VANCOUVER (miningweekly.com) – The Zimnisky Global Rough Diamond Price Index has gained 2.7% up to mid-December, with polished prices are down 3.5% in the same period, diamond analyst Paul Zimnisky said in a new blog post.
The reason for this, according to the New York-based analyst, is that 2017 has been a year of excess inventory shifting from the upstream segment of the diamond industry to the mid-stream segment.
Despite shrinking manufacturer margins, the midstream segment of the industry still bought $5.3-billion worth of diamonds from De Beers this year, including $450-million at the final sight, which Zimniksy pointed out, was 7% over the comparable sight last year and up 81% over 2015.
De Beers’ full-year sales were down 5% relative to last year and +53% over 2015. Russian-major Alrosa is on pace to sell $4.4-billion of diamonds in 2017, which would be in line with 2016 and 27% over 2015, according to the analyst.
Demand for rough stones is picking up, with industry leaders De Beers and Alrosa both reporting their inventories decreasing by an estimated 1.6-million and 2.3-million carats, respectively, through the third quarter – this despite both producers also increasing production this year.
Global diamond supply is estimated to marginally decrease about 1.5% in 2018 to 146-million carats and global polished diamond wholesale demand is estimated to hit $26.6-billion next year, which would be a 3.8% increase over 2017.
Global natural diamond output is estimated to rise to about 148-million carats in 2017, which would be a 7% increase in volume over last year. The increase mostly attributable to three significant new diamond mines starting up, previously curtailed operations restarting and expansion projects at legacy mines.
Compounding upstream inventory is that most major miners are still on pace to produce towards the higher end of guidance ranges, Zimnisky stated.
The analyst characterised the second half of 2017 as “disappointing”. Demand for rough returned aggressively in early-2017 as manufacturers in India recovered from the late-2016 liquidity crisis caused by the government’s demonetisation of high denomination bank notes.
“However, by mid-year, new polished entering the market compounded an already overstocked global polished inventory and manufacturers noticeably pulled back operating activity punctuated with longer-than usual Diwali factory closures in the fall,” he said.
In recent weeks manufacturer activity has started ramping up again, as the industry prepares to replenish Christmas and Indian wedding season stock and deliver for Chinese New Year demand.
Further, the critical US consumer market is currently supported by a relatively strong economy, Zimnisky pointed out. “With the stock market regularly making new all-time highs and with most employment figures at favourable levels, consumer sentiment is positive. Pending tax reform and the recent appointment of a new Fed chairman that favours continued dovish policy has supported this trend.”
The US remains by far the largest end-consumer market for diamonds at about 50%. Greater China, which includes Mainland China, Hong Kong, Macau and Taiwan, and India represent the industry’s fastest growing large markets.