Industry Analysis

Diamond Market Sentiment Continues to Improve

Russell Shor, Senior Industry Analyst
April 26, 2013
Round brilliant cut diamonds spilling out of a partially unfolded stone paper.
Diamond manufacturers, with an eye toward the JCK Las Vegas Show in May, say market sentiment has strongly improved since January thanks in large part to better-than-expected orders from U.S. retailers.
The improvement in market sentiment has stabilized polished diamond prices, which had been weakening for months, and touched off a new wave of speculative buying of rough diamonds on the belief that supplies will be short after nearly a year of reduced sales into the market.
De Beers offered a relatively cautious sight – about $665 million, with some price increases averaging about 5% – to grab some of the rising premiums manufacturers are paying for sight goods.
While some dealers are predicting supply shortages in coming months, it has become extremely difficult to accurately predict the supply situation because of the large amounts of rough held for speculative buying and the very large polished inventories held in dealers’ safes around the world.
Inventories of polished goods have swelled in recent years because, after more than a decade of trying, the major diamond industry banks have succeeded in greatly limiting the use of memo to large U.S. retailers. Bankers are unwilling to offer an estimate on the percentage of current memo business, but say it is generally limited to its original purpose of supplying short-term seasonal needs.
The catalyst for ending the widespread use of memo was the spate of trade and retail bankruptcies in 2007-8 that resulted in hundreds of millions of dollars’ worth of disputed (or missing) diamond inventories and costly legal battles over ownership.
De Beers CEO Varda Shine offered her company’s outlook for the diamond market at a recent diamond conference in Dubai:
  • Retail diamond demand will grow 5.5-6% on average by value each year, with most of that growth centered in India, China, Turkey and the Middle East. The U.S. will also grow, though more slowly.
  • In 2016, the U.S. will represent 35% of world diamond sales; India 13%, China/Hong Kong 17% (Taiwan 2%); Japan 7%; the Gulf Region 9%; and Turkey 2%.
  • Diamond production will begin to recede after 2017. Botswana (23%), Russia (22%) and Canada (12%) will be the world’s largest producers by value.
  • Producing nations will continue to press for greater control over their resources: Botswana, Namibia and Canada are pressing for a minimum of 10% of their production to be processed locally. These nations are also developing branding efforts to aid this goal.
The conference, organized by the Dubai Multi Commodities Commission, focused on the changing distribution patterns of the diamond trade in light of emerging markets in China, India and the Middle East.

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