Industry Analysis

Major Diamond Find Brightens Market


The 1,111 ct. rough found by Lucara Mining in the Kerowe Mine in Botswana is only the second diamond weighing more than 1,000 carats to be found in history. The company plans to auction the diamond next year. Photo courtesy Lucara Mining

The news from Lucara Mining, which found three huge diamonds – 1,111, 813 and 374 carats − all in the same week from the company’s Kerowe Mine in Botswana, has brightened an otherwise lacklustre diamond market.

Two of the diamonds are the second and sixth largest ever found.

All three will be sold in Antwerp early next year, according to Lucara. Given the enormous wealth some buyers are putting into major diamonds and coloured gems, the buyer of the 1,111 carat (ct.) rough will probably go for the maximum final cut size, striving to exceed the 530 ct. Cullinan I, the world’s largest colourless diamond that is the centrepiece of the British Crown Jewels, and the 545 ct. Golden Jubilee, a yellowish brown diamond in the Crown Jewels of Thailand. The final cut, of course, will depend upon whether the inclusions and fissures within the stone will permit such a large stone.

The enormous wealth being spent on top diamonds was evident at recent Sotheby’s and Christie’s auctions. As reported around the world, a Hong Kong businessman, Joseph Lau, paid a world record of $48 million (£31.8 million) for a 12.08 ct. Fancy Vivid blue diamond – at $4 million (£2.65 million) per carat, it was also the record per-carat price ever paid for a gemstone. The day before, he paid $28.5 million (£18.9 million) for a 16.08 ct. Fancy Vivid pink diamond.

The $48 million (£31.8 million) Blue Moon Josephine, a 12.08 ct.  Fancy Vivid blue, has become the most expensive gemstone ever sold at auction. Its $4 million (£2.65 million) per carat price exceeded the previous record by $1 million (£662,900). Photo courtesy Sotheby’s

Lau named both diamonds, which were graded by GIA, after his daughter, Josephine. Last year, he paid a record-breaking $32.6 million (£21.6 million) for a 9.75 ct. Fanvy Vivid blue diamond and named it Zoe after his other daughter.

In the more commercial side of the diamond market, major diamond producers have trimmed rough sales way back as the industry continues to grapple with high stock levels, diminished credit and stagnant demand.

De Beers’ 7-11 December sight is expected to be a repeat of November’s $70 million (£46 million) allocation – the smallest since the world financial crisis in autumn 2008. De Beers has reportedly returned to deferring purchases from its own mining partners, in particular Debswana, a practice it has not done in 20 years, when Russian diamonds were flooding the market and depressing prices for smaller stones.

Alrosa, the agency that mines and sells Russia’s diamonds and Rio Tinto, which owns Argyle Diamond Mine in Australia and a majority share of Diavik in Canada, have instituted provisions that allow their clients to defer purchases.  

Alrosa's rough diamond sales volume fell 42% short of its plan for the third quarter of the year, according to a company statement. The decline was especially steep in September, when the company not only slashed prices by 8%, but also allowed its clients to defer up to 50% of their purchases. The company, which held its prices in October, had forecast $5 billion (£3.3 billion) in revenues for the year, but analysts believe actual sales will come in at about $3.6 billion (£2.3 billion).

The company’s diamond production totalled 23 million carats in the third quarter, down 5.8 million carats from the same period in 2014. But revenues-per-carat sales were 3.5% higher, indicating that Alrosa was concentrating its sales into larger goods and stockpiling smaller goods.

The 16 ct. Fancy Vivid Pink diamond sold for $28.5 million (£18.9 million) to the same buyer who bought the record-breaking blue diamond. Photo courtesy Christie’s

Retail

Jewellery demand in the U.S. is growing, though slowly this year. According to U.S. Department of Commerce data, sales of fine jewellery increased 4.8% in September, over the same month last year. Much of that increase went to online sellers, which include bricks and mortar retailers who have an e-commerce division.

Retail analysts are expecting jewellers to discount heavily during holiday sales, even as they predict a respectable season. Price cutting began early with one major department store, Macy’s, advertising 30% off on engagement rings during the holiday season.

Blue Nile, the leading online diamond seller, has scaled back its sales growth estimates for 2015, expecting its yearly sales to total between $488 and $498 million (£323 and £330 million), instead of the originally forecast $505 million (£335 million). Last year’s total sales were $473.5 million (£313.9 million). The company is basing its new forecast on a third quarter sales increase of 4%.

Worldwide, demand from luxury watches plunged 12% in all major markets in October, compared to the same month last year. The Federation of the Swiss Watch Industry reported: sales to Hong Kong fell 39% to $258 million (£171 million); exports to the U.S. declined 12% to $232 million (£154 million); and orders from China declined 5% to $120 million (£79.5 million). Exports to other European countries were down by 4% to 5%.

Russell Shor is senior industry analyst at GIA in Carlsbad.