Rough diamond over-supply – Mining prospects in 2014

Avi Krawitz

Diamond miners are treading a fine line these days, careful to keep short-term production levels in line with demand. Planning their production for 2014 may therefore be tougher than usual given current rough market conditions.

Their customers, the dealers and manufacturers who buy rough diamonds, are frustrated by the low profit margins they’ve been able to garner in the past few years. Restrained by tighter bank credit, rough buyers are determined to ensure that margins improve in 2014 and they appear willing to reject non-profitable rough when necessary – even if demand is strong ahead of next week’s De Beers sight.

However, overall rough demand is likely to be flat in 2014, as it was in 2013, and average prices are expected to soften while manufacturing levels remain well below capacity.

Yet, production increased last year and mining companies were thought to be holding relatively large inventories at the start of 2014. One wonders who is holding goods in the ground and who is holding in their safes.

Regardless, the major mining companies – De Beers and ALROSA – are planning production at similar levels to last year, while the mid-tier and smaller producers are increasing their output as development projects come to fruition.

[two_third]In fact, there is a fair amount being invested in diamond mining as companies seek to boost production beyond 2014. For them, longevity is the key as they foresee long-term diamond supply falling short of demand due to expected consumer growth in China and India. As a result, there are a number of projects that will gain momentum in 2014, including expansion of existing mines and programs to develop new ones, which will ensure sufficient supply to the market in the coming decade or two.[/two_third][one_third_last]

“There are a number of projects which will ensure sufficient supply to the market in the coming decade or two.”



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Source Rapaport