Once in early July, I was taken aback by a phone call. "Can you imagine,” said the voice on the phone excitedly, “ALROSA has raised prices by 20 percent! Just imagine: 20 percent up in one go! It's such a big one-time price hike that it looks even indecent!" Alas, these are the current realities of the market: if you do not increase prices every month but a couple of times in a quarter, the price growth will be in double digits. Prices for rough diamonds continue to go hog-wild and so far there is no end to this trend seen anywhere.
The time of two-digit values
Once again an intrigue is broiling around the prices revised by ALROSA: everyone knows there was a significant increase, but no one can say with certainty by how much they went up exactly. The company says it raised prices by 15% in July, while the entire semester saw a price hike of 25%. Market participants say that the Russian government-owned diamond monopoly boosted its prices by 20% on an average, while raising them up to 35% for certain categories of goods and producing a 40% price swing over six months. Sources in the Russian Finance Ministry were even more radical: they said that ALROSA boosted its prices one and a half times.
Some clarity to this matter is produced by the Russian company’s report for the first six months of this year, which indicates a 41% rise in prices in the first half compared to one year ago - from $ 80 to $ 113 per carat.
Whatever it is, the claims of the market to ALROSA’s actions look strange, even if it is assumed that the company’s prices rose by 30% in July only. The new policy of long-term contracts does not allow ALROSA selling all of its rough at current spot prices – under these contracts prices for rough diamonds are revised by the company’s market council several times during one year. The last time, before July, ALROSA raised its prices in the spring - just imagine how much rough went up in price during this period.
The pricing policy pursued by ALROSA is no different from what is done by its main competitor, De Beers. The rough produced by this western monopoly, according its published data for the first six months, went up by 35% in price likewise, while its sales grew by 33% compared with the first half of last year. The only difference is that De Beers revises its prices more frequently, doing this at each new sight. Due to this the price growth rate does not turn out so frightening - for instance, at the July DTC sight rough prices rose by 10%, according to official figures. According to unofficial data, their growth was, of course, more, but the company is ardently denying any "double-digit increase."
This is it, the new trend of the diamond market. After the crisis, diamond miners raised their prices very cautiously and were evasive answering direct questions about price growth rates. They used to say something like "average prices remained stable and there is a slight increase in several categories of stones." Now, it is meaningless to deny price growth, so diamond mining companies feel shy to disclose only double-digit values. So far, the "what-is-impossible-to-name” hovers around 15-30% for one category of rough at a time - and keep it mind that this is happening in summer, a low season for business activity. Moving further at this pace, by the next fall we shall start to only slightly veil a price growth of 40% upwards, considering all that is below a perfectly natural phenomenon.
Dear auctions for dear customers
Sales under contracts to which the market got accustomed to operate in recent years are preferred for their clarity, predictability and stability of prices. Auction sales are more expensive by comparison: major rough parcels are used to be sold at diamond sights while there are still many buyers left eager to make their purchases. This is why auctions are very popular right now, and there are reasons to believe that they will become even more popular in the future.
Let's start with the current auctions: Diamdel, the auction “daughter” of DTC, once again sold all its lots at the recent tender without any difficulties. Forty five percent of the lots were bought by DTC sightholders, who were evidently left without enough rough at the sight (although the sight was the largest this year – worth $ 850 million). There is reason to believe that the premium for one box was more than the 10-percent price growth at the sight. According to bidders, absolutely all the categories of rough appreciated, and particularly high-priced were as usual melee and grainers.
High prices are demonstrated by other companies operating in the auction segment as well. Paragon Diamonds, specialized in alternative investments, was selling stones for $ 2,035 per carat. Gem Diamonds does not disclose the results of any specific bidding, but according to its reports, the company raised prices by 77% in the first half of the year to an average maximum of $ 3,052 per carat. Some particularly large stones were brought to the hammer by Gem Diamonds at a price several times as much: the company’s specialization in high quality color rough allows it to raise prices without any doubts it will find a buyer.
Higher auction prices, in contrast to contract prices, may always be justified: the apparent effect of market laws of supply and demand is much more evident in this case. Given the shortage of rough diamonds on the market, the greater the demand, the higher the prices. And the trends in the market are such that the number of auctions will only be bigger.
The first bell rang a couple of months ago, when market rumors said about the intention of the new leadership of De Beers to increase sales through Diamdel. Now comes the second bell ring: ALROSA started online auctions, and another its auction is expected in Surat in August. And I’m afraid the point is not even about new technologies and the ability to grant automatic access to bidding for all market participants worldwide. Online access is just a service. But the very form of the auction is an opportunity to get more money for rough.
Polished, a weak sister
While diamond miners one after another report about their revenue and profit growth, diamond manufacturers cannot boast of a rapid movement upwards. The gap between the prices for rough and polished diamonds is still too wide. According to experts, polished diamonds rose in price by mere 25% since the start of this year.
The majority of experts, however, are optimistic: the cycle of manufacturing and sale of polished diamonds is long enough, so the polished market needs about six months to "win back" price hikes occurred for rough diamonds - it means a wonton growth in polished prices is not far off. However, on the other hand, six months after the beginning of rapid growth in prices for rough have already passed, but price movements for rough and polished diamonds have not yet leveled off. There is concern that while polished diamonds will be "catching up" the current prices for rough, the latters will rise even more.
Market participants are beginning to observe the same symptoms that were observed before the crisis in 2008: prices for rough diamonds exceed prices for polished goods to be made of them. And this already smacks of a new speculative "bubble." But marketers have no choice anyway, so despite the "growing concern about rising prices" demand remains high across the board.
Elena Levina for Rough&Polished
