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ABN AMRO Forecasts Polished Price Recovery

Dec 5, 2016 8:15 AM   By Rapaport News
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ABN AMRO predicted polished diamond prices will increase next year as it expects improved economic conditions to boost U.S. and Chinese demand.

U.S. jewelry consumption will grow amid a stronger labor market and rising housing prices, the Amsterdam-based bank argued in a report about the diamond market. President-Elect Donald Trump’s anticipated tax cuts together with higher infrastructure and defense spending will play a central role in boosting economic growth in the U.S., which accounts for 30 percent to 40 percent of global diamond jewelry demand, the report said.

ABN AMRO’s prediction comes as polished prices have declined this year, with the RapNet Diamond Index (RAPI™) for 1-carat polished diamonds dropping 4.2 percent in the first 10 months of this year.

“The overall diamond price index is in the process of bottoming out,” the report said, pointing out that the pace of retreat in polished prices has slowed. “We expect demand for polished diamonds to pick up in 2017, driven by an improvement in U.S. and Chinese jewelry demand.”

ABN AMRO raised its forecast for China’s economic growth to 6.5 percent from 6 percent. “Against this more constructive outlook, we expect the Chinese middle class to grow and diamond jewelry demand to rise over time,” the bank projected.

Stronger jewelry demand will go hand in hand with an improvement in the internal structure of the diamond industry, which has suffered from an imbalance between rough and polished prices in recent years, the report noted. Price fluctuations will better reflect end consumer demand as the midstream has been forced to be more conservative in its rough buying due to lower availability of credit, ABN AMRO said.

Meanwhile, the bank predicted that global rough production will be stable at about 126 million carats next year. In the long term, output is expected to decline by an average of 1 percent per year because of lower ore grade, the depletion of existing deposits and the absence of new discoveries. Increased production of lab-grown diamonds could account for the shortage of natural rough supply over time, provided that consumers accept synthetics and there is clear disclosure and attractive pricing, the report noted.

The ABN report flies in the face of a forecast by Panmure Gordon that diamonds entering the market next year from three major new mines in Canada – Liqhobong, Renard and Gahcho Kué – will potentially put pressure on the midstream in the short term.
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Tags: ABN Amro, Amsterdam, Diamond prices, Donald Trump, fiscal stimulus, Gahcho Kué, Liqhobong, Panmure Gordon, polished diamond prices, Polished Diamonds, polished prices, prices, Rapaport News, RapNet Diamond Index, renard, u.s.
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