It seems that market players were "fired up" by the reduction in supply and price adjustments carried out by major diamond producers in January. Now we can talk about growing demand and intensifying trade. However, this movement has a variety of ways in different segments of rough.
Large-size segment
Judging by the signals coming from the market, there is substantial demand for large stones of high quality. And it can be assumed that high demand driven by limited supply will support prices.
For example, Firestone, mining diamonds in Lesotho, announced that gems of "higher quality" attracted stronger prices. The company refrains from making public the results of the first diamond tender this year, but says that it sees good reason to expect stable prices in the first half.
ALROSA started its comeback to the market by launching an auction for diamonds of special sizes (10.8 carats and above). The company put up for sale 868 gems totally weighing around 15,000 carats (the largest diamond was 204.44 carats in size). As a result, the company reported about 362 lots sold for a total of about $46.3 million. ALROSA would not disclose data on carats sold (much less on the composition of lots), but says that the bottom-line price for lots was 90% up towards the reserve price.
In addition, as it is rumored, prior to its February auction, ALROSA arranged a preview of its rough in Israel for the first time to make it more convenient for bidders to get the feel of goods without going to Moscow.
In February, Russia’s Gokhran (State Repository) joined the spree having announced its intention to auction special-size diamonds. The agency will tender 12,595 carats split between 556 stones on March 20. Officials from Gokhran say they expect a ready market for even before the official announcement of the auction prospect buyers “flooded Gokhran with applications."
Launching an auction, the Russian State Depository is typically focused on completing a task set by the country’s budget authorities - the agency has a plan for obtaining funds, which must be performed regardless of the realities of the market. But it is unlikely that Gokhran would go in for this auction, if the situation in the diamond market were not suitable.
Moreover, Gokhran, too, is making steps towards the buyer, which earlier would be deemed oddball. Usually, the agency used to put up for sale several stones within one lot. Now, after “customers complained that it was inconvenient” the agency will offer stones one by one.
The price correction carried out by major producers early this year apparently was one of the reasons for success in trading large stones. In the last quarter of 2011, a large segment of rough not only went cheaper, but according to some reports even rose in price (some sources say by 4-10%). However, according to market players, prices for large-size rough slightly declined in January 2012.
Small-size segment
There is an ascending stir in the market of small-size rough as well. But this revival can be rather called excited, and the cause of excitement lies with the new tenders for rough from Zimbabwe.
Late last year, companies operating in Zimbabwe already shipped their diamonds to India, where the stones - due to their uncertain status – were sold at much lower prices than comparable rough supplied by global companies. Due to lower prices these stones had great success among the local diamond cutters.
In February, the Zimbabwean companies held a new tender. This time, according to market participants, diamonds were offered by four producers: Anjin (500,000 carats), Mbada (not less than 400,000 carats), Marange Resources (350,000 carats) and DMC (400,000 carats) - the latter received permission to trade only recently. Taken together, it may be not very large volume to trade by weight, but prices in this case were more important: averagely, this kind of rough was sold at about $50 per carat, while similar goods from major companies were much more expensive.
From the outset, market players believed that "conflict" stones will be consumed only within India and sold only in the local market for the category of buyers, for which the low cost of these gems was much more important than their status. De Beers’ spokesperson stated recently that diamonds from Marange would not affect the overall picture of the market because buyers were always aware of the difference between them and certified diamonds. But it seems that price is much more important. It is said that the influx of such cheap rough to the market has already taken its toll, and the last auction in Surat was deprived of enthusiasm precisely because small-size diamonds from Zimbabwe may be bought much cheaper. Among the buyers of these goods there are several sightholders of De Beers as well. A number of experts say that goods coming from Zimbabwe are in the same niche as a significant part of goods supplied by ALROSA, and such competition could put pressure on prices.
The status of diamonds from Marange is so far in many ways contradictory, but it cannot be denied that Zimbabwe has a high potential as a diamond mining country. In 2011, local companies produced 9 million carats of rough, and in 2012 they will be able to recover 20 million carats. Experts estimate that Zimbabwe is fully capable to become one of the world’s leaders in diamond production by 2015. And the whole volume of its rough output will sooner or later inevitably find its way to the market.
Zimbabwe’s local authorities are well aware of this potential wealth. In 2012, the State expects to net $640 million to the treasury from diamond trade – ZimRA, the country’s tax service was assigned to participate in and control the export of raw materials as much as possible. Discussion started about the need to develop a law on diamonds, which would regulate the industry (so far Zimbabwe is guided by the Precious Stones Trade Act, which is in force, according to various sources, either from 1964, or even from as far back as 1903). The prime minister has already said that Zimbabwe will not issue new licenses for diamond mining in Marange to small companies to avoid confusion and chaos and not to undermine the country's efforts to create a positive image before the Kimberley Process. The desire of the country to bring the situation in the diamond mining industry under control one way or another is obvious.
Elena Levina for Rough&Polished
