Rough diamond prices should be kept at a certain level for it is impossible to allow their uncontrolled growth, believes a representative of the diamond community in Antwerp, who agreed to comment on the situation in the market on condition of anonymity.
According to this expert, all the major diamond mining companies - ALROSA, De Beers and Rio Tinto – have increased their output in a very significant way, which brought rough prices to the pre-recession level of 2008, while polished prices remained unchanged over the past four years.
"If demand continues to grow, we are afraid of a possible explosion. No one should go to the maximum (in production). When you give goods to many customers at once, these goods lose their value and attraction," the expert said.
He believes that if Rapaport will not raise prices for polished diamonds, while rough prices will continue to grow, it will obviously "blow up" the market.
"Rough diamonds are very expensive. How can I have them cut, if polished diamonds are cheaper than rough. It is necessary that either polished prices go up, or rough prices go down," the analyst remarked.
In his opinion, diamond mining companies should control sales in the current environment.
According to the expert, so far diamond miners have been doing a good job limiting the number of customers: ALROSA had 18-19 customers, while De Beers reduced the number of its clients, and “it was a very correct move because we have a group of people who maintain prices and know how to protect them when the market is shaky."
"There is no need to supply goods in excess, although behind the scenes they (diamond mining companies) continue to sell, but instead goods should be offered to those who are able to maintain prices," the expert said.
It means, he explained, that if you have a client who is specialized in Indian goods, these goods should be given to this client. If the client is specialized in larger and more expensive products - and there are those who specialize in everything – you have to give such goods to those who know how to protect them.
"If you flood the market with rough diamonds, they lose their value. You may sell more, but within a limited range, and you should not give the same kind of products to everyone," said the analyst, noting that "if you give goods to your group of customers, they will fight to maintain fixed prices."
"Logic says that if prices for polished diamonds will not grow, while rough diamonds will turn more expensive, this situation may blow the market up," he pointed out.
The expert explained high demand for rough diamonds in India by cheap domestic bank credits. In his view, rough prices are also rising because the Indians are willing to pay any price, because "money is worth nothing for them and they can afford buying at higher prices."
"We prefer to have high prices on the market, but not ‘crazy prices’ because everyone is afraid of a burst. While banks lend money, it’s all right, but if they will stop doing that then what?" the analyst asked.
If ALROSA will continue to sell goods to its 18-19 customers and if the Indians will have no money these customers will be able to maintain the market, but if you give these goods to three hundred clients in such a situation, they will be forced to sell at give-away prices, the expert explained.
He believes that a long-term danger may come from banks which are currently offering "easy money" and which one day may cease to issue cheap loans.
Alex Shishlo, Editor of the Rough&Polished European Bureau in Brussels
