Effect of DeBeers'' doubling of rough cut output

[auser]

Hi -

The WSJ just reported on the industry conference in Antwerp where DeBeers announced a dramatic increase in rough cut mining operations. What effect should we expect to see on retail prices in the near-term? Would we expect this to affect prices similarly across all diamond grades?

The article may be accessed here: http://online.wsj.com/article/SB10001424052748704538404574539731966661294.html#articleTabs%3Darticle. If you cannot access the article, it is entitled "Diamond Miners Band Together" (should be accessible from a Google news search).

I was looking to purchase in the next couple months, but want to hold off if prices are going to drop.

Thanks!

 

[serenitydiamonds]

Date: 11/17/2009 9:37:58 AM
Author:auser
Hi -


The WSJ just reported on the industry conference in Antwerp where DeBeers announced a dramatic increase in rough cut mining operations. What effect should we expect to see on retail prices in the near-term? Would we expect this to affect prices similarly across all diamond grades?


The article may be accessed here: http://online.wsj.com/article/SB10001424052748704538404574539731966661294.html#articleTabs%3Darticle. If you cannot access the article, it is entitled ''Diamond Miners Band Together'' (should be accessible from a Google news search).


I was looking to purchase in the next couple months, but want to hold off if prices are going to drop.


Thanks!

Actually DeBeers increasing production is one sign prices are going to stay the same if not raise a little, not drop as one would think. DeBeers and other manufacturers (it''s very important to note that DeBeers no longer controls the diamond market, it only has a strong influence) cut production at the beginning of the economic crisis to help prevent prices from dropping too far. At the end of 2008 hardly anyone was purchasing rough or polished at the wholesale level. Now, the story is different, stones are moving, slowly, but moving. We''ve seen weaker manufacturers and retailers drop out of the market or declare bankruptcy, but to strong contenders are there. Even when there is an economic crisis people still get married, albeit sometimes with smaller diamonds.

Currently the market is looking up, slowly, but looking up. Rough prices and sales have been moving up slowly, as has demand for diamonds. Because of this, manufactures are beginning to increase production to support this demand.

No one can predict the future, but given our current situation with prices holding steady I would not count on them dropping further unless there is another unforeseen global economic event.

--Joshua

 

[auser]

Thank you for the quick reply. The chart in the article did reflect DeBeers'' mining output of ~40% of the top four in 2008 (presumably higher on a run-rate if they deliberately slashed output ahead of Alrosa and Rio Tinto during the latter half of that year). I could see the expectation of increased demand as a cause to increase output, but I would also expect the lag in consumer spending and employment to be greater than the time-to-market for newly-mined material (causing short-term price imbalances). I gather that it is fair to state that we should expect price support for lower-tier diamonds given the recurring consumer spending habits (though I am curious as to what effect lower-cost alternatives like black and grey diamonds/ fancy gems have on consumer demand). Should we expect the same pattern for diamonds on a higher price tier (say USD 20k+)?

Before irking anyone, I sincerely appreciate the insight provided

, and I am certainly not trying to debate as I know nothing of the industry mechanics.

Thank you again!

 

[serenitydiamonds]

Date: 11/17/2009 4:40:04 PM
Author: auser
Thank you for the quick reply. The chart in the article did reflect DeBeers'' mining output of ~40% of the top four in 2008 (presumably higher on a run-rate if they deliberately slashed output ahead of Alrosa and Rio Tinto during the latter half of that year). I could see the expectation of increased demand as a cause to increase output, but I would also expect the lag in consumer spending and employment to be greater than the time-to-market for newly-mined material (causing short-term price imbalances). I gather that it is fair to state that we should expect price support for lower-tier diamonds given the recurring consumer spending habits (though I am curious as to what effect lower-cost alternatives like black and grey diamonds/ fancy gems have on consumer demand). Should we expect the same pattern for diamonds on a higher price tier (say USD 20k+)?


Before irking anyone, I sincerely appreciate the insight provided

, and I am certainly not trying to debate as I know nothing of the industry mechanics.


Thank you again!

In diamonds, contrary to most other items in the economy, most people don''t like to brag they paid a little price for a lower quality diamond. So, off color diamonds (other than high demand fancies) are usually discounted the most because of lower demand. The high tier has taken a hit in sales, but honestly, the pricing hasn''t dropped so much, except for the high markup tiers such in the Top Class B&M World (little blue box world). The rough diamond prices dropped a little, but polished prices at the wholesale level have remained relatively firm (as compared to everything else in the economy).

--Joshua

 

[auser]

Thank you for the insight.