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A small increase in demand benefits the diamond industry

By Leia Michele Toovey- Exclusive to Diamond Investing News

In the Diamond Trading Company‘s (DTC) third diamond sight of the year, which ran from March 30 through April 3, there was a glimmer of hope.  In this sight, the amount of goods trading hands doubled compared to the previous three flights. However, the sales were still only about a third in value compared to last year’s year on year period.  Cumulatively, in Q1 DTC sales dropped 76 per cent to $410 million, versus last year.

“We saw a slight return to demand-driven buying,” said one industry observer who attended the London event. “There’s a lack of rough in the market at the moment and everyone is looking at the goods much more seriously than previous months.”  Participants were quick to point out that their purchases were curbed by the fact that DTC’s prices are still high relative to other sources in the market. Diamantaires dramatically scaled back their rough diamond purchases toward the end of 2008 after global economies fell, due to a lack of orders and the banks’ tightening of credit to the industry. DTC responded by committing to smaller sights until market conditions improve.

The world’s largest diamond miner, DeBeers, has responded to the drop in demand by mining fewer diamonds.  It is anticipated that the company will drop production by around 30 per cent this year. DeBeers said in February it suspended mining at a Botswana venture responsible for a fifth of global diamond supply and would borrow $500 million from shareholders. As an additional cost cutting measure, De Beers has implemented sporadic temporary shutdowns at most of its operations.

De Beers maintains that diamonds are better positioned to weather the current economic crisis “because even in a recession people continue to get engaged, married, and celebrate special anniversaries, which diamonds are inherently linked to.”

Edward Jay Epstein, author of The Rise and Fall of Diamonds, takes a more pessimistic view of the effects of the current recession on the industry, predicting a drop in the value of rough diamonds by about 80 per cent. “The real fear of the diamond cartel is not just that retail prices will decline – it has managed that problem before – but that the public will begin to sell its hoard of diamonds, or what is called at De Beers, ‘the overhang’,” he said.

The report noted: “Diamonds do not wear out and are not consumed. New diamonds add to the existing supply in trade channels and in the possession of the public. In our opinion, old diamonds are in safe hands only when widely dispersed and held by individuals as cherished possessions valued far above their market price. De Beers executives estimate that the public holds more than 500 million carats of gem diamonds, which is more than 50 times the number of gem diamonds produced by the diamond cartel in any given year.”

If the public was to start selling its diamonds, this could potentially overwhelm the global supply/demand balance. De Beers dismissed Epstein’s scenario. “Decades of geological surveying confirms that diamonds are rare and getting rarer. In fact, worldwide diamond reserves are at an all time low, and with no new major sources of supply on the horizon, some predict that we will run out of diamonds in just over 20 years.”

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