Was it real or not? Signs of rough prices getting more stable which emerged last month are now acknowledged by many market players. However, higher prices registered at the June sight held by De Beers are not very encouraging. Experts recognize that rough shortage will be felt by the market for about 10 years pushing prices up, but still they hope that their growth will not be always so rapid.
Are we about to stop or not?
In May, it were the results of the sight carried out by De Beers - which put prices up by 3% on the average in the course of two months – that made people talk of price stabilization. It was expected that the June sight would produce something similar, but the results have been mixed. Sources say that prices for large-size categories jumped by 12%. Prices for small-size stones did not change much, but it was not clear whether this was encouraging: for the past six months, prices for "Indian goods” grew every month and sometimes at two-digit rates a time.
However, prices for small rough went a bit higher at the auctions of Diamdel, a subsidiary of De Beers, according to the sources. Usually highly sought for were stones larger than 2 carats and 0.25 carats. BHP’s tenders are similarly marked by higher prices going up from 10% to 15%. Last month, ALROSA did not raise prices, but there is an understanding that the company will do it in July.
Despite these figures, more and more experts talk of signs pointing to sprouts of early stabilization in pricing. It is very likely that for certain categories of rough a plateau is really reached. In addition, the summer season in many markets is characterized by reduced activity – probably this is exactly what is currently instrumental to keeping prices down.
Whatever it is, stabilized prices would be a blessing for the current market, because the dynamics of price growth for rough is outright frightening. It is not so evident in one month, but looks impressive if you compare prices for a long period. So far, experts have not offered estimates of their climb speed for the past six months. But the very same DTC boosted its sales by 14% in the first six months (up to $3 billion). With some confidence this figure may be considered "average" across the whole board.
The Kimberley Process data published in Russia give you a picture of price movements across all the categories of rough diamonds. Currently, the Russian Ministry of Finance published the results only for the first quarter, and these suggest that the average price of Russian diamonds for the first three months was $85.8 per carat. The average price in the fourth quarter of the previous year stood at $63.2 per carat. It turns out the growth was about 36% over three months.
Such a price blast-off does not seem just impressive - it is explicitly appalling. As it was recently noted by Chaim Pluczenik of Pluczenik Diamond Company, “anything that goes up too fast may then drop.” Judging by the statements made by industry experts it becomes clear that they are more embarrassed by the rapidity of price growth than by the growth itself, since all of them are inclined to see a strong speculative component in this ascent.
Deficiency for ever
However, to "contain" prices the first thing to be done is to make market participants behave in a restrained and calm manner. Still, self-control may be difficult to sustain, given that all the experts predict a further rise in demand and deficiency of rough for many years to come.
Generally, they break out of lockstep with each other only in assessments of duration. Nicky Oppenheimer recently said that because there are no new mines, the demand for diamonds is going to exceed the supply for 5 years. In terms of carats the global diamond output is decreasing, good value stones are recovered less often, which means that rough prices will remain extremely high due to the rarity of this product.
Equity Communications went much further in evaluating the situation, and their expects predict rough deficiency at least until the end of this decade. And if demand is to remain high diamond mining companies will feel well on the backdrop of sellers’ prices. But after 2020 the situation may change, experts say. History already knows the example of Canada, which became a visible player in the market in the short term due to its good resource base. Almost the same fate is forecast by Equity Communications for Zimbabwe, where fresh diamond capacities may be put into operation from 2020 onwards, given good enough luck. There is a hope that this country will manage to agree with the Kimberley Process in the coming decade.
But so far in the absence of new major projects diamond miners have nothing to offer to satisfy the growing demand in India and Hong Kong. And it is really huge. They say that soon rough diamond sales in Dubai may exceed gold sales due to demand from Asia.
And it seems to be true: Diamdel is going to open its division in Dubai. Of course, the official representatives of De Beers say that this is done only to improve the company’s customer service – by launching another outlet where customers will be able to see the goods. But market experts already see this as the intention to build up auction sales of rough practiced by De Beers, and maybe to abandon the sight system. However, auctions are a traditional way to boost prices much higher than in case of any other form of trading.
Do you think market players will remain calm hit by such rumors?
Elena Levina for Rough&Polished
