The diamond industry is currently experiencing its worst days since the global financial crisis of 2008. Levels of rough trade have hit rock bottom and everyone believes prices should go down.
The problem, which had been affecting the midstream, has also moved upstream where the big mining companies - especially De Beers and Alrosa - are giving their clients the opportunity to buy fewer goods, without penalty. This unprecedented move is a bid to maintain a stable market and to avoid prices crashing. The big question is how long the miners can - and how long they want to - continue doing so.
This month, some boxes in the secondary market were sold with discounts of 3% and 4% from the list price. This resulted in losses of 7% on the total cost price, so it’s hardly surprising the banks no longer want to finance these kinds of purchases.
Rough Trade by Size
5-10 ct No trade and no demand. Manufacturers are claiming that some boxes are overpriced by 20% or more.
3-4 ct Low trade with most of the sales at or around list price+ credit .
4-8 grs Most of the trade is done with negative premiums. Even the prices of polished goods yielded from this rough - 0.40-0.30 carats - are dropping, and there is still no profit in manufacturing.
-3gr Low demand and negative premiums.
There is very little available in the outside market. Even with limited supply, prices dropped. Currently, traders feel that they are just chasing their tails. They bring cheap goods from Africa and their clients want it even cheaper still.
ABN AMRO in Antwerp sent letters to its clients telling them that the bank is unwilling to finance overpriced rough. This is just one more step in the global trend of banks no longer being prepared to finance the industry. As ever, this move could lead to a sharp fall in rough prices and increased bankruptcies. In addition, interest rates on borrowing are rising because of the high risk and a lack of confidence.
Sales of lab-grown diamonds have dropped due to the summer vacation. The holiday break has also led to increased price stability. Many lab-grown newcomers are finding it hard to sell their goods. These manufacturers are discovering that they must learn new marketing methods to break into this new market and capture a different type of clientele. Adding to their difficulties, the manufacturing technique required for lab-grown diamonds is also different and it’s not easy to predict what type of polished stone will result from the rough goods. Despite these challenges, many manufacturers are still trying their luck with lab-grown diamonds. And with good reason: rough is cheaper, there’s more chance to make a profit and they can keep their factories running at lower cost than manufacturing natural diamonds. However, even the lab-grown sector is seeing pushback from the banks, which are refusing to finance this new industry.
The current crisis in the midstream has moved upstream. This means producers can’t sell the quantities they are used to. If they want to increase their sales, there will need to be a big price correction downwards to allow the market to reduce its stock of polished.
The light at the end of the tunnel is still far away, but it’s there for the people that aren’t playing the speculation game.
For those with solid financial backing, the opportunities are on their way.