By Kishori Krishnan Exclusive To Diamond Investing News Share

Like in the case of some other metals, 2009 has been written off as a “lost” year in the record books of the global diamond market.

The question that begs an answer now is – can the market look forward to a complete recovery by end-2010?

There are some in the diamond sector who express confidence that the worst is over for diamond and that prices, uncut as well as polished, had bottomed out. This lobby believes that all will be fine by next October.

DeBeers, the world’s largest producer of diamond, is optimistic that 2010 will be a relatively good year for diamond, yet others like the Antwerp Diamond Bank differ in opinion.

Rockwell Diamonds Inc (TSX:RDI), a Canadian miner with operations in South Africa, is also “cautiously optimistic” that the market for its shiny stones would continue to improve.

Rockwell is the latest Canadian-based miner to report signs of a recovery in the diamond market, which comes in the run-up to the crucial holiday shopping season.

Rockwell president and chief executive officer (CEO) John Bristow said both sentiment and prices were on the upswing.

Interjecting a note of caution though, on October 26, in a statement to global news agency Bloomberg, Pierre De Bosscher, chief executive officer of the Antwerp Diamond Bank, part of Belgium’s KBC Group NV, said diamond traders in Antwerp at least, would have to wait “for another two years” for a recovery.

In his opinion, both Europe and the United States would not recover before 2011. The US accounts for 50 per cent consumption of the annual production of the world’s diamonds, which mostly end up in jewellery.

While the Indian and Chinese markets were picking up in sales, projections show that it may still not be enough to bride the gap from the downturn of sales in the US market in 2010.

The second-most important bank in the Antwerp diamond business after the Antwerp Diamond Bank, the ABN Amro Holding NV’s diamond and jewellery division, agrees with the view that recovery may take longer than a year.

About 80 per cent of the world’s uncut diamonds pass through Antwerp and are handled by the city’s gem dealers, known as “diamantaires,” according to data compiled by the Antwerp World Diamond Centre.

Glimmer of hope?

The overwhelming view is veering around to this point – 2010 may see the gem market stabilising but real-term growth would only be possible the year after that.

Rio Tinto, in a press statement issued recently seemed to agree. While the global miner does not have any plans of shutting down any more of its diamond mines, its officials said recovery in the gem market is expected to be slow. The company’s prognosis for diamond in 2010: Tough.

Rio Tinto should know. It is the world’s third largest diamond producer (by volume). De Beers, a 45 per cent owned company by mining group Anglo American PLC is the world’s biggest diamond producer.

In fact, in a step that could send a strong message across the sector, for the first time in the last 9 months, Rio announced an increase in the prices of diamonds from its Diavik mine in Canada, last month. For six weeks earlier in the year, operations were shut at the mine.

What is making Rio hesitate in putting out an all-out bullish outlook on the diamond market perhaps is the fact that the price of the gemstone from its Argyle diamond mine in Western Australia were not as healthy as Diavik.

Argyle, too, had been shut down for two weeks mid-2009. Till early July, the effect of these shutdowns had been a 25 per cent decline in the global diamond output.

Another leading player, the world’s second largest diamond producer, ZAO Alrosa, had stopped selling gems between December last year and July 2009.

As per a Reuters report of October 19, De Beers’ chief executive in Botswana, Sheila Khama had told The Financial Times newspaper that the demand for diamonds had started to stabilise. She had added that the company’s flagship mines were currently operating at 80 per cent capacity, up compared to the 50 per cent in the first quarter of 2009.

The rough with the fine

Prices of rough diamonds fell about 65 per cent during the six month period starting September after the collapse of Lehman Brothers, generally considered to be the start of the global meltdown. Polished diamond prices fell by a third as world retail diamond sales fell by a similar amount.

But supply and prices of uncut stones have risen since the first quarter of this year, according to Gemdax, an industry consulting firm based in Antwerp. A sudden spurt in diamond supply after the approximately previous two quarter’s dip, is now a matter of concern and is said to be “the biggest threat” to a recovery.

Van Der Kwast, however, maintains that oversupply would drive down the prices and that miners were being urged to keep supply well in check.

On October 22, Victor van der Kwast told Bloomberg, “I do not believe there is a recovery taking place despite the strong rises in rough diamonds that have taken place since May-June…I do not see much new money coming in.”

On prices of polished diamonds, Anish Aggarwal, a partner at Gemdax, said they had stayed firm over the last few weeks, thus injecting fresh confidence into the market. Probably, demand and supply are pretty even, Aggarwal said, adding that demand had picked up and there was less rough-diamond production.

India sparkling

According to a new report in India’s Economic Times, sales of diamond during the just-concluded Hindu festival of Diwali ( the largest in the country), were likely to eclipse that of gold because of the latter’s sky rocketing price.

The report quoted Arun Vazirani, store manager of Tanishq’s Churchgate outlet in Mumbai as saying, “Many customers found diamonds unaffordable in the past, and hence gold has been a traditional favourite. But people are increasingly buying diamonds this festive season, as gold has spiralled over the past one year. On the other hand, diamond prices had fallen by 15-20 per cent.”

In September 2009, India’s polished diamond exports was recorded at US$ 1,762 million, constituting a 11 per cent increase over US$ 1,589 million in the same month in 2008, incidentally when the global slowdown had just begun.

Company news

Canada-based company Rockwell Diamonds’ bottom line has been affected because of the economic downturn. The company, which is listed on the JSE, operates three diamond mines in South Africa: Holpan, Klipdam and Saxendrift. A fourth, Wouterspan, is on care and maintenance.

In the face of the collapse of the diamond market, Rockwell reported a loss of C$ 6.6-million for the six months to end-August, more than double its C$ 3.1-million loss in the same period last year.

Meanwhile, the company is hoping to secure commitments to raise C$ 7 million to C$ 10 million to bolster its balance sheet, pay off short term debt and undertake production improvements.

AIM-listed Pangea DiamondFields Plc (PDF) is looking towards recovering diamond prices and a macro pickup from the wider US economy to help turn the company around.

“We have a fair inventory of diamonds in the ground which we’d obviously like to bring to full value,” Boris Kamstra, who takes over as chief executive on November 1, told Reuters last week.

PDF – which has seven projects in Angola, South Africa, the Democratic Republic of the Congo (DRC) and Central African Republic – said last month it had $1.54 million in cash reserves.

Rio Tinto celebrated the 25th anniversary of its iconic Argyle Pink Diamonds Tender with thumping sales. This year’s tender collection comprised 43 of the rarest and the best pink diamonds from Rio Tinto’s Argyle Diamond Mine, including four heart shaped gems.

All the diamonds were sold and the firm reportedly saw a strong representation from both India and China, as well as the more established markets for rare coloured diamonds.

Ontario has opened up a diamond-cutting plant recently, but the move is threatening Northwest Territories’ hold in Canada’s diamond processing industry.

Yellowknife Centre MLA Robert Hawkins asked Premier Floyd Roland on Friday about the Crossworks Manufacturing Ltd plant in Sudbury, Ontario, where 27 experienced workers have been brought in from Vietnam to cut and polish diamonds.

The Sudbury facility is expected to handle about $25 million worth of rough-cut diamonds this year. It has a contract with DeBeers Canada, with the diamonds coming from that company’s Victor Mine near James Bay.

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