Rapaport Magazine

Antwerp Market Report

Too Much Rough, Too Few Sales

By Marc Goldstein
RAPAPORT... There is beginning to be too much rough on the market, far too much for the manufacturing capacity to absorb, especially when demand is flat in the world and even agonizing in the U.S. The statistics confirm that the hoped-for pickup expected in September at the dawn of the year-end holiday season is not happening.

Sight Boxes
The three most recent Russian sights — at the end of July, in mid-August and at the end of August — have seen drastic changes. During the first two sights, if dealers who had bought Russian rough managed to find buyers, they either didn’t lose too much or they collected a profit of 0.5 to 1 percent. With the third sight, dealers were losing on all the boxes. If premiums were at least “interesting” in July, they were close to zero or even negative by August.

Some in the industry refer to a “euphoria movement” resulting from the recent decision of Indian banks to supply an extra $1 billion to Indian diamantaires. The banks were doing so at the direction of the Indian government, which was trying to support the Indian manufacturing industry. As a consequence of the capital infusion, some people ended up with a tremendous amount of cash. They bought and created an impression of movement in the market, which did not carry through to the retail end.

Year-end Expectations
Chetan C. Choksi of Diminco elaborated: “We’ve been experiencing an extremely volatile year in the rough market. One year ago, just before the crisis burst, there was an abundant quantity of rough and polished available. After reaching their peak in September 2008, prices began to crumble, reaching their lowest point — about 40 percent below peak — in February 2009. Since then, prices have been creeping back up to an average decline of 20 percent to 25 percent from the peak.”

Expectations for the next several weeks are for a post-Diwali-holiday softness in the market. Prices are expected by many to soften by an additional 3 to 5 percent down the road for three major reasons. First, in India, the major industry player these days, the Diwali holidays will virtually close down business for one month, beginning in mid-October. The Jewish holidays, although shorter, also will have a slowdown effect on the trade. Secondly, prices went too high, eroding profitability enormously until it has by now simply vanished, leaving polished prices unable to sustain rough prices. Finally, there is the liquidity issue.

“However, let’s not be too pessimistic,” cautions Choksi. “We’re talking here about going back down from 80 percent of the peak price to 76 or 77 percent of the peak price.  Producers are holding back on production and reducing mining activity. Inventory replacement in retail isn’t expected to start until the first quarter of 2010, because little replacement was done in 2009. Actually, I’m cautiously optimistic because diamonds are a luxury item, which will be the last category to recover with customers.”

Pejman Kerendian of Kerendiam agreed that “Rough is very, very hot and too expensive, while polished is cold and too cheap. There was some hope, beginning in September, for rough, but its counterpart — the polished — is picky and choosy as to its recovery. Even sales of diamond jewelry are flat.”

The good news is…

The industry is reducing its supply to the trade. Canadian companies Rio Tinto and Aber are placing less product on the market, especially given that the Diavik mine is being closed for a six-week period. The Diamond Trading Company (DTC) has confirmed that its next sights will be smaller because most of its mines have either been shut down or slowed production. However, a source close to DTC explained that the smaller sights are not so much the result of a recent decision made in the interest of the industry, but the direct technical consequence of earlier decisions made in response to the economic crisis.  “Diamond production is not like a tap,” said the source. “You don’t just push a button and start selling the new production overnight. It’ll take a few months before the stones are properly sorted, washed and put on sight.”

In all the contradictory information, one fact emerges as a very positive sign for the future health of the industry: Current sales are almost always being made with cash payments. The 30 days, 60 days or even longer payment delays are now an old story that will never be seen again.

The Marketplace
  • Melees of 7 to 8 points —or -11 sieve — and smaller, clean VVS goods continue to be quite slow.
  • 4-grainers in G, IF, which were for sale at Rap -50 six months ago, are now for sale at Rap -32 or -33.
  • 2-carat G, SI1 goods, which moved in March at Rap -50, are available today for Rap -30 to -32.

Article from the Rapaport Magazine - October 2009. To subscribe click here.

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