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Diamond companies in limbo over prices

By Leia Michele Toovey- Exclusive to Diamond Investing News

Diamond trading activity has witnessed a recent drop-off as buyers face extreme uncertainty about the viability of current price ^[2] levels. Traders expect the prices of gems to deteriorate in the coming months, but no one has any idea as to how much of a change to expect. In order to balance the supply demand equation, the Gem and Jewellery Export Commission of India has joined the World Federation of Diamond Bourses in pleading to mining companies to curb their outputs of rough diamonds.

Diamond giant DeBeers has decreased production by 4.3 per cent in the third quarter of 2008 in comparison to the 2007 year on year period. This overall decrease in production came despite the fact that DeBeers opened three new diamond mines in the third quarter. DeBeers has reduced its market supplies of diamonds by as much as 30 per cent in total this year.

Mumbai-based diamond trading company Suashish moved into the red in the second quarter of its fiscal 2008-2009. The company posted a net loss of US$5.9 million, in the three months ending Sept 30, down from a profit of $3.53 million one year ago. Higher expenses are largely to blame for the profit decline, as sales rose by 36 per cent to US$58.98 million. Expenses grew by 46 per cent.

Indian-based manufacturer of polished diamonds and jewelry is also reporting dropping profits. Net profits at Suraj fell 23 per cent in the three month period ending Sept 30 2008, with net profits of US$ 19 million. Rising operating costs were to blame for the profit decrease.

Classic diamonds net profits tumbled by 54 per cent for the 3-month, year-on-year period ending September 30. The company holds two divisions, diamonds and jewellery. Total sales did rise 16 percent to $40.6 million but profits were eroded by rising operating costs. Strong revenues in the jewellery division helped compensate for a drop in the diamond division. Jewellery sales were up 105 per cent while diamond division sales fell 21 per cent.

RBC has slashed its earnings target for diamond company Harry Winston ^[3] in light of the global economic downturn. The brokerage cut its target price to $14 per share from $35 per share. At Winston's Canadian Diavik mine ^[4] growth projections through 2008 are flat, followed by a 10 per cent decline in 2009 and a 0 per cent projected onwards through 2013. However, due to the mines Canadian location, the weakening Canadian dollar should lend the mine a hand in the form of an operating cost reduction. The mine will be a significant cash flow generator for Winston during tough economic times. When it comes to Winston's retail diamond jewellery business RBC expects tightening purse strings to affect the amount of jewellery sold including the high end pieces the retail chain is known for.

The Dimexon group which includes a diamond manufacturing business and jewellery retail units in India and Hong Kong has started operations in China.  Their new office is located in the Shanghai diamond exchange. The company, a fully owned subsidiary of the Dimexon, has an export oriented high end jewelry manufacturing facility in Qingdao with a license to market a part of their production in the Chinese market." The Shanghai office provides us an opportunity to achieve our business objectives by enhancing our distribution width into an important high growth market," Dimexon CEO Rajiv Mehta said, adding that the new office will help them reach local retailers and jewellery manufacturers and penetrate the market. The Dimexon group includes Dimexon Diamonds, India jewellery retail chain Kirtilals and Dimexon Jewellery Hong Kong.