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Rough Prices Set for Slump – Analyst
Jul 8, 2019 10:10 AM
By Rapaport News
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RAPAPORT... Rough-diamond prices are likely to fall 5% this year as
weakness in the industry continues, Panmure Gordon analyst Kieron Hodgson has
predicted.
The investment bank has lowered its expectations for the
market, having previously forecast price fluctuation in 2019 ranging from flat
to a 2% decline. Mining companies’ results from the first half were in line
with Hodgson’s cautious view of the market, he added.
“Significant storm clouds have coalesced, leaving the
near-term outlook for diamonds decidedly gloomier than at any time this year,”
the analyst wrote in a report last week. “We have cautiously reduced our price
forecasts, whilst at the same time the industry is again contemplating reduced
sales volumes.”
Sales at De Beers’ sights and auctions dropped in the
first half due to declining liquidity for the trade and the release of excess
goods into the market following recent bankruptcies, Hodgson explained. De
Beers’ rough revenues fell 18% to $2.38 billion in the first half of 2019,
according to Rapaport calculations. Sales were down year on year at four of the
five De Beers sights that took place in the first half, indicating a “more
entrenched trend” rather than a “short-term blip,” the report continued.
Hodgson does not expect rough sales to collapse as they
did in 2015, when a slump in consumer demand led to a sharp slowdown in the
market. However, major mining companies may hold back supply in response to the
lower demand in a repeat of their actions four years ago, he noted.
Miners must mitigate six main risks that have affected
the industry during every wave of weak prices in the past 10 years, he noted.
They include the oversupply of rough relative to demand, challenges with
inventory management, and the reduced availability of finance.
In addition, high rough prices and the strength of the US
dollar against other currencies risk impacting margins at the manufacturers
that buy rough, while the US-China trade war could hurt retail demand in Asia.
Finally, growth in synthetic-diamond production may undermine confidence in
natural stones, he explained.
Panmure Gordon expects an improvement from next year,
predicting flat rough prices in 2020, followed by a 2% increase in 2021.
Image: A rough diamond in kimberlite from the Big Hole Museum in Kimberley, South Africa. (Ben Perry/De Beers)
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Tags:
De Beers, Kieron Hodgson, Panmure Gordon, prices, Rapaport News, rough, Rough Diamonds, rough prices
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