The August drop in prices and trading volumes could still be attributed to the off-season, but the same reasoning will not work for September. The first month of the nascent "business season" confirmed that the diamond market is really facing uncertainty. However, there are no reasons for melancholy ... as it seems. The situation will remain stable, if market participants will curb their nervousness avoiding any abrupt moves and will once again be backed by artificial “regulation” already familiar from the crisis of 2008. Forgive us antitrust authorities, but this “regulation” is based on common sense and uniqueness of the precious stones market.
Pinning hope on Asia
August, a month usually deficient for events, this year brought turmoil and uncertainty to the diamond market. At first, DTC boxes on the secondary market started to be traded at a discount. Then, BHP Billiton, casting prudence to the winds, cut rough prices by 10-15%. The liquidity crisis within the diamond pipeline stemming from numerous speculative transactions "successfully" coincided with the fully ripened crisis in the world economy as a whole.
This is why September turned out "uneventful," since marketers were almost idle until the end of the month. Everyone was waiting for the jewelry exhibition in Hong Kong, which usually sets the vector in market developments. Against this backdrop of agonizing suspense even the news about the failure of the Firestone tender, where most of the lots had to be withdrawn from sale not reaching even the reserve price, went relatively unnoticed.
The September show in Hong Kong was remarkable at least by its ambiguity. Participants evaluated its results quite differently: some were optimistic, others - wary. On the one hand, the event enjoyed a record foot traffic this year and confirmed the growing interest in Asian markets. On the other hand, buyers remained cautious and did not seek to replenish their inventories buying only goods necessary to supplement their current range of products. Prices for most buyers are still too high. It is rumored that a number of Indian suppliers at the exhibition lowered prices just to raise money.
Pinning hope on oneself
In public statements, major diamantaires are trying to radiate optimism. For instance, it was very reassuring for the market to hear the statements of Varda Shine that diamonds were unlikely to be affected due to the general nervousness of the situation. De Beers expects that this year will see a record rise in rough prices due to stable sales in the U.S. and voracious demand from China and India. The company did not even rule out that in the latter countries rough diamonds will continue to appreciate at double-digit rates, as it was at the start of 2011. De Beers’ forecast for the medium term is no less positive as well: it says rough deficiency for the next 5-10 years just guarantees prices to rise.
Even Firestone, which by way of its own example proved the market was unstable, predicts a return to stability as early as this year.
However, soothing rhetoric alone will not suffice. The diamond market is ceasing to be a "seller's market," in which the owner of rough may dictate any terms and be sure of success. Now vendors are taking steps to meet buyers’ requirements trying to agree on moderate premiums and on loans. It is rumored that even De Beers in the course of its September sight started to give payment respites to customers until the end of the year. According to other rumors, the company went even further in its loyalty showing readiness to buy back unsold stocks from its customers pending from previous sights.
De Beers’ September sight delineates another important trend: it seems that the market returns to "manual control", which we already witnessed during the crisis period of 2008-2009. If earlier the company was only saying that it intended to maintain current prices, now it has reduced its supply. Prior to the September sight it was said it would be as low as $380 million. Eventually, it was about $500 million, but compared to almost $800 million in the previous month the difference was palpable. Such measures are intended to reduce speculative activity.
So far, there were no statements on the subject from ALROSA, but for the Russian company it would be a logical step to reduce supply. In the last period of crisis ALROSA left the market altogether for six months, thereby generating a shortage of rough and preventing a landslide in prices. This time, there is hardly any need in putting a halt to sales, but probably ALROSA will temporarily reduce shipments of some goods. The high sales in the first six months and good financial performance will easily allow the company to survive during this period avoiding any significant losses.
That said, it seems that the steps towards "manual control" are bearing fruits. A number of diamond cutters have already stated that due to reduced speculative purchases rough has become much more accessible to them, and now they could increase production.
Elena Levina for Rough&Polished
