Almost all professional diamond marketers have no doubts that rough prices will continue to rise in the near future. However, no one is ready to give an accurate forecast as to the extent the rough quality will push the prices up. Analysts and spokesmen of large companies confine themselves to general enunciations similar to the one recently expressed by the Rio Tinto representatives that “between 2008 and 2016 the demand for diamonds will significantly exceed their supply.” Meanwhile, the polished diamonds market displayed a peculiar trend: large high-quality diamonds sharply rose in prices (from 10% to 15% for the excellent grade stones of 1 to 3 carats and above), whereas prices for small diamonds were virtually left unchanged. It looks like this time diamond dealers have taken the lead and one cannot but agree there is some logic in this strategy.
There are at least three serious reasons allowing a supposition that the foreseeable future will witness an exponential growth of prices, but only for large high-grade rough, making the fate of “Indian goods” deplorable. These reasons may include the following:
- Vertical integration in the diamond industry is continued and almost all big producers of rough like De Beers, ALROSA, Rio Tinto, Harry Winston Diamond Corporation (formerly Aber Diamond Corporation), and the Leviev Group are working to promote their own polished diamonds made of top quality rough mined at the fields which they control, so the supply of this kind of rough to the market is decreasing.
- The share of small-size low-grade rough in the current mining pattern of major primary deposits is growing.
- The dealers working with “Indian goods” have inflated an enormous speculative bubble – an uncontrolled stock approximately equal to the world’s annual output of this grade of rough. The dealers’ lobbying efforts resulted in bank credits on security of these diamonds, while the credit monies went into the industries more attractive in terms of investment than the cutting industry. Financial market analysts give a sufficiently negative forecast for the development of major U.S. banks in the second half of 2008 – their stock is falling drastically on the background of skyrocketing oil prices and disheartening news from the U.S. labor market. Needless to say, that this process may affect banks in India and South-East Asia, which are forced, like their American counterparts, to get rid of “bad” debts and fancy assets. This is why the probability that as early as this autumn the diamond collateral will be put on the market and the prices for “Indian goods” will sink 25% - 30% should be considered as high.
On this background, the events on the Russian diamond market seem to be noteworthy. ALROSA is in no hurry about its traditional auction used to trade diamonds above 10.8 carats evidently waiting for the moment the prices will reach their new historical maximum. Meanwhile, on May 26, 2008 Russian President Dmitry Medvedev signed Decree No. 848 “On Amendments to the Statute on the Diamond Fund of the Russian Federation…” The amendments are introduced merely to two sub clauses, but their meaning is substantially changing the diamond trading practice in Russia and reflects the major trend of the world diamond market implying a dramatic increase in the value of high-grade rough.
The previous revision of the Statute approved by the Decree of the Russian Federation President on November 15, 1999 read as follows:
5. The following items are to be entered into the Diamond Fund of the Russian Federation:
a) rough diamonds of 50 carats and above, as well as diamonds unique in their colour, shape and quality (worth the equivalent of $3,000 and above per 1 carat);
b) polished diamonds of 20 carats and above, as well polished diamonds of 6 carats and above unique in their colour, shape and quality (worth the equivalent of $10,000 and above per 1 carat).
The new revision reads as follows:
5. The following items are to be entered into the Diamond Fund of the Russian Federation:
a) rough diamonds of 50 carats and above, as well as diamonds unique in their characteristics by a single feature or by a multitude of features (shape, rare and unique colour combined with high clarity, inclusions pattern and crystallographic contours);
b) polished diamonds of 20 carats and above, as well polished diamonds unique in their colour, shape and quality.
Hence, the document was cleared of specific requirements to threshold price characteristics and contains liberalized requirements to the uniqueness of rough – now it is sufficient to have just one feature to include a diamond to the “unique” category. All this means that Gohran (the State Depository for Precious Metals and Gems) has received an opportunity to increase the stock of high quality rough in a significant way essentially extending the assortment boundaries.
At the International Economic Forum in Saint Petersburg held on June 2008 Russian Finance Minister Alexei Kudrin declared that federalization of ALROSA was completed. Taking into account the above Decree of the Russian President, one may assume that now ALROSA will not be able to take almost all the large-size rough to the world market since it will be channeled straight to the Gohran stock, which will undoubtedly bring about a significant price rise in this segment.
