The diamond market is expected to worsen further as the market continues to feel the repercussions of the financial crisis, reports Creamer Media’s Research Channel Africa.
As a result, diamond giant De Beers’ marketing arm, the Diamond Trading Company (DTC), will pursue alternative outlets for surplus goods once every avenue of sight-holder demand has been satisfied. It is not yet clear what this strategy will entail, and no timeframe for the initiative has been revealed.
In 2008, the DTC achieved sales of $5,93-billion. This was slightly above the previous year’s sales of $5,92-billion, though below expectation, owing to the impact of the global economic downturn. Over the first nine months of 2008, the DTC achieved record sales, as buoyant demand for rough diamonds translated into increased prices.
Fourth-quarter sales slowed, however, with the last two sights significantly smaller than originally forecast, as a result of the economic crisis and the consequent liquidity squeeze in the key global cutting centres. Wholesale prices for polished diamonds contracted only slightly over the year, with early gains being tempered by reductions during the second half.
Meanwhile, Research Channel Africa states that the World Federation of Diamond Bourses (WFDB), in October 2008, appealed to mining companies to reduce their supply of rough diamonds. The move, it said, was needed to safeguard the strength of the industry. The quantity of rough diamonds that is marketed worldwide greatly affects the stability of the industry and, in particular, the industry’s global bank debt, which is currently estimated at between $12-billion and $15-billion.
Further, the economic downturn is expected to impact on the ability of diamond-mining juniors to raise capital for development projects in the short to medium term. Investment bank RBC Capital Markets analyst Des Kilalea has commented that with diamond prices and production falling, priority has been given to cash conservation.
Research Channel Africa reports that the WFDB has stressed that reducing the supply of rough diamonds is “imperative and necessary, not only for the diamond industry, but also the rough producing countries, the global banking system and the diamond mining companies themselves”.
In a move welcomed by the WFDB, De Beers, which controls about 40% of the market, reported in October 2008 that it would reduce the amount of unpolished gems at its next sights.
In January 2009, the DTC indicated that the first of ten sights for the year would start with a smaller offering, to give De Beers a chance to assess the market. Diamond dealer Antwerp Diamantieres reported January’s sight as having a value of between $80-million and $150-million, compared with the value of the December 2008 sight of less than $100-million.
Research Channel Africa states that the majority of diamond producers have put plans in place since the beginning of 2009 to reduce production. Analysts have forecast that global production could fall from 160-million carats to 120-million carats, in 2009, as major producers De Beers, Alrosa and Rio Tinto curb production to meet lower demand.
Kilalea has said that the outlook for rough- diamond demand remains depressed and could deteriorate further, with the next two quarters likely to see an increase in unemployment figures that will have an impact on consumer spending, especially in consumer, durable and luxury items.
Further, while rough-diamond prices have already fallen by between 30% and 50%, reduced demand could result in addi- tional weaknesses, given a lack of liquidity in cutting centres and very slow sales in the retail market.
Nevertheless, De Beers chairperson Nicky Oppenheimer contends in the company’s 2008 operating and financial review that the long-term supply and demand trends of the diamond industry still remain very promising. Markets are expanding, most notably in China and India, while known supplies are diminishing, reports Research Channel Africa.
There are some analysts that contend that synthetic diamonds may offer a partial solution to the problem of satisfying demand in certain categories.
The synthetic diamonds, crea- ted by Linares’ Apollo Diamond, of Boston, and Gemesis, of Florida, are so fine that De Beers has spent millions of dollars to build machines to spot them. The Gemological Institute of America, an independent assessor of diamonds for Tiffany and Cartier, started grading the synthetic stones at the beginning of 2007 to ensure consumers could tell the difference.
Research Channel Africa states that synthetic diamonds cannot rival natural stones in terms of emotional and intrinsic value. Further, synthetic diamond manufacturers have done little to contribute towards transforming the societies in which they operate, while diamond-mining has done much for socioecono- mic upliftment in many communities. For example, in Botswana, the mining operations of the Debswana Diamond Company have been chiefly responsible for transforming the country from an agriculturally based economy to a country that has consistently displayed one of the highest economic growth rates in the world.
Nevertheless, the production of synthetic diamonds avoids many of the challenges facing mining, such as locating new sources, long lead times to production, and the limited operating life of a mine.
Research Channel Africa concludes that if the diamond industry succeeds in separating the markets and finds ways to prevent fraud, it is possible that all industry bodies will come out ahead. Nevertheless, the future remains uncertain and only time will tell if the synthetic- diamond industry will radically influence the natural-diamond industry or take a separate direction.