Slow Diamond Market Puts Miners Under Pressure
July 27, 2015
This continued for the July 13-17 sight, originally planned at $600 million then reduced to about $450 million. Most clients refused or deferred unprofitable goods, bringing the total to less than $300 million.
De Beers held the line on prices in July.
While De Beers is nowhere near the monopoly it was 15 years ago, it still commands a major market share of the one carat-plus market. The company has reduced sales reluctantly – mainly because buyers have refused or deferred allocations – and has not significantly lowered prices.
Alrosa, the largest diamond producer by volume (second by value), also held the line on prices and allowed clients to defer up to 30% of their allocations. It noted that its first-half rough sales were also 26% below last year’s levels with prices down about 7%.
Tender auction sales by other producers have been running 15-25% below last year’s levels, though rough prices have receded only a few percentage points.
Mega diamonds remain the exception. Lucara Diamond Corp., which operates the Karowe Mine in Botswana, reported very strong prices at its July tender, largely from a 341.9 carat (ct.) Type IIa diamond that brought a winning bid of $20.55 million and a 269.7 ct. diamond that sold for $16.54 million. Both exceeded $60,000 per carat.
Further down the diamond pipeline, two large manufacturing operations closed in Surat, leaving obligations of more than $140 million. As reported earlier, manufacturing volumes have decreased by about one-third, causing a number of contract cutting shops in India and China to close.
While U.S. diamond and jewelry sales have edged into positive territory for the first time this year (May was up by 0.5% from 2014), China’s economic situation continues to deteriorate, which is reflected in its retail jewelry sales.
Chow Tai Fook, China’s largest retail jewelry operation, reported a 15% drop in same store sales for the quarter that ended June 30, the fourth such double-digit decline in a row. Most of the problem is centered in Hong Kong and Macau where tourist traffic is considerably off. Mainland China sales, however, are also lower – with “Gem-set” pieces running 4% down.
Another large Hong Kong based chain, Luc Fook, recorded a 20% drop in same store sales for the quarter.
Indeed, China’s diminishing economic growth is causing considerable volatility in prices and reduced demand for many commodities, causing some mining companies – which two or three years ago could not keep up with demand – to retool their operations. Prices for copper, coal, iron ore, platinum and rare earths used in manufacturing electronics have fallen sharply this year.
In Japan, the country’s ageing population, coupled with low economic growth and stagnating economy, has resulted in a major diamond sell-off. The government noted that polished diamond exports – mainly goods sold by consumers – increased 77% during the first four months of this year. The government estimates the market for “recycled gold and diamonds” at $12 billion this year, according to a Bloomberg report.
The Yen has fallen 18% against the dollar this year, which pushes up the cost of diamonds and gold in local terms and deters demand for new diamond pieces.
De Beers and other forecasters are looking for the market to pick up this fall for the September Hong Kong show and the run-up to the U.S. holiday season.
About the Author
Russell Shor is senior industry analyst at GIA in Carlsbad.
