Diamond surge a ‘flash in the pan’

The world’s two biggest diamond-mining companies have just sold $1-billion worth of gems and it’s making smaller rivals nervous.

January offerings by De Beers and Russia’s Alrosa PJSC, which control almost two-thirds of the market, far exceeded everyone’s expectations. The sales were driven by supply cuts last year, which led to shortages, lower prices and better-than-expected holiday demand. But there are concerns it’s too much too soon for an industry still reeling from the biggest rout in seven years.

“It’s going to be very difficult to sustain the current exuberance of the market,” said William Lamb, the chief executive of the Lucara Diamond Corporation.

“We’ll most probably see diamond prices softening in the back end of this year.”

The smaller producers are at the mercy of the two biggest, whose market dominance helps them control prices by reducing output or withholding sales. About a quarter of global supply disappeared last year as miners tried to arrest an 18% drop in rough prices after China’s slowdown and an industrywide credit crunch curbed demand.

Helped by a 7% price cut, Anglo American-owned De Beers sold $540-million of diamonds in its first sale this year, more than twice its December offering and beating analysts’ expectations. Alrosa extended its January sale and shifted about double the $200-million to $250-million it originally planned.

“January was a good start on that road to recovery, but whether we’re firmly on that road, it’s too early for me to call that,” said Stuart Brown, chief executive of Firestone Diamonds and a former chief financial officer of De Beers. “Time will tell. You don’t get any prizes for being bullish in this industry.”

Last year was bruising for the $80-billion industry, with prices dropping the most since the global financial crisis in 2008. Cutters, polishers and traders said mining companies were still demanding more than many could afford to pay.

Prices should remain steady this year, said Paul Loudon, the chief executive of DiamondCorp. The London-based company plans later this year to revive the 1930s Lace mine in South Africa.

“Early this year, there’s real demand from the factories for rough [diamonds],” Loudon said in an interview in Cape Town. “It’s not sustainable. It’s not going to last for the whole year.”

De Beers in December said polished diamond demand would fall 1% to 2% in 2015 compared with 3% growth a year earlier. Tiffany & Co last month lowered its full-year profit forecast, and the Chow Tai Fook Jewellery Group, the biggest jeweller, has slowed expansion plans. – © Bloomberg News

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