Paul Zimnisky on Why Rough Diamond Prices are at a 52-week High

Rough Market
21/05/2018 23:51

In his latest article, independent analyst and consultant on diamonds and the mining industry, and publisher of the Zimnisky Global Rough Diamond Price Index, Paul Zimnisky takes a look at, "Why Rough Diamond Prices are at a 52-week High".

Following the global financial crisis of 2007-2009, diamonds were one of the fastest commodities to recover, up almost 150% from the low in early-2009 through mid-2011. The crisis resulted in curtailed diamond production just as incremental demand for diamonds was escalating, primarily a result of the Chinese market adopting the tradition of giving diamond engagement rings in the midst of the financial liberation of the nation’s middle and upper-middle class.

However, since making an all-time high in Q2 2011 diamond prices have been in a prolonged downtrend as the run-up in prices led to growth in incremental supply through 2017, which was not met with commensurate demand. This was in part due to China suffering an economic slowdown in 2015, and over-leveraging in the diamond industry’s manufacturing segment which damaged industry sentiment and confidence while evoking unsettling price volatility.

Today, while the industry still deals with challenges ranging from shorter-term lender confidence in the Indian manufacturing segment to longer-term fundamental shifts in consumer preferences for material luxury goods, forecasted industry fundamentals point to an environment favoring higher diamond prices over a period of at least the next four years.

Diamond demand is correlated with global GDP growth and a current coordinated environment of global economic growth recently seen in Q4 2017 and Q1 2018 has translated to strong consumer sentiment and retail sales, especially in the industry’s most important markets. In Q1, jewelry store sales in the U.S. were up 11.9% year-over-year and in Mainland China “gold, silver and jewelry” retail sales were up 7.9%. The U.S. represents the world’s largest end-market for diamond jewelry at almost 50%, Greater China, which includes Mainland China, Hong Kong, Macau and Taiwan, is second, approaching 20%.

Pending no major global economic disturbances disrupting consumer diamond demand, incremental year-over-year diamond production declines are forecast to drive real diamond prices up approximately 10% cumulatively from 2018 through 2021 (17% in nominal terms). Further supporting supply dynamics favorable to prices, producer excess inventories have been reduced to multi-year lows and excess production capacity of the major producers is expected to be insufficient to significantly offset the pending supply gap.

Reprinted from Paul Zimnisky Diamond Analytics, courtesy of Paul Zimnisky.