US Holiday jewelry sales expected to skyrocket

According to Mastercard SpendingPulse, US jewelers can expect revenue from jewelry sales in the US between November 1 and December 24 will grow 59% compared to the same period last year.

17 september 2021

Australia becomes world’s biggest producer of gold for first time

Australia has become the world’s biggest producer of gold for the first time, having played second fiddle to China for the last decade. Australia unearthed 157 tons of gold in the first half of the year, pipping China by four tonnes.

17 september 2021

Nigerian minister mulls death penalty for gold smuggling – report

Nigeria’s deputy minister in charge of mines and steel development has called for the death penalty for gold smuggling in the West African country.

17 september 2021

Gemfields back to black

Gemfields is expected to register a net profit after tax of $23.8-million in the first half of the year compared with the net loss after tax of $56.7-million, a year earlier. Earnings per share are expected to be 2 US cents from a loss per share of 4...

17 september 2021

Debmarine Namibia's new diamond recovery vessel to arrive in SA next week

Debmarine Namibia’s new N$7 billion diamond recovery vessel, Additional Mining Vessel #3 (AMV3), is expected to arrive in Cape Town, South Africa next week ahead of commissioning early next year.

17 september 2021

Counting Carats

07 february 2012

If one clear trend has evolved in the diamond market during the past six months, it is that businesses are more carefully managing their inventories, as expected given the prevailing global economic uncertainties, Avi Krawitz of Rapaport says at www.diamonds.net. It is as true in the mining sector as it is among manufacturers, wholesalers and retailers, as each has restrained the volume of goods on hand.

As a whole, the industry is hesitant to buy excess stock out of fear that prices will fall further, thus diminishing the value of their inventories and consequently their businesses. Given that there is little speculative buying currently taking place, the market has achieved some sense of equilibrium, even if such stability is fragile.

There appears to be sufficient supply of rough and polished at the moment to satisfy demand in the trading and consumer centers. Indian cutters are keeping a steady level of manufacturing and are hesitant to ramp up output at their factories. Their lack of confidence is shared elsewhere as economic trends show few signs of improvement.

The strong growth recorded in 2011 should therefore be understood in perspective of the volume of trade conducted. Sales were driven by price inflation that took effect during the first six months of the year and certainly not by larger quantities of diamonds entering the market. In August, as prices softened, so did the volume of supply.

The most glaring indication of this market caution has been in the diamond production data published in the past few weeks. Diamond output at each of De Beers, Rio Tinto and BHP Billiton fell during the year, while ALROSA’s production is expected to be about in line with 2010 when the company reports its results. Rapaport research estimates that global production fell by about 4 percent to approximately 122 million carats in 2011 as the value of production rose by around 25 percent to an estimated $14 billion.

While carat production remains significantly below the peaks of 2005 and 2006 when some 176 million carats were recovered, according to Kimberley Process (KP) data, the value of production was about 15 percent higher in 2011 than during those years.

This phenomenon is part by design as De Beers closed old mines, sold others and curbed output when the 2008 economic crisis hit. The company has clearly stated that it has no intention to mine in excess of 50 million carats again as it once did, or even 40 million for that matter. But it is also by desire reflecting the new reality since 2008, which continues to be apparent today.

For the same reasons, the volume of carats traded fell in 2011 despite the spike in values. India’s gross polished exports rose 8 percent in 2011, but by volume fell 5 percent, according to Rapaport estimates based on monthly data published by the Gem & Jewellery Export Promotion Council (GJEPC). Similar discrepancies are evident in Belgium and Israel.

In the consumer markets too, consumption is down while values are up. U.S. polished imports rose 21 percent year on year in the first 11 months of 2011, according to the most recently published data, while volumes were flat. Japan’s imports rose 17 percent by value, but fell 17 percent when counted in volume terms.

There is therefore good reason that mining production is being restrained. Adjusting for inflation, demand remains deflated and has not yet reached pre-recession levels – and neither is it likely to soon. Consumers are opting for smaller, less expensive goods and dealer demand is subdued. The reality of 2011 was that the diamond market was able to grow and make more money by using less diamonds.   

Will the same trend continue in 2012? It seems so and possibly more so. Certainly the market environment is different than a year ago. In fact, the contrast is glaring. While there was an overall optimism at the beginning of 2011, that sentiment is somewhat lacking at the start of this year. In 2011, there were signs that the global economy was in recovery mode; the outlook is far less encouraging today.

In addition, there was a clear uptrend in rough trading at the start of 2011 as the Diamond Trading Company (DTC) and ALROSA increased prices, which spurred speculative demand in both the rough and polished markets. There is no such trend today. Rather, while premiums on the secondary market have improved they remain slim, as they should be. Some supply – notably from the two larger miners – is still in correction mode. Sightholders are still trying to assess the true value of their January boxes after DTC adjusted prices and assortments (see editorial “Confusing Sightholders” published January 27, 2012).   

Despite its confusing price policy, De Beers continues to monitor its supply as DTC struggles to maintain its price levels. The same can be said for ALROSA. Whether it will be enough for the Russian company to advise state-owned Gokhran to withhold supply from its stockpile remains to be seen.

Rather, it is Zimbabwe that could make all the difference in 2012. Having received KP approval in November, millions of additional carats of Marange goods are expected to enter the market in 2012. These stones are already being manufactured mainly in India.

Sources close to the Marange operations told Rapaport News that combined production at the four concessions currently operating in the Marange fields is expected to reach about 20 million carats this year, up from about 9 million carats in 2011.

The concessions include that of Mbada Diamonds, where output is at an estimated 400,000 carats per month, while production at Marange Resources is ongoing at about 150,000 carats per month. The concession owned by Anjin has production of 750,000 carats a month that is expected to rise to approximately 1.2 million carats a month after the implementation of two new processing units. The newest concession, Diamond Mining Company (DMC), is operating at an estimated rate of 100,000 carats per month.

Given the current market scenario and the experience of 2011, it is unlikely that the industry can absorb an additional 11 million carats of Marange goods that were not there last year – especially since these are predominantly low color, low quality stones. Even taking the market as a whole, the influx of such volume may cause an oversupply of rough in the short term – and all the more so in that market category.

An excess supply may renew liquidity pressures in the cutting centers. Furthermore, while Indian factories are operating below capacity, manufacturers are loath to increase levels or hire new workers en masse as they are cautious about the market (see editorial “Cautious India” published January 12, 2012). They may well continue to buy and hold the goods for better days. Rough inventories are likely to rise, while the rough market will soften in response to curtailed demand.   

One cannot expect Zimbabwe to monitor its supply in the way that De Beers does, at least not for now. The country has waited long to freely enter the market while the KP debated its human rights record and tried to keep the Marange stones off the market. Zimbabwe is therefore hungry to sell, no matter what the price, and even as they are still illegal to trade in the U.S. and Europe. Already, Indian cutters have noted that the Marange goods offered the best margins in the market in late 2011.

The result is that other producers may be forced to lower their own expectations for 2012. Because even if values continue to grow, the quantitative demand for diamonds will still reflect the post-recession reality. For better or for worse, everyone will be carefully counting their carats in 2012.