Oil isn’t the only commodity that has become completely saturated; diamonds have been hit hard by shockingly similar problems. Diamond prices are predicted to take over a year to recover from a massive industry glut. A drastic drop in demand combined with increased rough diamond production has led to diamond prices dropping to all-time lows. In recent years China’s ferocious appetite for diamonds appears to have been quenched, leading to an alarming reduction in diamond sales. This trend has been echoing throughout the world, with industry wide credit crunches painting grim pictures for the future of diamond sales. Fortunately this year’s unexpected boost in gem sales reported by De Beers & Alrosa are creating a spark of hope for this ailing industry.
Experts Predict Long Journey for Diamond Prices to Recover
“Elevated inventory levels of rough diamonds and weak end markets will inhibit any recovery in rough-diamond prices for at least 12 months,” predicted London-based Liberum analysts Ben Davis and Richard Knights.
Experts are warning that the once vibrant diamond market is fading into an economically induced quagmire. These predictions are fueled by the fact that sluggish sales have forced diamond makers to stockpile massive amounts of rough diamonds. Even though diamond prices dropped 18% last year, producers have still had to stockpile over 20 million carats. De Beers, the top diamond producer in the world, sent shock-waves throughout the industry when they cut prices by 7 percent in January. This came on the heels of them cutting prices by over 15% last year.
Two diamond producing giants are making drastic moves to stimulate the market. Anglo American Plc-owned De Beers & Russia’s Alrosa shocked critics when they exceeded expectations with their 2016 sales. This is no small feat since combined these two companies control two thirds of the entire market. They sold a grand total of $2 billion in rough diamonds in the first two months of 2016 alone. They reached these spectacular numbers by catering to a fresh demand by diamond cutters, polishers & traders. This surprising new demand for diamonds is sparking concerns that these sales may have been artificially created. Playing both sides of the fence is nothing new to these mega companies. Last year the two diamond giants temporarily put a halt to the steep slide of diamond prices by cutting a quarter of the global supply. Experts warn that restocking before the market is ready could have drastic consequences.
“Restocking could lift rough prices, but this is unlikely as midstream margins remain under pressure and polished prices will not recover with weak markets in key growth regions,” market analysts wrote.
Even though demand is starting to show signs of improvement, the top companies need to tread lightly to avoid another crisis. Premature restocking could wreak havoc on the recent market improvements. So far the only sure thing is that all this uncertainty is creating an extremely volatile environment. De Beers & Alrosa are playing it smart by being cautious about celebrating too soon.