The January lull was not long. Seeing the significant gap between supply and demand, diamond producers, one after another, started to raise their prices for rough. Once again, we see the emergence of a "seller's market": amid shortage, buyers snap up everything there is, and even on the secondary market boxes are sold at a premium. Nobody feels reassured by diamond miners’ promises of an imminent increase in output.
Rough prices
When De Beers did not raise prices at the January sight, the market cherished no illusions in this context. No one toyed with the odd thought about settled prices - everyone took this step as a hiatus and braced for a price hike in February. Therefore, the ratings of the February sight were not a surprise to anyone. Moreover, the substantial increase in prices was met by market participants with enviable submission, as if forgetting that two years ago they were protesting against a much smaller increase.
The February sight of Diamond Trading Company (DTC) was slightly leaner than the previous one ($600 million versus $650 million), but significantly higher in price. Various experts assess its price movement differently, usually saying the upward swing was at an average level of 7-8% across the entire product range. The average estimate given by DTC itself was 5-9%. Some traders say that prices upped to 22% for small grades. In YoY terms, DTC prices zoomed by 27%.
The market believes the rise in prices is an adequate reaction to the January lull: early this year, De Beers kept prices at the previous level in spite of good Christmas sales. As a result, premiums on DTC boxes during the month rose by an average of 10%.
In February, all the more or less relevant diamond miners started to increase prices for rough diamonds. At the February tender in Johannesburg, DiamondCorp sold 1,321 carats of diamonds for $124,174 making an average of $94 per carat. The company’s last tender for such diamonds was held before the crisis, in September 2008, and then their market price was $55 per carat.
At the February tender Petra Diamonds posted a 6-8% increase in rough prices depending on the diamond grade. The tender included 113 carats of white diamonds recovered at Cullinnan, which were sold for $4.7 million or an average of $41,585 per carat.
After their last tender BHP Billiton also reported an increase of 8% in rough prices.
Trans Hex’s February tender set a price record selling 12,817 carats at an average price of $1,547 per carat.
Still earlier, Gem Diamonds staked a claim for higher prices while pre-marketing Letseng rough at a price of $3,291 per carat. Under the contract for colored gems signed with Tiffany Gem Diamonds had no scruples to sell rough stones at a cost of $3,482 per carat.
Actually, the only major marketer, which has not increased prices, is ALROSA. However, this does not make bidders anymore happier. The most part of its rough ALROSA sells under long-term contracts which envisage quarterly price reviews linking the company’s prices to those of the global market. According to experts' expectations, the "silence" of ALROSA will also be short-lived - the Russian monopoly is expected to rise prices in the earliest possible timeframe and this will be a logical step on the background of the rest of the market.
Prices for rough diamonds have returned to the price level of the pre-financial crises period, Avi Paz, President of the Israel Diamond Exchange, said recently. “But there is an essential difference, in that today there is a much smaller quantity of rough in the market than in the pre-financial crisis period,” he added.
This suggests that rough prices still have some room for further growth. Diamond manufacturers are currently feeling a significant lack of diamond supply. According to market participants, in India, for instance, the shortage runs at 30%. Naturally, under these circumstances buyers agree to any price offered. Those DTC boxes which were once sold at boosted prices are now resold on the secondary market at a premium, even if these premiums are less than 10%.
Polished market
Under normal conditions, the movement of rough prices should be primarily dictated by the movement of prices for polished diamonds. But ever since the crisis the diamond market broke away from the concept of "normality". Prices for polished diamonds, as experts state, have still not reached pre-crisis levels even though it is high time for them to "catch up" with rough prices. So far diamond manufacturers and diamond consumers in key markets continue to maintain steady demand, but they are facing difficulties, which is not surprising.
Demand for polished diamonds in the United States in February remained stable, although vendors already point to a considerably tougher environment. There is a shortage of polished at affordable prices. Moreover, American consumers are turning aware that the markets in India and the Far East are now driving prices to levels they cannot support. Nevertheless, demand still persists, especially for gems in the 0.75-1.99 carat sizes, E-H, VS-SI qualities.
In Belgium demand is high for 0.50-carat and smaller G-H, SI stones. Trading is cautious since manufacturers doubt their profit margin. However, taken as a whole the market looks optimistic.
Trading in Israel is strong in anticipation of the Hong Kong show to be launched on March 4. Prices here are driven uphill first of all by demand for large stones (about 3 carats).
As it was mentioned, in India trading is more than robust although vendors’ price rapacity is meeting resistance from buyers.
In search of balance
Demand for rough is still significantly exceeding supply. It is easy to trace even by the data on rough imports started to be published by major consuming areas. For example, Indian rough imports in January rose 16% by value going down 9% by volume. Israeli imports of rough and polished diamonds in January upped 38%.
However, rough supply has never increased very much, and the plans announced by some companies to boost their output will bring results in the end of the year at best. De Beers, for instance, plans to increase production to 38 million carats from 33 million carats in 2010. But in 2010, De Beers already delivered exactly 38 million carats of rough to its customers selling some of the stocks accumulated during the crisis, which means that its production growth this year may come unnoticed by the market.
ALROSA also said that in 2010 it sold its stocks and now the company maintains them at an operational level, which means it is of no use to expect any additional supply from the Russian company. Meanwhile, ALROSA intends to maintain its output at the last year's level - 34.3 million carats.
There is no news about whether Gokhran, the Russian state repository, will sell its diamond stocks containing at the very least $1 billion worth of rough diamonds. Although there is a reason to believe that if the agency had the intention to sell this year, this would have been announced either by Russian officials or ALROSA, as Gokhran is most likely to do it in the interests of this company’s clientele.
The discussion of possible export of diamonds from Marange in Zimbabwe also failed - the Kimberley Process was unable to reach consensus. Thus, Zimbabwe’s plans to supply the Marange rough to the global market are so far frozen. The amount of rough in this country is still unknown, and so far it is not clear whether it is worth a hope.
Finally, Botswana postponed taking a decision on diamond sales for a few months. So far all the rough mined in this country will continue to be sold through DTC, which will respectively stay independent in determining prices and amounts.
Thus, until now there are no prospects for any stabilization of prices in the diamond market. Although experts from De Beers say that compared with last year's rise in prices this year prices will be slow, it is not very clear how this could be achieved.
Other events in February
Rounding it up, it is worth noting two fundamental decisions taken in February. And while these events are not directly related to prices, they still may affect the diamond market after some time.
First of all, the Oppenheimer family’s role continues to shrink in Anglo American’s business. For the first time since the establishment of this mining giant the Oppenheimers will not have a representative on its board of directors this year. Nicky Oppenheimer, who continuously held the position since 1983, has publicly stated that it is time “to stand aside." Even earlier, the Oppenheimer family reduced its stake in Anglo American to about 2%. The market really expects that later the Oppenheimers may sell their 40-percent stake in De Beers to Anglo. However, this is denied by the members of the family.
The other diamond monopolist, Russia’s ALROSA, is also facing changes in the composition of its shareholders. The diamond miner’s Supervisory Board has decided to transform ALROSA into an open joint stock company and approved an agreement with Yakutia’s authorities whereby even in case of an additional emission the latter's share will remain at least at the level of a blocking stake. Thus, ALROSA is taking another step to enter the market, which was previously scheduled for 2012.
Elena Levina for Rough&Polished
