The leading diamond banks have moved to dampen speculative rough buying in their latest round of credit cutbacks. Banks will only finance 70% of client rough purchases, instead of fully funding them.
The banks believe rough prices have soared far beyond those of comparable polished diamonds, making diamond cutting unprofitable and creating a liquidity crisis throughout the industry. At the same time, they have further reduced lending across the board by another 10%, lowering it to 65-70% of client receivables.
Banks, which had supported the diamond industry through the economic crisis of 2008-9, say credit reductions are necessary to bring rough prices and manufacturing activities more in line with market forces. By some estimates, manufacturing significantly exceeded demand for some sizes and qualities, sometimes resulting in large, unbalanced inventories.
The credit reductions have hit most diamond manufacturers, but they do applaud measures to reduce the growing gap between rough and polished prices. The International Diamond Manufacturers Association issued a call on Oct 10 to diamond mining companies asking them “to face reality” and rein-in the out-of-control speculative rough buying.
The banks’ action puts De Beers and other diamond producers in the middle because, while manufacturers have been buying very cautiously, some rough dealers have been paying the higher prices, which has kept prices high.
De Beers’ sightholders, for example, have been leaving 10-15% of their allocations on the table for much of this year. De Beers executives have reportedly stated that a client’s “purchase history” will be reviewed in their applications for the next sight term that begins in 2015. De Beers and other producers have not significantly lowered rough prices despite the stagnant state of polished prices. Additionally, De Beers’ executives, according to press reports, have told clients who complain about high rough prices that other clients would be happy to pay their prices for rough.
Russia’s Alrosa and Rio Tinto also have been reluctant to lower prices, particularly as the former is in the midst of an initial public offering and the latter is funding an extremely costly retooling of its Argyle mine. Tender sale prices have also held up, but some analysts believe speculative dealers have been leading the bidding.
Whether the banks’ actions help bring rough prices more in line with the polished market will become apparent by year’s end.
SYNTHETIC DIAMONDS: Recent reports of undisclosed synthetic diamonds mixed into parcels of natural diamonds have rattled the industry. Several manufacturers of natural diamonds in Surat have allegedly begun to grow CVD synthetics; press reports indicate that synthetics from existing producers have been showing up in parcels.
GIA has seen no significant increase in the number of synthetics submitted to its laboratory for grading. According to the press reports, most of the undisclosed activity appears to be concentrated in the melee and small stones that generally are not submitted to gemological labs for grading.
The leading diamond banks have moved to dampen speculative rough buying in their latest round of credit cutbacks. Banks will only finance 70% of client rough purchases, instead of fully funding them.
The banks believe rough prices have soared far beyond those of comparable polished diamonds, making diamond cutting unprofitable and creating a liquidity crisis throughout the industry. At the same time, they have further reduced lending across the board by another 10%, lowering it to 65-70% of client receivables.
Banks, which had supported the diamond industry through the economic crisis of 2008-9, say credit reductions are necessary to bring rough prices and manufacturing activities more in line with market forces. By some estimates, manufacturing significantly exceeded demand for some sizes and qualities, sometimes resulting in large, unbalanced inventories.
The credit reductions have hit most diamond manufacturers, but they do applaud measures to reduce the growing gap between rough and polished prices. The International Diamond Manufacturers Association issued a call on Oct 10 to diamond mining companies asking them “to face reality” and rein-in the out-of-control speculative rough buying.
The banks’ action puts De Beers and other diamond producers in the middle because, while manufacturers have been buying very cautiously, some rough dealers have been paying the higher prices, which has kept prices high.
De Beers’ sightholders, for example, have been leaving 10-15% of their allocations on the table for much of this year. De Beers executives have reportedly stated that a client’s “purchase history” will be reviewed in their applications for the next sight term that begins in 2015. De Beers and other producers have not significantly lowered rough prices despite the stagnant state of polished prices. Additionally, De Beers’ executives, according to press reports, have told clients who complain about high rough prices that other clients would be happy to pay their prices for rough.
Russia’s Alrosa and Rio Tinto also have been reluctant to lower prices, particularly as the former is in the midst of an initial public offering and the latter is funding an extremely costly retooling of its Argyle mine. Tender sale prices have also held up, but some analysts believe speculative dealers have been leading the bidding.
Whether the banks’ actions help bring rough prices more in line with the polished market will become apparent by year’s end.
SYNTHETIC DIAMONDS: Recent reports of undisclosed synthetic diamonds mixed into parcels of natural diamonds have rattled the industry. Several manufacturers of natural diamonds in Surat have allegedly begun to grow CVD synthetics; press reports indicate that synthetics from existing producers have been showing up in parcels.
GIA has seen no significant increase in the number of synthetics submitted to its laboratory for grading. According to the press reports, most of the undisclosed activity appears to be concentrated in the melee and small stones that generally are not submitted to gemological labs for grading.
