In mid-August this year, De Beers announced that prices for rough diamonds they were selling throughout 2008 would go up by an average 16 percent and their strongest growth would be in rough cut to polished diamonds above one carat in weight. According to DTC, there was strong and continuing consumer demand for most categories of polished diamonds, especially in the larger stones. DTC’s pricing decision was influenced primarily by the demand for polished in the long term. According to Diamonds.Net. Rapaport News, DTC increased prices by 13.9 percent from January through July, the largest hike came out of the July sight where prices rose between 5 percent and 15 percent. The previous hike of two percent was in March. DTC price hikes this year have far exceeded those of previous growth years of 2003, 2004, and 2005 when prices rose an average 12.5 percent, 13.6 percent, and 8.2 percent respectively. Prices subsequently fell in 2006 and the start of 2007 after the market could not sustain those price levels and sightholders started sending goods back. DTC prices are currently more than 70 percent higher than they were in 2000.
By contrast, prices for Russian diamonds do not go upwards virtually from 2004 and if they are valued in rouble terms their price went down 11 percent versus 2005. In the first six months of this year prices for rough mined in Russia decreased 1.1 percent while exported diamonds were cheaper 5.1 percent.
This was how prices for Russian diamonds changed in 2003-2008
Table 1
|
Years |
2003 |
2004 |
2005 |
2006 |
2007 |
2008, first six months | |
|
Price for 1 ct of diamond |
Currency unit | ||||||
|
output export |
USD |
50.8 N/A |
56.74 39.97 |
66.61 45.31 |
67.11 49.87 |
68.56 70.04 |
67.83 66.50 |
|
output export |
EUR |
45.2 N/A |
45.6 32.1 |
54.2 36.9 |
53.5 39.7 |
50.0 51.2 |
44.4 43.5 |
|
output export |
RUR |
1559 N/A |
1633 1152 |
1883 1281 |
1824 1355 |
1754 1791 |
1624 1592 |
The above data prove that in diamond trade Russian companies lose to their foreign counterparts. Despite the growing mining costs caused by transition to a more expensive underground mining method and regardless of depletion of rich diamond fields and inflationary processes in the country as well as a sharp rise in prices for all types of extracted raw minerals, diamond prices do not increase and even decrease. The growth of world rough prices predicted by experts is confirmed by business results of foreign diamond mining companies, which having decreased their diamond output in physical terms in the first half-year of 2008, on the contrary, increased their trading income. Thus, the total diamond output of Rio Tinto in the first semester of the current year dropped 31 percent to 7.853 million carats. However, their income came up 28 percent to $571 million, while their net profit for the period was up 20 percent reaching $108 million.
Consequently, the Russian government and diamond mining companies, first of all ALROSA, have to ponder the issues related to the organization and efficiency of the existing system of diamond trade.
Yuri Danilov, Senior Research Fellow, Department of Rough and Polished Diamonds Complex Economy, Institute for Regional Economics of the North (Federal State Scientific Entity)
