Three Views of the Diamond Market

Why miners still forecast a supply-demand gap

In the last month, we have seen a few notable reports on the diamond industry. Here are some highlights:

– The supply/demand imbalance: The dream never dies.

Alrosa’s June presentation is the most bullish of the bunch, with the Russian diamond producer estimating that demand will rise 2 to 4 percent over the next few years. The United States, the largest market, will show moderate growth of 3 to 4 percent, it says.

However, diamond production has been relatively flat since 2009, it notes, and it expects production to increase only at a 2 percent compound annual growth rate (CAGR) until 2025.

Which means we could see the much-talked about—and much-delayed—supply-demand imbalance come about in 2019.

– Dominion sees growth on the low-end.

Dominion Diamond’s presentation and conference call this week also brings up the supply-demand differential, expecting diamond jewelry demand to grow at 3.4 percent CAGR. But it says a lot of that growth will be in lesser-quality goods, crunching numbers from Rapaport.

“Democratization of diamond jewelry and resilience of mass-market jewelry has led to stronger price trend in lower-quality polished diamonds,” it says. “Polished diamonds in lower colors (e.g., K–M) have outperformed better colors (e.g., D–F) Better clarities (IF–VVS) have shown weaker price performance than lower clarities.”

ABN AMRO plays the spoiler. (There’s one in every crowd.)

ABN AMRO’s Diamond Market Outlook agrees that, yes, demand will likely improve, especially in the United States, as household income climbs and the marriage rate stabilizes.

Still, as more of an outside observer, ABN AMRO is not as gung-ho as the two miners. While demand may improve somewhat, it writes, it believes the short-term improvement in rough prices is unsustainable and that prices will eventually come down.

“The improvement in end-demand remains fragile and this doesn’t justify higher polished and rough diamond prices,” it says. “Moreover, history and market dynamics have shown that inventory levels/positions first need to be cleared before a new uptrend in prices can materialize. We think we are not there yet.”

JCK News Director