Industry News
Diamond prices to fall 30%
14/01/2009
By: Ines Schumacher
The outlook for diamond prices in 2009 is "very poor" with analysts forecasting the price could drop by up to 30% and that it will not recover until 2010.
"I wouldn't be surprised if prices drop by more than 30%," says Des Kilalea, an analyst at RBC Capital Markets, an international corporate and investment bank. "There will be no material recovery in 2009," he says.
A Johannesburg analyst expects prices to fall between 15%-20%. "Prices aren't easy to predict, but I expect it to remain flattish throughout 2009," he says.
In 2007, total diamond production worldwide was 160 million carats with an estimated value of $14bn. South Africa currently contributes 12% of overall production by value.
The US recession is a significant threat to the diamond market because it accounts for half of the market. Diamond cutters are building up debt because there are no credit options available to them which is making them reluctant to buy additional stock.
On the rough diamond supply side, diamond miners have built up a surplus of diamonds and are now cutting The Toronto- and Johannesburg-listed diamond junior, BRC DiamondCore, is the latest mining company to announce it would scale back production. "I expect DiamondCore to close down its South African operations completely this year and focus on its prospects on the DRC," says Kilalea.back on production.
Rockwell Diamonds said it would extend its year-end shutdown by four more weeks in January owing to weak market conditions. Kilalea says Rockwell is likely to restart all its operations by the end of the month except its unprofitable Wouterspan mine.
"De Beers is going to be hurt the most, since it mines the most diamonds," says Kilalea.
It was, however, difficult to make blanket statements about alluvial juniors, which dig for diamonds in rivers, says Kilalea. Consolidation was possible.
"The juniors who are producing diamonds at the moment, such as Rockwell, Namakwa Diamonds and Petra Diamonds are likely to survive the year.
"The ones that are still developing and exploring are just consuming cash without making any money." It is these juniors that are likely to merge with other mining operations in the year ahead, says Kilalea.
Although alluvial juniors mine some of the highest-quality diamonds, prices will be weak due to low demand, says Kilalea. "Quality diamonds are only used in jewellery which is still a market driven by consumers."
Bill Champion, MD of Rio Tinto Diamonds, which is earning a 60% stake in BRC DiamondCore's Congo prospects, was positive about diamond prices in the future, according to an RBC Capital Markets presentation.
"Long-term diamond industry fundamentals suggest that the aggregate level of diamond demand will exceed supply, resulting in sustained price growth over the next decade.”
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