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Faith in Stability

29 may 2014

The first four months of 2014 saw the seasonal growth in rough diamond prices estimated by the industry players as 5 to 10 percent. The revival in demand allowed De Beers to increase prices for their products three times – at January, March and April sights. Over this period, ALROSA increased prices only once (in February, by 2.5%), which helped – according to a number of market participants – to avoid refusals.

Nowadays, the demand for the rough diamonds remains strong, which affects the prices of the main suppliers but the results of some tenders were lower than anticipated, according to the Bonas review of the market in May. Although, this decline had no impact on the large rough diamonds - their prices remain strong. Traditionally for this season, the demand for polished diamonds in the major trading centers was low. The concern about the liquidity remains, although so far there are few facts proving the shortage of liquidity. Fr om the point of retailers’ behavior, the JCK Las Vegas Show to be held at the end of May and the Hong Kong Jewellery & Gem Fair – 2014 in June reflecting the sentiments of the Asian market will be most representative.

May was rather stable for the market. The decrease in the ALROSA sales pointed out by the market players and the statement of Phillippe Mellier, De Beers CEO, that the further growth of the De Beers prices is hardly probable in the nearest future, in combination with the flexible demand for polished diamonds should create the basis for sustainability in the months to come. This sustainability – as anticipated by CEOs of ALROSA and De Beers - ensures a 4 to 5 percent growth in rough diamond prices by the end of 2014. 

DE BEERS AND ALROSA SIGHTS

Traditionally, the De Beers May sight does not show high demand and this year the trade was not an exception. After the price jump in April, the box trade in Antwerp showed a considerable slowdown on the threshold of the sight as most of the sightholders expected a price decline. As soon as the market saw that the prices remained unchanged, the box prices surged fast. But as a result, most of the boxes were sold at the purchasing price or somewhat lower as it was in April, and the producer was at a breakeven level in May.  

ALROSA has felt the changed sentiments on the market and decreased the sales, which has substantially backed the demand for the Russian diamonds, as a number of sources in the diamond market noted while characterizing the trade in Antwerp. But for all that, the ALROSA rough diamond quality remains lower (as compared to that of the De Beers ones) especially in the Category 3 grainers, which affects the prices. The average premiums for ALROSA lots reached 5 to 6 percent.

TENDERS HELD BY OTHER PRODUCERS

During the last Petra sight, 281 000 carats were sold for a total of $36.25 mln as compared with 324 000 carats for $48.13 mln a month ago. Gem Diamonds reported about 75 percent increase in the sales revenues (up to $82 mln) at the first three tenders this year with the increase in carats by 4% only. Despite the complicated market conditions, the Lucara activity at the tender was a record one. The results of the tenders held by other companies in Antwerp were positive, especially in the large-size rough diamonds segment.

INDIA

In April-May, the sales in Mumbai declined and the prices for the Category VVS (Very Very Slightly Included) dropped by several percent points. The approaching summer vacations cause concern in Mumbai like in other Indian cutting and polishing centres because not every diamantaire will be able to return to business after the stagnation. But the market players note some positive trends (first of all, in Prepared and Small MB segments, wh ere ‘Prepared’ stands for stones cut or crushed in two pieces, and ‘Small Makeable’ means small irregular octahedrons) and make their prognosis about the vigorous trade in the second half of the year. 

The ALROSA roughs remain popular in Mumbai, especially in Small MB and Z Categories (‘Z’ stands for regular octahedrons), and also Rejections Category (low-quality rough diamonds close to bort used by the Indian cutters to produce very small polished diamonds).

ISRAEL

In Tel-Aviv, the roughs market is cooling against a backdrop of decreasing speculative deals the Israeli market players are fighting with. The demand for rough diamonds remains strong but the buyers are cautious while reviewing the polished diamonds market state-of-the-art. The sensations of the diamantaires suggest the conclusion: the rough diamonds do not bring significant margin or losses. The goods in the secondary market are practically sold without any premium, only some boxes with inexpensive roughs are valued several percent higher, the other are sold cheaper (Crystals and Sel ect MB Categories).

ALROSA remains to be the most preferred seller in terms of value.

AFRICA

The sightholders in SA and Namibia express their concern about the possible supply deficit on the market that would last until the Venetia mine could operate at full capacity again. Due to the strikes, the SA diamond mining industry decreased the y-o-y output, although the diamond production was less affected (in Q1, the output drop was only 1.2% as compared with 44 percent drop in the platinum production).  

The sight was successful for the De Beers clients based in Botswana. The number of refusals was small. The tender held by Okavango Diamond Company brought some surprise. Its participants expected lower rough diamonds quality but in fact the results were good with only three lots unsold, and the revenue accounted to $68.3 mln with the average price of $186 per carat.

POLISHED MARKET

According to the traders’ data, the prices for polished are weaker and it is more difficult to obtain a margin. There is less enthusiasm on the polished market than in Q1. There come less orders from the buyers and they are reluctant to pay more for the polished diamonds except for the really rare stones, as per the Bonas review. 

The diamantaires are expected to be overstocked within the next two months due to lower sales. The access to the liquidity becomes very complicated, which makes the traders take pinpoint solutions.

The discrepancy in prices for various polished diamonds categories results in inconsistent situations when the clients are offered VVS Category gems at a price that is lower than that for the VS Category gems, but these offers remain non-demanded because there is demand for the VS Category polished diamonds only.

In Israel, the polished diamond sales were successful for the first three months this year, but after the Pesah festival (in early April) the trade declined significantly. There is a feeling that many diamantaires have more or less completed the replenishment of their stocks. The demand fr om the USA at present remains selective, however, there is a hope for the future strong results of the JCK Las Vegas Show. Large quantities of polished diamonds got ‘stuck’ at the Gemological Institute of America (GIA) undergoing the certification there, which raises concerns of appearing too many gems on the market in a sluggish summer season.

The Indian cutters and polishers are also worried about the long turnover of the goods in GIA as well as the slowdown of the demand in China due to the weakening yuan.

The sentiments about the JCK Las Vegas Show that will start at the end of May are different: the optimists are sure that the demand will grow and the prices will become stronger, and the pessimists believe that the attention will be paid to the low-end goods and discounts.

Igor Leikin for Rough&Polished