Firestone Diamonds said De Beers and ALROSA - the two largest diamond producers in the world – are expected to limit their volume of sales in the short term in order to promote a stable pricing environment.
Diamond prices had been volatile during the second half of the year as a result of the economic uncertainty.
The diamond junior, which has operations in Botswana and Lesotho said in a statement accompanying its preliminary audited results for the year ended 30 June 2011 that uncertainty in global financial markets since August 2011 had reversed gains recorded in the six months to June 2011.
It said the rough diamond market had recorded a price drop of about 30 percent from their highs in July this year.
Firestone’s last tender in August was even affected by this volatility, and the majority of the diamonds offered for sale did not achieve reserve prices and were withdrawn.
Rockwell Diamonds also reported last October that De Beers' sight prices for both rough and polished diamonds increased in June and July 2011 as a result of price speculation among traders who purchased rough stones into inventory in anticipation of subsequent price increases.
Producers increased their prices to benefit from the premiums that their clients were willing to pay and rough diamond prices reached all-time highs in July.
The gap between the cost of rough diamonds and polished prices also continued as polished price increases continued to lag behind rough diamond prices, it said.
Downstream retailers, however, resisted these increases and trade slowed markedly in July before the summer vacation due to their reluctance to hold expensive inventory over this period.
Given the significant control, De Beers and ALROSA have, it was somewhat possible for the two firms to control the price of gems by limiting the availability of stones on the market.
There is no doubt that if they release all of their stones on the market at once, there could be a massive devaluation of diamonds, hence the call by Firestone for a limit of their volume of sales.
Already, there are reports suggesting that the Russian diamond monopoly (ALROSA) preferred not to sell rough diamonds on the spot market and at auctions last month to avoid a drop in prices.
De Beers subsidiary, DTC was said to have cut the size of its November sight to $300 million from about $400 put at the September sight.
Some analysts said it should be noted that that current prices were still higher than they were during and possible before the crisis.
It remains to be seen whether any deliberate attempt to limit sales volume will help push prices of rough diamonds up in 2012, as Firestone anticipates or the fears of a declining global economy will stubbornly stand in the way.
De Beers reduced the amount of rough gems offered to customers by about 50 percent between January and April 2009 after U.S. retail sales slumped over the 2008 Christmas by 20 percent.
The market did not respond positively but continued on a downward trajectory, and one wonders what will change this time around.
That being said, it was rather naïve to close doors for “miracles” and all we can do is nothing but watch the path the diamond market – both rough and polished - will take as we conclude 2011.
Mathew Nyaungwa, Editor in Chief of the African Bureau, Rough&Polished
