull run, writes Thomas Biesheuvel on Bloomberg News, due to soft demand from China and Russia and credit tight conditions for diamond polishers. Manufacturers are unlikely to find much salvation in the second half of this year which is when prices have fallen for the past six years.

In addition, the industry is seasonal, with the holiday period from Thanksgiving through to the Lunar New Year in Asia – roughly October to January – being the busiest period for jewelry sales. Diminished inventories that follow during the first quarter means cutters and polishers rush to refill stocks of rough stones. “I can’t see a good summer ahead,” said Ben Davis, a mining analyst in London at Liberum Capital Ltd. “From here it’s hard to be optimistic.”

While U.S. demand, accounting for about 45 percent of the total, rose to a record last year, other major buyers disappointed, with Chinese consumption up just 1 percent. Petra Diamonds Ltd. and Gem Diamonds Ltd. have both cautioned that gains may not last. Demand is also being hit by weak oil prices that are battering Russian and Middle East consumers, while a strong dollar makes diamonds more expensive for those using other currencies. Moreover, industry financing remains delicate: just last week, Standard Chartered Bank Plc, a major industry lender, said it would be exiting the business.