We do not want to offer predictions. The economic markets are always in flux, which affects diamond buying in the process. A number of trends, however, have emerged and are worth noting.

 

Market Consolidation

Looking back, the number of major rough buyers has declined during the rollercoaster–year the industry experienced. At the same time, a number of miners were given a golden opportunity for a brighter future, and grabbed it.

 

The four major miners have fewer clients in 2010. Rio Tinto announced in December that it shed five of its 25 clients and two Sightholders, Overseas and Festdiam, stopped buying goods from the Diamond Trading Company (DTC).

 

Alrosa may have not lost clients officially, but the company sold to fewer clients and far less than usual. This comes on top of a mini-exodus from Antwerp, where a number of large Belgian dealers have shifted their business elsewhere and are seeing decreased sales in the process.

 

At BHP Billiton, a number of Term Market clients have reportedly opted out of their contracts at a recent exit point, but the company is very discreet about its operations and we have no confirmation from them about this. The rationale behind this is that contract buyers prefer taking their chances in BHP Billiton’s Spot Market, rather than ensure the supply but pay more.

 

This sounds illogical in light of the willingness by many to pay much more than 2-3 percent to get their hands on the goods.

 

At a time when miners are revving up their engines and cranking up diamond production, the number of first-hand diamond buyers is declining. This, in turn, gives them greater power when selling to the secondary market. Case in point - Alrosa lowered prices a bit and is literally encouraging its clients to buy and try to sell on the market at a premium. I guess that too is a distribution system.

 

It will be interesting to see how the consolidation in the number of first-hand rough buyers will affect the market.

 

Speculative Buying

Buyers last month purchased goods “for the safe” with the belief, dare we say the hope, that the DTC will raise prices in January. This month, we are hearing more reports of similar purchases in Israel and Belgium, as buyers believe that the price increases will continue into February.

 

A long-time market insider said traders in Antwerp are “moonstruck” in their search for rough diamonds. Their willingness to pay the premiums and shelve the goods testifies to how strongly they believe prices will rise.

 

DTC Sight 1 - High Demand

After stating in December that it only has a limited supply, De Beers’ rough goods were abundant in January. Unlike the last Sight, the DTC offered Ex-Plan goods and sold a “large quantity” of specials, goods larger than 10.8 carats, according to a number of sources.

 

In addition, the DTC sold non-standard goods - items that don’t fit into any particular box assortment. There were reportedly many such goods, which the company collects over time and offers on an infrequent basis.

 

The majority of price increases, according to DTC spokeswoman Louise Prior, “were in the low to mid single digit range.” Indian traders claim that this is an average, and that price increases of some boxes were double digit.

 

Generally, there was little change in the prices of 2.5-4 carat boxes. Boxes of the larger 5-14.8 carat goods saw more change in price, as interest in the resulting 1-4 carat polished goods rose. See the IDEX Online Market Report for more details.

 

Alrosa, until recently considered an expensive source, kept its prices while slowly becoming less expensive. It will raise prices next week in response to the rising demand. Alrosa clients have already lined up buyers who are willing to pay a 2-3 percent premium on top of the list price.

 

The price increases by De Beers are not catching up with demand. One Sightholder told IDEX Online that they “finally have room to breath. But just a little!”

 

With De Beers' production down by 40 percent year-over-year, rough prices may continue to rise due to an expected or perceived shortage. Coupled with an announcement by Rio Tinto Diamonds that its production is expected to decrease, expecting prices to rise is a natural conclusion.

 

According to De Beers, in 2013 demand will outstrip production as no new world-class diamond mines are coming on-stream. According to Kimberley Process records, the volume of world diamond production has been steadily declining from 175.54 million in 2006 to 162.91 million in 2008. Production in 2009 was especially low.

 

Some $450 million worth of rough is expected to enter into the market when Stornoway’s Renard in Canada and Lucara’s Mothae in Lesotho come on-stream in a couple of years.

 

However, even with these additional sources and without the expected rise in demand in China and India, demand is closer to reaching the point where it exceeds supply.

 

Miners Expect Growing Demand and Transparency

According to Varda Shine, managing director of the DTC, 2009 was “[a year] from which we can take a lot of learning. We have seen the diamond industry subjected to a real ‘pressure test’ and the fact that we have come through such a tough year should give us confidence for the future.”

 

The new decade can be one of the best in the history of diamonds, she adds. “To do this effectively we need to sustain the measured and responsible approaches we have adopted as we head into the ‘new normal’.”

 

Chris Ryder, marketing director at BHP Billiton Diamonds, refused to speculate on future prices. “On our Spot Market auctions, our intent is to get the market price for our diamonds every day. Our sales methodology provides a simple and transparent way for us to do that,” he told IDEX Online.

 

Asked about the market’s view that their Spot Market is the de-facto rough diamonds price list, he said, “That is not really something we concern ourselves with. I would observe though that the interest taken in our Spot Market seems to indicate a desire on the part of the industry for reliable market information and may suggest that we will see more transparency in the future.”

 

According to De Beers Managing Director Gareth Penny, reducing production to bring it in line with demand, while stimulating demand with consumer campaigns such as Everlon in the US and Forevermark in the Far East, resulted in a steady increase in sales “If history is a guide, we believe this is set to continue. In other post-recessionary periods, we have seen a strong recovery in diamond sales,” Penny added.

 

Demand for DTC goods at and following Sight 1