- By Region
The collapse of Graff Diamonds’ Hong Kong flotation has done little to dent the upbeat mood of the biggest gathering of the industry, where exhibitors and merchants set their sights on a rebound in the US, the largest consumer.
Stephen Lussier, a De Beers executive director attending the annual JSK jewellery trade show in Las Vegas this week, said: “It’s a global environment which carries with it some risk, but people are feeling good about the prospects in America.”
Yet for all the optimism about US sales in the second half in Las Vegas, the diamonds market has not been able to avoid the impact of global economic woes so far this year.
The market has been stagnant in 2012 after two years of robust growth, and the industry has been waiting for prices to regain their sparkle.
In that respect, diamonds have mirrored the trend of gold, the traditional haven asset.
Since the start of the year, polished diamond prices have retreated, hit by overall negative sentiment about the global economy, the lack of credit in China and India – the two markets which have led growth – as well as slower sales in the US, the largest market for the gems.
However, dealers are hopeful that the second half of the year will be more buoyant, led by an improvement in retail sales in the US and Asia.
Diamonds are not traded on exchanges and are priced individually according to the 4Cs – carat, colour, cut and clarity – with tens of thousands of price categories. The market was hit hard during the credit crisis in 2008 but rebounded after leading producers held back output.
The production cutbacks drained stocks, and coupled with the advent of Indian and Chinese buying, pushed up prices the two following years. De Beers, the largest producer by sales, estimates that rough diamond prices rose in 2010 by 27 per cent and another 29 per cent in 2011.
But so far this year rough diamonds have been marking time while polished prices have fallen about 4 per cent, according to analysts. The cutters, polishers and wholesalers rely on bank debt to buy the stones from producers, and caution among banks towards lending has hit the market.
India, an important diamond centre, has been hit by an import tax as well as the slide in the rupee, while sentiment in Antwerp, the diamond centre in Europe, has been depressed by the eurozone crisis. Charles Wyndham of PolishedPrices, the price information provider, said: “In my last trip to Antwerp, there was a lot of uncertainty.” He nevertheless is forecasting an improvement later in the year.
Beyond the short term, diamonds are expected to be supported by the lack of supply. No new significant diamond mines have been found in at least a decade, and with lead times for mines from discovery to production averaging about eight years, and large miners such as BHP Billiton and Rio Tinto looking to leave the sector, supply growth is expected to be sluggish for years to come, says Des Kilalea, analyst at RBC Capital Markets.
On the demand side, China and India are expected to be the drivers of growth. Mr Kilalea believes the two countries, which each hold about 10 per cent of global demand, will together account for a third of the market.
The industry is also hanging its hopes on the policy move by the Chinese government to encourage consumption, to benefit luxury goods, including spending on jewellery.
Martin Rapaport, founder of Rapaport, the diamond services company, says: “It’s going to be normal for people to own diamonds [in China].”