RAPAPORT... In spite of all the repeated complaints about the “catastrophic” situation in the diamond business since September 2008, manufacturers and traders recently have been experiencing a “dream run,” according to a Diamond Trading Company (DTC) sightholder, who wishes to remain anonymous.
Making Money“The first half of 2009 has been a very exciting period because manufacturers and traders, regardless of their locations, have been making a lot of money,” said the sightholder, offering his own explanation for the heightened activity. “First, producers reduced their output of rough to such an extent that it became inevitable there would be revived demand for rough. Secondly, the fact that current peak prices are at 50 percent of what they used to be made it almost impossible not to make money,” he said, noting that dealers who held off on selling until demand increased were able to get higher prices than if they had sold earlier.
Another DTC sightholder who asked to remain anonymous summarized the situation as follows: “Everybody saw it coming, like a tsunami. However, the goods were going most of the time as cheap as they came in. Only a few diamantaires really had the courage to hold on to their diamonds until the inevitable rise of prices.” This period gave the manufacturers and traders who “saw it coming” a real opportunity to restore their inventory and to heal in a substantial way the financial wounds caused by the crisis.
Today the “dream run” is over, as rough and polished prices have apparently reached a new balance. “The recent run proved to be even more profitable to traders than to manufacturers, as our rotation cycle is longer,” insisted Gajera Girdharbhai of Komal Gems. “However, it’s clear now that in the tug-of-war between rough and polished prices, one must give in. Either the polished will go up, or the rough will go down.”
Other developments also are being put forward to explain the current stabilization of rough prices and the probable end of the speculation bubble on rough, including the fact that the DTC and BHP Billiton have both raised prices, which has cooled the market’s enthusiasm a bit.
In addition, the shortage of labor is inflating wages, which will have to be passed on in the prices. As a result, retailers’ margins could suffer, should the end users not be ready to pay additional dollars for the same stones. Prospective buyers have said they are waiting for the new sight before they make a move, instead of buying the leftovers of the previous sight. The urgency of the need for rough appears to be fading a bit.
ALROSA Sales To AntwerpThe Russian “deals” are another concern. The industry is talking about the three-year agreements that ALROSA reportedly has offered to a list of 15 select Antwerp clients. The industry expects the deals to become effective imminently. It’s been reported that a number of client-candidates have already signed the deals, but that the Russian government has not yet countersigned. Some client names are being whispered about and — unsurprisingly — they all seem to be current DTC sightholders.
No matter who is on the list, the real concern is the $500 million worth of incremental rough, which is expected to reach the market any minute as a result of these agreements. Diamantaires are wondering what effect that will have on rough prices and global demand.
The other questions are whether there’s a chance for business to resume and how soon. The facts are that the Christmas season is approaching very quickly and there’s less polished available. As a consequence, people will have to buy in July and August in order to have goods to polish and be ready for the end of the year. De Beers already has indicated that there won’t be many goods available in the near future, hinting that they will be barely sufficient to meet the quantity commitments DTC already has made to its sightholders, with little available to nonsightholders outside those commitments.
Diamantaires are aware that time doesn’t play in the buyer’s favor because no one is expecting the price of rough to diminish. Still, there is some hope that increased demand could come from China and India.
The only thing that’s clear is that many different factors — some of them contradictory — could impact the industry in the future. The key will be which factors will have the most influence on the outcome. Even the big industry player who said he “saw the dream run coming” has adopted a wait-and-see attitude and is scrutinizing any and all signs that could point out the direction in which the pendulum is going to move. The industry appears to be saying, “So far, so good, but what’s next?”
The MarketplaceRough- It’s expected that the rough prices should now roll in at around 70 percent to 90 percent of the peak prices achieved by the market between June and August of 2008.
Polished- There’s continued demand and movement on 4-grainers and 2-caraters.
- Expectations are that prices of polished could fall in the near future, due to the excessive and unrealistic recent pressure on the rough.
Article from the Rapaport Magazine - August 2009. To subscribe click here.