You may spend a whole lot of time trying to come up with a suitable title and introductory paragraph for a March market report. However, you won’t be able to outdo Chaim Even-Zohar, who published an article titled "The Rough Market: A Nice Place to Commit Suicide" at the end of the last month. What was happening to diamond prices in March would be more appropriately called a hike, not just growth. Or at the very least, a rapid acceleration. And while consumers continue to buy up everything they see their optimism is gradually replaced by puzzlement and wariness.
Rough prices
The price race never stops. By the end of the first quarter there were no companies to stay away from it. Russian monopoly ALROSA, which kept prices unchanged until the end of February, appeared to be the last outpost of price stability. But everything has an end. Fyodor Andreev, the company’s president, recently announced that the penultimate time ALROSA raised prices for rough was in late 2010 - by 5%. And now - probably in March - they went up by 10%. ALROSA’s prices are 8% higher than before the crisis. Are you still in doubts that the crisis is over?
Diamond Trading Company at their March site (estimated at $500 million) was bidding up prices for the second month in a row. The company’s spokespersons formally called this process "a price adjustment on a number of DTC boxes." The participants of this site were privately less prone to euphemisms. They said that prices for rough diamonds of 4 to 8 grainers and for stones over 2 carats in size rose by almost 10%, while prices for Indian goods jumped by 25%.
The DTC spokesperson remarked that the company “never makes a volatile, knee-jerk decision.” Indeed, you cannot call this price hike haphazard: on the contrary, everything is perfectly calculated. The market is driven by continuing panic demand and this kind of activity is mainly generated by dealer trade. Further on, prices will be only higher, so people buy up here and now. Chaim Even-Zohar’s article has a stunning passage: “The broker further observed, “It is frightening to see that some traders pay up to 45 percent more for certain items compared to one month ago.” Whatever the price increase (10 percent), DTC boxes continue to trade at two-digit premiums, with many in the plus-20 percent range. And, at any given time, mixed rejection goods secure a 25 percent premium on whatever the box price may be.”
Not only giants are raising prices. For instance, in March Lucara Diamond held a tender for rough from Lesotho and sold about 4 thousand carats at an average price of $ 871.7 per carat.
Even more impressive was the March tender at Trans Hex. Diamonds from Luana in Angola were sold out at an average of $439 per carat (totally 4,303 carats). And selling diamonds from South Africa Trans Hex once again broke its own record: the average price reached $1,782 per carat. The company’s previous record was $1,547 per carat - in February. It means an increment of 15% within a month for rough of virtually similar quality. Are you still in doubts that the crisis is over?
Another couple of examples. Launching its auction in March, Russian Gokhran gained $58 million for special size diamonds. Even before the crisis, no auction brought in this kind of money. Yes, the total weight of stones put up for sale was more than usual - about 2 thousand carats. But, mind it that this agency earned $35.6 million for the whole of 2010.
The Israel Diamond Exchange appealed to the government asking for help - to make it easier to get credits. Those available credits are evidently not any more enough to keep up the pace in the price race. If before the crisis there were $2.6 billion of available credits, now the amount dwindled to about $1.6 billion. It is certainly less than the Indian credit "loco", but still quite a lot. Are you still in doubts that the crisis is over? It seems high time to get off the “old” crisis as there is a new one looming ahead.
Eastern expansion
There are no objective reasons for such a rapid rise in prices. There is a shortage of rough in the market, but it is not explicitly associated with an increase in production by diamond manufacturers. Comparing the figures of diamond imports with the world's diamond output, many come to a conclusion that speculation is once again in full blossom across the market involving the so-called "round tripping" when the very same parcel of rough may be financed several times, long before reaching the final consumer.
It is strange that watching the rise in prices market participants remain wary of the word "bubble". Fyodor Andreev of ALROSA is the only one who uses the word again and again. What is it - a kind of confident optimism or reluctance to admit the obvious?
However, if you brush aside these wistful observations, the overall market is unanimous in its expectations: prices are to rise as always driven by China, India and the United States. Gem Diamonds, for example, predicts that, given the insatiable demand from the East this year, prices will shoot up by 25%. If you recall the March growth rate demonstrated by DTC, it seems quite a conservative forecast.
Polished market
In their turn, polished prices continue to grow much more slowly than rough prices. According to Rapaport, in February polished diamonds gained less than 3.5% on average, while small size stones went up just by 2.5%. Compare this with the price growth dynamics for DTC boxes. At the same time you may try to imagine what this gap will turn out to be in March given that retail prices for end-use products are fixed in catalogues and cannot chase rough prices on a monthly basis.
Currently, the United States displays the most confident demand for diamonds of 1-2.5 carats in size and these tend to be accumulated by everyone: just big retailers are doing it on a "bulk" basis, while smaller ones appear to be more selective. In Belgium, the situation is similar, the only difference being that demand is felt for stones up to 2 carats. Israel is now particularly brisk to buy diamonds either below 0.7 carats or over 5 carats.
However, India has slowed its trading activity: retailers there are increasingly wary of the idea to restock at new prices. Market participants halted in anticipation of a possible price correction. In addition, there is a significant evidence of reduced supply.
Elena Levina for Rough&Polished
