Fri, 29 Jul 2005

The diamond industry in 2005 – halfway review

July 29th
today. About half a year ago, I wrote an article looking ahead at
events and trends in the diamond industry during this year. Today, the
Antwerp diamond business closes for their Summer holidays, and it is a
good time to look at whether predictions came true and where my
predictions were incorrect.

Market of rough diamonds

The
basic prediction about the market of rough diamonds was that the upward
pressure on prices would continue. That is definitely the case.

On
De Beers’ side, there was a price increase of 3% both in January and in
June. On top of that, a service-charge of 2% was added in July. Other
producers have increased their pricing accordingly.

All in all,
current premiums of up to 15% on DTC-boxes on the secondary market
might suggest that DTC-rough is still relatively cheap compared to that
of other producers.

However, more and more players are doubting
whether the price increases of rough diamonds are a sign of an
inflationary bubble, about to burst. Many sightholders indeed are not
cutting their rough at this point in time, but re-selling their boxes
with immediate profit. When they need polished diamonds for their
customers, it is cheaper to buy that than to have it cut yourself.

Also,
I have heard reports of the same rough going from hand to hand for the
past months. This might be an indication of a dangerous speculation on
ever-increasing prices of rough diamonds.

As for the selection of
new sightholders, it was a surprise that 11 new sightholders were
selected while no existing ones were ousted.

Alrosa has announced
that they are setting up a new distribution channel, which will also
work with preferred customers, thus comparable to the DTC
sightholder-system. Activity in Moscow is high lately, with many
applicants trying to show their strength in order to be first-in-line
in the new Alrosa-system.

All in all, there is still a lot of
upward pressure on rough prices, but the fear that the bubble might
burst begins to come up. Competition in the diamond business these last
years has been mainly a competition to obtain the rough, and I do not
foresee that changing dramatically in the next months.

Market of polished diamonds

Sometimes,
predictions come true sooner than expected. AGS has indeed launched
their new cut-grading system for princess-cuts in May, and that for
rounds already in June. More amazing is that we can expect new launches
from AGS for other shapes in the coming months, maybe even for this
year.

GIA gives slightly more information on its upcoming
cut-grading system with each new presentation, but it is clear already
that the formal launch will at best be for next year.

Prices of polished diamonds are slowly going up, but this price increase can in no way be compared to that of rough diamonds.

Supply
in stones above 1.50 Cts is very limited, and with many rough dealers
speculating on ever-increasing rough prices, production in these sizes
is very low too.

 

Article Series
This article is part 3 of a 3 part series. Other articles in this series are shown below:

  1. Just imagine
  2. The Diamond Industry in 2005
  3. The diamond industry in 2005 – halfway review