Prices on the Precipice?

 

Well, here comes the latest reminder, as if any more were needed, that we are truly in a post-cartel world …

 

According to reports, prices at the BHP tender were 35 – 45% less than the last go-round. Charles Wyndham notes here that prices at the Lesotho tender, which his company administers, were down a similar amount. Now, these are small offerings in the scheme of things. But, as a sign of things to come, they have people pretty spooked.

 

The people I’ve talked to said that while prices have softened on some big stones, there hasn’t been any big price decreases – simply because there hasn’t been a lot of action in the market, period.  That’s partly because of the holidays, but mainly because of the global financial crisis, which has basically frozen everything.  There is talk of dealers anxious to get rid of the stones they acquired this summer – but not at bargain prices … yet.

 

This has been an unusual year; in the summer, we saw two jaw-dropping increases from both De Beers and on the Rapaport list. It was probably inevitable that the speculation-driven price increases on the most expensive stones would reverse themselves – but some are now wondering if the softening of prices in one end of the market will infect the others, which may have happened in the BHP tender.

 

For now, all eyes are again on the DTC and Rapaport to see how they will react. Rapaport hasn’t lowered prices yet, and the guessing is that he will be very careful if he does.

 

The DTC’s actions may be limited. They won’t get very far selling goods for 30% more than their competition. But an obvious and dramatic price decrease could cause a panic.

 

Now, if these were the old days, De Beers would simply throw the undesirable stones on a stockpile, and wait for good times to come around again. But legally (and probably practically) that is no longer an option, and they also have producer partners to please. Yet shoving goods down their clients’ throats isn’t a great choice either. There is a lot of talk about Indian companies skipping sights.  Obviously sightholders are going to scale back their requests for the last two allocations. This should make the last two sights relatively small; De Beers has already said they would be. It will be interesting to watch the DTC try to finesse this situation in this contract-governed, EU-supervised era.

 

One more note: All this is happening at the same time the DTC plans to launch a campaign promoting diamonds as having “enduring value.”  Now, apparently, the “enduring value” they are talking about isn’t exactly the same as financial value. But the implication is clearly there. I do think that most of us feel that diamonds will hold their value long-term, so it still has a value as a marketing concept.   Still, with the trade possibly facing the biggest roller-coaster ride it’s had in years, it may turn out to be — let’s just say — interesting timing.

JCK News Director