It was a turbulent year for rough diamonds. It started with high prices that continued to rise only to meet a sharp decline that brings to mind a soaring airplane suddenly spiraling down with a trail of black smoke behind. Gory images aside, a number of surprising trends rise from the ending year.

 

Starting from the end, the Diamond Trading Company (DTC) Sight 10 is estimated at less than $80 million, a small Sight by all counts, and below earlier expectations that it will total $100 million.

 

There was no demand for goods in the secondary market after the Sight. According to sources, the only numbers one hears are of buyers looking for distressed sellers with offers of 20 percent below, long credit, etc.

 

Speculation was a very strong price driver in the first half of the year, leading to continued price hikes and in some categories, prices were unrealistically high. With rough prices out of tune with polished, this year it reached a point that manufacturers complained they will lose money on the out put.

 

This was not the case in all categories. It was pronounced in the larger and better quality goods - the better the goods the greater the speculative trading. Conversely, trade in the cheaper and smaller rough was far milder and as a results not as out of sync with the prices of polished diamonds.

 

Prices started to turn south in October, hand in hand with the global economy and today the situation is reversed. Prices of rough diamonds are far below that of the polished goods it produces.

 

Another situation seen in the centers is a great disparity where similar goods sell at big price differences - disparities of up to 20 percent were quoted to us. This is an outcome of the “there is no price” situation we discussed last month.

 

Another trend is the rising dominance of the market in setting prices. Until recently, when demand increased, producers raised prices. When demand softened, prices didn’t follow that quickly. Alrosa, supplier of more than 20 percent of the goods by value was most notorious in that sense, according to its clients.

 

One trader went as far as saying the ‘C’ word - commodity - explaining that now diamond prices rise, and more importantly fall, according to market demand or lack there of. “Prices are no longer subject to producers’ manipulation,” he said, adding that he expects this trend to dominate in the coming decade. Who is the driving force of prices? “The consumer.” If this is the case, this is the realization of De Beers MD Gareth Penny vision of a demand driven market. As another long time trader said, “the era of the producers has ended.”

 

If the consumer indeed drives rough diamond prices, than we are a market in balance, according to economic theory. Many in the market will doubt that balance is a good description of the current situation.

 

An examination of statistical data will show that there is some trade in the market, and not just the kind that aims to generate cash flow at almost any cost. Some profitable trade is starting to take place in smaller lower quality and color goods, where prices are still sane. Half carat rough producing 10 points and smaller polished goods offer an opportunity for nice profits - the rough is cheaper than before, prices of the polished is stable and the demand is there.

 

Bold diamantaires are finding potential in 3-5 carat rough as well. This is encouraging. The spiraling out of control plane may have a pilot pulling the stick with success.

 

One final note. De Beers people in Africa told IDEX Online this week that they are making plans for the future with several scenarios in mind. They are waiting for January - when retail results are published - to decide which plan to implement. As wild a ride 2008 proved to be, 2009 may be even wilder and not for the faint hearted. If aerial acrobatics are not for you, this is the time to divert your eyes from that plane. If you are in the plane, maybe this is the time to use that parachute.

 

Article	Demand	Remarks on Demand
Fine 2.5-4 ct & Fine 5-14.8 ct	No	Like previous Sight
Crystals 2.5-4 ct & Crystals 5-14.8 ct	No	Like previous Sight
Commercial 2.5-4 ct & Commercial 5-14.8 ct	No	Like previous Sight
Spotted Sawables 4-8 gr	No	Like previous Sight
Chips 4-8 gr	No	Like previous Sight
Colored Sawables 4-8 gr & Colored 2.5-14.8 ct	No	Like previous Sight
Makeables High 3grs +7	No	Like previous Sight
Preparers Low 3-6 gr	No	Like previous Sight
1st Color Rejections (H-L)	No	Like previous Sight