Rough prices: what is the outlook for 2015?

Marianne Riou

As 2015 gets underway, all eyes are turned to the gem producers. After an extraordinary and difficult year in 2014 for all the players in the industry, except for rough suppliers, everyone is hoping for great things from 2015. So, will rough prices fall in 2015?

There is indeed room for optimism and, at the start of this year, analysts from all quarters agreed on this notion.

But the questions is: do we really want a drastic fall in rough prices? In his article Rough price correction, Avi Krawitz, journalist and analyst with Rapaport, quoted Mike Aggett, CEO of H. Goldie & Company, a De Beers accredited broker, as saying “a dramatic rough price reduction might further upset market confidence and devalue polished inventories“. In the same article, Russell Mehta, managing director of Rosy Blue India and a sightholder, encouraged sightholders to refuse goods in order to “reduce inventory levels and generate liquidity”.

On their side, under pressure, Indian producers have greatly reduced their output (and logically their orders). India and China have had lower demand than they might have liked and, even if the American market has picked up some of the slack, it cannot be counted on to carry the whole market.

It is noteworthy that at the start of this year, all eyes were on De Beers’ first 2015 sight on 19 January. And, the least you can say is that it did not breathe much life into the industry. Assessed at around 450 million dollars, it did not live up to expectations regarding a fall in the rough price, which was only of about 4% through assortment changes. What is more, even if this solution was raised, the sightholders only refused 20% of the goods offered during the sight (not to mention the issue of the composition of the goods, with demand veering towards inferior qualities). On the cusp of a new 3 year ITO period, which will begin in April, are they scared of losing their sight?

As for the Russian ALROSA, it did not reduce its prices either. The gem producer even announced that rough prices had increased by 7% over 2014 and forecast an increase in production in 2015—38 million carats as opposed to 36.21 million carats in 2014.

In his article “Being a sightholder is a fool’s errand”, journalist Rob Bates suggests “What may be required is a new mindset. The diamond industry remains an oligarchy. There are dozens of diamond manufacturers and only two high-volume rough producers, along with a handful of other miners. Manufacturers don’t have many other places to go.

Maybe the rough market will really be opened up to competition? Perhaps, from now on, the producer who offers the product that best meets market requirements in terms of the balance between quality, price and demand will come out on top? Because, to quote analyst Edahn Golan, the company who will come out best in the diamond industry of the future will probably be a company that has a very good understanding of the entire pipeline and that figures out how to provide the best value for its customers, while managing its internal workings efficiently. 

So everybody will be looking to the secondary market, the most reliable indicator of the real condition of the market as it is closer to the realities of supply and demand. The other question is how will the other big gem producers Petra Diamonds, Dominion Diamond, Gem Diamonds and Lucara Diamond behave? With who or with which market segment will they align their prices?

One month into 2015 we are back to square one. As we wait to see what rough prices will be in February at least (and at a time of the year when trade in diamonds is often at its most dynamic), manufacturers and retailers are laying low, in the hope that 2015 will bring some dynamism back to the market, hoping that it will not just be the miners who make a decent profit!

Prix des diamants bruts : quelles spéculations pour 2015 ?

Marianne Riou

En ce début 2015, tous les regards sont tournés vers les miniers. Après une année 2014 hors norme et difficile pour tous les acteurs de l’industrie excepté les fournisseurs de brut, 2015 est porteuse de tous les espoirs. Alors, les prix du brut vont-ils baisser en 2015 ?[:] (more…)