Zimnisky rough diamond price index up 2.4% in 30 days, as 2016 sales surprise

5th May 2016 By: Henry Lazenby - Creamer Media Deputy Editor: North America

Zimnisky rough diamond price index up 2.4% in 30 days, as 2016 sales surprise

Photo by: Bloomberg

TORONTO (miningweekly.com) – The Zimnisky Global Rough Diamond Price Index has indicated that rough prices have risen 2.4% over the last 30 days, which, however, does little to offset the 1.7% decline over the last six months, and 10.8% decline over the last 52 weeks.

The index was up 5.4% after hitting a 52-week low on January 23, a new report from Paul Zimnisky Diamond Analytics, entitled ‘The state of the global diamond industry going into summer 2016’, had found.

Last year the index was down 16.2%. Analyst Paul Zimnisky noted that Alrosa recently said at an analyst presentation that its average realised diamond price was down 15% in 2015, but the price decline could have been as severe as 40% if it had not had long-term contracts in place.

“The diamond industry has, without question, improved relative to a year ago. However, current industry data and commentary paints a mixed picture as to whether market fundamentals have in fact stabilised enough to support a new wave of sustainable growth continuing into the near-to-medium term,” the analyst commented in a research note.

London-listed Petra Diamonds last week also said that, for the six-months ended March 31, the company realised a rough diamond price increase of 3.5% on a like-for-like basis. The company noted that it planned to use this price level for its internal business modelling for the remainder of 2016.

Zimnisky stated that 2016 rough sales through April had “surprised to the upside”, with De Beers and Russia's Alrosa selling a combined $3.1-billion, which was an 18% improvement over a year ago, though still 13% below comparable 2014 figures.

“The demand so far this year is indicative of how understocked the mid-stream sector was following very cautious inventory management going into holiday-season 2015,” said Zimnisky.

In addition to inventory shortages, rough buyers benefited from a 7% De Beers price cut in January, which allowed for diamond manufacturer margin improvement, further supporting demand, according to the report. Demand followed through in February, which allowed De Beers to raise prices by about 2% at its third sight of the year in April, the company’s first price raise since the fourth quarter of 2014.

According to Zimnisky’s research, it appeared as if the midstream segment of the industry was adjusting to the new environment of reduced credit availability and was now more cognisant of the greater sensitivity the industry faced with regard to macro market shocks. Diamond manufactures were seen buying rough stock only three months in advance, whereas in the recent past they would buy six months out or more.  

TSX-listed Canadian miner Dominion Diamond also recently noted that it had seen liquidity positions improve with a lot of its midstream clients, as their stockpiles had been reduced relative to last year.

Further, while industry lending remained tighter than it had been in previous years, most cutters were comfortable with the current credit availability and some of the more successful manufacturers had actually received increased credit lines.

However, despite the consistent early demand for rough diamonds this year, January to April was typically the strongest season of the year for the rough market, advised Zimnisky, adding that demand going forward would most likely depend on support from the retailers as the new incremental rough supply was polished and made its way downstream in the coming months.

Zimnisky’s report stated that, while a strong US dollar had in some cases subdued non-US diamond consumer demand, the resulting weaker currency in producer nations had allowed production margins to remain stable, and in some cases increase, despite a weakening diamond price in US dollar terms over the last year-and-a-half.

“This effect, along with lower oil prices, had encouraged increased diamond production in an environment where one might think that underlying diamond price weakness might discourage production growth,” Zimnisky stated.

However, a new mine plan at Dominion’s Ekati operations could increase production upwards of 70% this year, or by about two-million carats of incremental production. Production at the company’s other asset, Diavik, was also estimated to increase this year, by about 10%. Company-wide production was estimated at 12-million carats this year on a 100% basis.

Alrosa had released a production target of 37-million to 39-million carats for 2016, comparable to 38-million carats produced in 2015, which was 6% more over 2014.

De Beers is on pace to maintain its 2016 production guidance of 26-million to 28-million carats, which would be a 5% to 10% decrease over 2015.