A sustained diamond supply surplus

Avi Krawitz

Don’t be fooled by the pitch that touts shortage as a reason for investors to plough dollars into the diamond mining sector. In fact, like many other commodities in the world today, the diamond industry is also drowning in a supply glut. What’s worse, amid all the talk of weaker rough sales, is that global production actually grew in the first half and looks set to continue increasing for the rest of 2015.

The cumulative output of five major mining companies in the world rose to 47.26 million carats in the six months that ended June 30, an 8 percent jump from a year ago. ALROSA, De Beers, Rio Tinto, Dominion Diamond Corp. and Petra Diamonds account for an estimated 70 percent of global supply volume. Given their respective plans, production is slated to advance 5 percent to more than 50 million carats in the second half, the highest level of half-yearly output since the 2008 financial crisis.

Editorial_Production Graph Pic_090315

Restrained polished demand

Certainly, neither the rough nor the polished market has not warranted such volumes in 2015. Demand for rough diamonds slumped to new lows in July as manufacturers cut their purchases of the raw material because of high rough prices and an overhang of polished inventory.

[two_third]Recognizing a weakness in the market, De Beers allowed sightholders to defer up to 75 percent of their allocated supply through the rest of the contract year, while ALROSA made similar concessions for its clients to defer half of their allocations in July and August. De Beers also lowered its prices by about 10 percent at the August sight, influencing some sightholders to ask for already deferred goods to be brought forward. The sight closed with an estimated value of around $300 million, compared with an initial projection of $250 million.[/two_third][one_third_last]

“De Beers allowed sightholders to defer up to 75 percent of their allocated supply through the rest of the contract year.”


Still, demand for rough diamonds is restrained and polished trading remains cautious. “People are buying less and trying to keep inventories low,” said an Antwerp-based dealer who participated in the International Diamond Week in Ramat Gan this week. “But there’s still a lot of goods in the market.”

Dealers at the event reiterated that demand from the U.S. is supporting the market as China, and, to a lesser extent India, has slowed. Furthermore, the outlook for China has been trimmed thus reducing the longer-term growth prospects for the industry and extending the surplus.

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Source Rapaport