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A Trend toward Stabilization

10 august 2009

Has the peak of the global financial and economic crisis passed and can we speak of a starting stabilization in the diamond business? These questions have already received initial encouraging answers from both diamond miners as well as diamond dealers.

In the analytical report by De Beers for the first six months of 2009 released in early June it is particularly stressed a significantly improved sales situation in the second quarter of the current year preceded by very difficult trading environment in the first three months.

In the second quarter De Beers sees a significantly improved situation in the industry while rough prices started to demonstrate a growth trend reflected in positive shifts in sales at Diamond Trading Company, the experts of De Beers stated.

The market picture has radically changed compared with the situation 11 months ago when rough export collapsed hit by the global crisis in a matter of sever weeks and diamond mining companies, first of all De Beers, had to react by significantly cutting their output.

In the first quarter it dwindled by 73% down to 6.6 million carats, while De Beers’ net profit in the first half of the current year reached only $3 million compared with $316 million one year ago, a slump by 99%.

Evidence of stronger prices came also in July from junior diamond miners. Thus, South African Trans Hex announced it had sold 17075 carats of rough at an average price of $973 per carat. Totally, the July tender helped this company to net $16.6 million.

Trans Hex experts noted in this context that the average price indicator pointed to a further increase in price for rough diamondы started in May.

Earlier there was a report issued by Diamond Fields International of Canada about a successful tender sale via its Antwerp-based company, and earlier Gem Diamonds owning the Letseng Mine in partnership with the Lesotho government, said it had registered an upward price shift. In the second quarter, compared with the first three months of this year, the average price for diamonds originating from the mine went up 47% reaching $1,496.

Thus, as Gem Diamonds’ experts sum it up, despite the further price drop in the first half of this year it was the first instance from the crisis inception when prices stabilized during the last months and later even got stronger. Nevertheless, the company’s products are still priced 44% below the average price set in the second quarter of 2008.

Antwerp diamond dealers also noted a stable growth in demand for rough diamonds. In particular, at Rosy Blue it was up 20% compared with May, but the company is in no hurry to state there is a stable trend as a whole considering it only a brief respite for the industry and expecting a new price shrinkage possible further on.

In this connection Rosy Blue points to the fact that polished prices did not follow the suite of rough and hence rough prices cannot continue their growth.

On their part, Belgian diamantaires have also reported about growing demand for diamond products and in particular for one-carat polished diamonds pointing to evident shortage of rough diamonds.

Meanwhile, Barclays Capital’s analysts believe that gradual turnaround of demand and prices for diamonds will start in 2010 and they will reach the level of 2007 in 2012 at earliest. So far, rough prices stay below the levels reached in August 2008 by about 30%.

Thus, the partial strengthening of prices for rough started in the middle of this year experts  attribute first of all to its decreased stocks and shortage resulting from curtailed output by De Beers and open market sales by ALROSA.

For his part, Gareth Penny, Managing Director of De Beers, says he is convinced that rough prices have bottomed out. He believes that during this year there may even be felt some shortage in some of the rough diamond ranges.

Penny argues that after a slump there is always a price increase for rough and polished diamonds. In a situation when there are no new diamond mines launched and some of the currently operated mines start to be depleted and when there is a growing demand on such emerging markets as India and China the coming years are expected to be marked by a significant shortage in supplies.

Alex Shishlo, Editor of the Rough&Polished European Bureau in Brussels