“The rough is burning” is an old industry expression that appears to summarize quite accurately the feelings by many in the trade regarding current conditions. Demand for small rough goods reportedly increased by more than 10 percent in recent weeks, to such an extent that the 100-per-carat rough can find buyers, even for prices as high as $1,000 per carat. However, even at that price, the shortage is such that the problem is to find the goods.
The results from the different auctions that have taken place in Antwerp in recent weeks — BHP, Diamdel, ALROSA — show that the offered prices have increased substantially, at least by an average of 5 percent, according to some diamond manufacturers. This was certainly the case for the bigger stones, and even more for the small goods. As a result, the trade was expecting a serious increase in De Beers next sight prices at the end of February. One can already sense the anticipation of that rise by the prices of polished, which have increased by an average of 5 percent in recent weeks.
The odd sizes — 60 to 69 points, 80 to 89 points, 5-grainers of 1.21 to 1.49 points and 2.50 to 2.99 carats — can easily command a 10 percent premium and even more. It’s increasingly common for buyers to decide to pay full Rapaport list price and even more for a 2.5-carat stone, rather than buy a 3-carat for the Rapaport list price minus discount. There is increased awareness that the former stone would be a little smaller than the latter, but considerably less expensive.
A “Futures” Market?
The market appears to be turning away from buying diamonds to buying diamond futures. Buyers are accumulating rough for prices at which they expect to sell it as is. Or, they are gambling on future prices, by polishing the rough and holding on to it, betting that polished prices will rise in the future, at which point they will sell it. The market follows supply-demand movements with some delay.
Some diamantaires claim that due to the 400 percent increase in the price of gold over the past couple of years, the value share of diamonds in diamond jewelry has been reduced. That means there is more room for diamond prices — which have increased by only 30 percent over the same period — to rise substantially in order to maintain the ratio of gold to diamond in jewelry prices. Gold is a refuge asset for investors, whereas diamonds are not… at least not yet.
“People in the industry are currently buying for two major reasons,” explained Jacky Lewy of Natural Diamond Corporation. “Either they own factories they need to keep running, or they believe for all kinds of reasons that the prices of the rough and of the polished are going to rise at some point in the future.” It appears that the trust of diamantaires in the diamond is back. Hopefully, it is not a blind trust.
Mihir Mehta of Jayam explained his optimism by noting that a “30 percent to 40 percent increase in the rough, especially in the smaller goods, is exceptional. In that sense, it’s not just a repetition of what’s happened in the industry so often in the past. Maybe even the polished is going to get stronger and stronger, but the question is how high and how fast it is all going to happen, should it happen. Some will say the increase in demand now is most probably the result of speculation. We’re not among them. Those who are speculating may even turn out to be right, who can predict? We’ll find out whether they are in two or three years, as only time will tell!”
“With the economic downturn in 2008, lots of miners cut their production of rough diamonds,” said Bharat Shah of Diampex. “Subsequently, the economic recovery was far quicker than expected. Demand has grown very fast, and domestic consumption in India and China has grown out of proportion. In global diamond production, we’ve already reached the value level we were at before the economic meltdown of 2008. But carat-wise, we’re not at the prerecession level yet. So, this most recent jump in prices is not because of the speculative nature of the industry, but due to the carat imbalance between demand and supply.”
Knighted
Mickey Weinstock, diamond coordinator of the Belgian-European Union (EU) Pavilion during the World Expo 2010 in Shanghai, was nominated Knight of the Order of Leopold by His Royal Highness, King Albert II of Belgium. An official ceremony took place at the residence of the Prime Minister, Yvers Leterme, followed by a second ceremony at the royal palace in Brussels to thank the sponsors of the expo. “I’m very happy to have received this honor and would like to share it with the whole Antwerp diamond community,” said Weinstock, “which at the Shanghai Expo 2010 successfully established Belgium’s reputation for premium-quality diamonds and certificates in China for posterity.”
The Marketplace
Rough:
• Smaller sizes in better qualities are very much in demand.
• Brown goods across the board have also picked up in a very positive way.
• Compared to the smaller sizes, the price volatility of stones bigger than 2 carats is not that high.
Article from the Rapaport Magazine - March 2011. To subscribe click here.