Update: The Indian Commodity Exchange (ICEX) has now received “in-principle” approval from India’s markets regulator Securities and Exchange Board of India (SEBI) for trading in diamond futures contracts, writes GJEPC.
Reflecting on the impact of the Trump election victory on the future of the diamond trade, particularly on the U.S. and India, independent industry consultant Pranay Narvekar writes in GJEPC's Solitaire International that America's share of the global polished diamond market - already the highest by far at 45% of total value - should only increase in the coming years, while the strength of the dollar and other expected policy moves will only exacerbate uncertainty throughout the trade.
On September 29, the Securities and Exchange Board of India (SEBI) expanded the list of 91 notified commodities that can be traded on Indian exchanges to include diamonds, among others. This means that India will become one of the few nations that are trying to trade diamonds. The Times of India writes, "Worldwide, diamond is a commodity that is least traded because of the difficulty in standardizing it and the perceived lack of transparency in its pricing.
Record high prices for gold (the price of gold rose 25% in the first half of 2016, its strongest performance in 35 years) has led to a record surge in H1 investment demand of 1,063.9t, which was 16% higher than the previous H1 high from 2009, as continued growth in Q2 2016 (+15%) brought total H1 gold demand to 2,335t - the second highest first half on record, according to the World Gold Council.
Commodity investors concerned that gold’s rally will sputter may want to consider another luxury item: diamonds. With odds of a U.S. rate hike creeping higher and long positions in bullion soaring, “it may make even more sense to look at a next-best commodity exposure such as diamonds, where there has been limited investor flow and presumably less downside in case the bear case unfolds,” Citigroup Inc. analysts including Barry Ehrlich said in a note. The bank recommends shares of Alrosa, the world’s largest rough-diamond producer.
Diamond industry analyst Ehud Laniado takes an in-depth look at why diamonds are not fulfilling their economic 'promise' as a luxury investment that will appreciate in value. Comparing the performance of diamonds to other luxury items bought out of 'passion', he determines that the lack of marketing is hurting diamonds' potential to be perceived as an asset rather than just an expense. But he has a plan.
Russian News Agency TASS reports that the Moscow Exchange is interested in developing the exchange trade in diamonds and is considering a relevant proposal made by the Russian diamond producer Alrosa, Chief Executive of the Exchange Alexander Afanasyev said on Thursday on the sidelines of the congress of the Russian Union of Industrialists and Entrepreneurs. "We are discussing this issue with Alrosa.
Mining giant Anglo American, which owns 85% of De Beers, has reported a pre-tax loss of $5.5 billion for 2015 – more than double the loss reported in 2014 – as the company wrote off $3.8 billion due to sharply declining commodity prices. Chief executive Mark Cutifani said the state of the global economy left the mining industry facing "significant challenges". In a bid to deal with the financial hurdles facing it, the miner plans to sell assets worth $3 billion to $4 billion to repair its finances.
In an e-mail to the company staff, obtained by Bloomberg, Sam Walsh, CEO of Rio Tinto, announced that all salaries from CEO downward will be frozen for 2016, travel expenditure will be limited and consultants and contractor agreements will be evaluated in order to cut costs. According to Bloomberg, in his e-mail Walsh writes; “The pressure this is placing on our industry is significant and it is a tough time across the sector. It is important we recognize that the pressure isn’t going to let up. This situation is not temporary.”
Bloomberg Business writes that Anglo American has led a collapse in mining stocks to the lowest level in more than a decade as market turmoil in China, the biggest consumer of metals, ignites a vicious spiral of tumbling equities and tumbling commodity prices around the world. The Bloomberg World Mining Index sank as much as 4.1% on 7 Jan., with Anglo sliding 12% at one point to a record low and Glencore down as much as 7.9% in London trading.
Anglo American plc, which owns 85% of De Beers, is to carry out an "accelerated and more radical restructuring program to redefine the focus of its asset portfolio to transform the company’s competitive position and create a more resilient business to deliver sustainable shareholder returns". The firm is facing financial pressures regarding all its mining operations, not least De Beers where it allowed sightholders to defer 100% of their allocations in December.
According to figures from the US consumer price index (CPI), jewelry prices rose 1.3% in September even as polished diamond prices remained soft and precious metals slumped - the latter trend having reversed in October, with JCK reporting that, "Gold, platinum, and silver prices have all done an about-face in the last month, just as many forecasters had given up on precious metals." Still, Rapaport states that the CPI’s reading of 166.20 was down 2.7% from a year earlier.
"Prepare for further big declines in commodity prices", writes A. Gary Shilling, as a process of American and European deleveraging is far from finished and expectations of continued Chinese expansion led to massive overcommitment to supply. In short, slowing growth has lead to a general surplus of supply relative to demand, forcing the prices of overabundant commodities down. Shilling cites additional forces depressing prices, such as "a number of hard-rock miners being so deep into new projects that they are compelled to complete them.
The Economist reports that traditional banks, who used to finance the commodity trade for an average annual US$ 14 trillion, are stepping out of the game due to increased regulation, the threat of huge fines for serving shady customers and the high cost of vetting new clients in terms of compliance. New players, eg smaller banks in the Gulf, are profiling themselves as new players, although they are often too small to handle large transactions, The Economist says.
Leading diamond and jewelry industry figures took part in a debate on the challenges facing the business on September 3 at the Eastern Economic Forum meeting in Vladivostok. The panel session, called New Development Drivers of Global Diamond Business in Asia Pacific, looked at the current state and future prospects of the diamond industry and was hosted by Russian diamond miner Alrosa.
Glencore Plc, the commodity trader and miner battling a slump in raw-material prices, reported a 56% drop in first-half profit and cut the full-year earnings forecast for its trading division. Glencore also outlined further reductions in capital spending cuts as CEO Ivan Glasenberg pares debt in an effort to maintain dividends while preserving an investment grade credit rating. The world’s biggest natural resources companies have seen copper and oil copper prices fall to six-year lows this year as China’s economy expands at the slowest pace in a quarter of a century.