The situation reigning on the market in the end of the expiring year may be described in a simple way – the market as it was conceived in August does not exist. There is no perception of demand, there are tremendous stocks piled along the whole diamond pipeline, there is no credit money and the totality of all these elements gives a logical result – there is no price. Consequently, the main intrigue in the early months of 2009 will be the fight for price.
It will take a pig's whisper for the market to grasp the real movement of demand for diamond jewelry and based on this insight manufacturers and dealers will make up their own consumer lists.
No less captivating is the situation developing at the market’s base – in mining. The diamond-dependent countries in Africa will hardly be disposed to display patience for a long time since this matter affects the revenue side of their national budgets. Besides, the cost of developing African diamond fields gives them a chance to “slide down” in price to a substantial degree. De Beers is customary trying to prevent unregulated pricing. However, today their authority may not be enough for African governments.
The diamond segment accounts for a relatively small part in the budgets of Rio Tinto and BHP Billiton, but the current financial standing of these companies is far from ideal and it is unlikely that any efforts to save this part of their business are of first-rate priority in their view. Under these circumstances, the position of Russia, whose carat output of diamonds is second to none in the world, appears of substantial relevance. By every indication, this position reads that in the end of this year ALROSA left the diamond market. From an impartial point of view, the Russian company has all the accoutrements for a step of this kind: its diamond fields are located on the sovereign territory of Russia and the company itself is owned by the state and relies on the latter’s support, which is a possibility to sell all ALROSA’s rough output to the state. And the main thing: ALROSA is maybe taking the tenderest interest in maintaining high prices for rough since its mining costs in the extreme environment of Western Yakutia do not come within miles of those enjoined in Botswana or Namibia. It is clear that ALROSA’s reserves which allow it to operate for stock, thus avoiding price decrease, are also not endless. The financial “cushion,” which can be extended to ALROSA by the Gohran Agency, is to a significant extent dependent on the world prices for hydrocarbons, which are the basis of the Russian Federation’s export and budget. If the Urals price will go below $40 per barrel in the nearest 4-6 months, the outlooks for rough diamonds to be purchased by the Russian state from the company it owns will deteriorate.
Nevertheless, ALROSA has currently withdrawn from the market and this becomes a serious factor, which will influence rough prices in 2009. Virtually, what is meant here is the level, from which the market will start its “coming back to life” and growth. It is a question of stamina and responsibility of the giants. If mercenary attitude will prevail resulting in a price slump, the market collapse will be absolutely unpredictable. If control over rough supply will be retained, then the market, shedding off excessive stocks, will virtually get back to growth starting from a more or less acceptable price level. And what is most important, it will be a long-term trend.
