South African diamond production is expected to continue to decline for at least the next year and a half as global economic recovery is likely to be a slow drawn out process and no major recovery in demand is expected in the near to medium term, says Mineweb.
Analysts from global growth consultancy, Frost & Sullivan, forecast that South Africa's diamond production will decline from the 15.8 million carats produced in 2008 to levels around 12 million carats in 2011.
Frost & Sullivan metals & mining analyst Wonder Nyanjowa says in a report that "Although the global demand for all commodities has slumped significantly since the onset of the global economic slowdown, it is perhaps the diamond mining sector in Southern Africa that has been hardest hit...The decline in the global demand for diamonds has been unprecedented, resulting in most diamond mines curtailing production, reducing costs or closing altogether."
Frost & Sullivan sees the global luxury goods market as remaining highly vulnerable to global economic cycles and changes to household wealth in certain countries or regions of the world. The United States market, which accounts for approximately 50% of the global demand for diamonds, remains subdued without any major signs of a rebound in diamond jewellery sales in the first quarter of 2009.
"With declining disposable incomes, consumers in key diamond markets such the United States, China and India have reduced expenditures on luxury goods," explains Nyanjowa. "Liquidity constraints have also forced jewellery manufacturers to buy fewer rough diamonds."
The Frost and Sullivan assessment is supported by Royal Bank of Canada Capital Markets (RBCCM)'s analysis that DeBeers' rough diamond sales of only $250 million between January and February 2009 is the worst performance from the company in 25 years suggesting that things may get worse before they get better..
"DeBeers, which is the world's largest diamond producer, has officially announced a 40% diamond production cut from all its operations in South Africa, Botswana, Namibia and Canada," Nyanjowa notes. "This has been done to secure the future of the company as well as to position itself for a rebound in the global demand for diamonds in future."
As Frost & Sullivan comments, in South Africa DeBeers accounts for approximately 90% of the country's new mine supply of rough diamonds and its mines have been operating below full capacity since the second half of 2008.
This is a bleak assessment of the state of the global diamond market and while huge organizations like De Beers will be able to survive a continued downturn, some smaller companies without the financial strength of the world's largest diamond miner will find it difficult to stay afloat.
