Diamond prices have reached a level that if reduced further they may no longer be profitable to mine or manufacture.
This is the real reason why diamond prices have stabilized. To say they have stabilized because demand has increased is incorrect.
The Financial Times reported that De Beers is sitting on the largest stockpile of rough diamonds since the 2008 financial crisis. They are holding approximately two billion dollars of rough diamond inventory.
Alrosa knows that diamond prices have bottomed out. They claim that supply and demand will become balanced within the next few months. The Head of Corporate Finance at Alrosa expects demand to grow as inventory levels in both mining and manufacturing decline. He claims that there has been a 20% decline in global diamond mining volumes in the last 5-6 years. IDEX also believes that diamond prices are on the brink of a slow but sustained recovery. However, this diamond recovery depends on Alrosa controlling the sale of their diamonds and how De Beers manages their two-billion-dollar stockpile.
The Rapaport Price List, for the first week of January, posted significant price reductions. These price reductions were prefaced with the following caveat. “Significant price changes have been made to the Rapaport Price List this week to ensure that it reflects reasonable discount levels. (this is the really important point) This week’s price changes do not report a sharp decline of diamond prices over the past week but reflect an overall decline in diamond prices over the past year”. My interpretation of this confusing statement is, that diamond selling prices did not go down on January first, even though it looks like they did, but rather the prices were reduced in order to raise the discount levels on the list. (for example, from thirty back to twenty back) Rapaport thought the discount levels were too steep to appear professionally accurate.
Gaetano Cavalieri, president of the World Jewellery Confederation (CIBJO), stepped out of character and attacked “the marketing strategies adopted for lab grown diamond jewelry” saying they “have only served to dent consumer confidence.” He continued, “"It should aways have been apparent that the economic principles governing a natural product, where there is always a finite production ceiling, was different to that of a manufactured product, where there is no production ceiling … So, when decisions were made to conflate the two, and then worse, to differentiate the products by making negative marketing claims about the other, consumer confidence in both categories was undermined.”
The synthetic diamond situation is really not a concern for this broadcast. Synthetics when left on their own will slowly and independently find their own level. However, diamond prices and diamond confidence has already been damaged.
Today, the diamond consolation prize goes to Canadian jewellers who are holding diamond inventory that they purchased over the last year and whose depreciated value has been offset by a weaker Canadian dollar.
The truly unknown factor hanging over every business is the political uncertainty both in Canada and the United States. There are things that are simply out of our control and there are things that are within our control. It is best to concentrate energy on the things we can control like the day to day running of our personal business. All business relies upon great inter-personal relationships and well-honed communication skills; our job is practicing and perfecting these basic skills and then putting our work to action by taking it to the streets.
Mel Moss