“My colleague Richard Platt has said that he thinks polished prices will rise by around 6% this coming year, a point of view that should be taken seriously, given how lucky he was to get his last projection correct,” Charles Wyndham says in his article posted at http://www.polishedprices.com.
However, he goes on, whatever happens to polished seems to be even more immaterial than usual in relation to what happens to rough prices, like the cost of crude as compared to the cost of petrol at the pump once governments, refiners, transporters and retailers have decided what they can or will take, the disconnect as you fill your car is pretty substantial.
It is of course sacrilege to even think of comparing diamonds to oil, if only because as everyone knows diamonds are more of a necessity, a fact that my recent son in law found out to his cost.
The relationship between rough and polished has been so out of sync for so long that they might both be from different solar systems.
To hear last week just how strongly the rough market opened, that is after a tumultuous climb from the first quarter of 2009, was curious.
Someone to whom I spoke said the increase was definitely not justified from a manufacturing point of view, but since when has the margin a manufacturer can or cannot make determined the price of rough?
We bang on about the fact that there has to be some vague correlation between rough and polished, to which maybe a better way of expressing that is that if the difference becomes so out of sync that it harbingers some form of correction.
When I say we bang on about that, well we did in 2008 and were eventually proved ‘right’, the timing was so out that I am not sure that ‘right’ is the correct word.
In 2009 we have been muttering about the same phenomena and our timing seems to be about as correct as it was in 2008.
It was in this context that I read a recent article in the FT by John Authers where he wrote: ‘Seldom have markets returned so swiftly to the scene of the crime…. Oil and metals…were all part of essentially the same bet. They reinforced each other on the way up and, once US and European investors lost their nerve, they hugged each other as they shot downwards.”
The collapse in rough prices at the end of 2008 into 2009 was spectacular at around 50% to 60%.
The recent rise has been in some ways even more spectacular with prices in some areas even beginning to get close to nudging the peaks of the 2008 market.
Shortages of rough, actual and or perceived, some ‘positive’ signs from America, abundant money being poured in by Indian banks, spectacular trading profits and under-priced De Beers rough have all fuelled this heady rise.
I remain somewhat surprised at the reaction to some of the numbers coming out of America, and find it more akin to that song in the King and I, ‘Whenever I’m afraid I whistle a happy tune.’
Returning to Authers, he went onto write in the same piece: “So it appears that returning optimism in the west has led investors to make exactly the same bets they made before the crisis.”
This could not be more applicable to diamonds or specifically rough diamonds and I think that Authers’ final sentence could not be more appropriate: “…The repetition of behaviour that so recently inflicted so much pain is hard to explain.”
