IDEX Online Rough Diamond Market Report: Ceiling Reached, Time for a Deep Breath
September 01, 11
 |
For some, the past few days reminded them of October 2008, when rough diamond trading stopped because of the global economic meltdown. In that month, BHP Billiton's closing prices sent shockwaves throughout the wholesale market as prices sank by 30-35 percent.
However, and this is an important one, the macro-economic backdrop is different today. The reaction is from within the industry. Traders, mainly from
There is no room to speak of premiums, as they have been practically erased, especially for the Indian goods. Instead, DTC's +$800 million Sight was not followed by any trading and goods are offered at -10 percent below the list price. The concerns in the market are so deep – and there are so many goods floating around – that even at those rock bottom prices there were no takers.
Too bad. Smart traders with deep enough pockets have an opportunity to pickup some very attractively priced articles, hold them for a while and sell when buying resumes – and that will happen soon.
One of the reasons for the slowdown is the approaching Diwali holiday followed by the wedding season in
In
Usually we take a deeper look into DTC's Sight, as that is the main supply to the market. In this cycle, looking closer at BHP's tenders reveal the deeper sentiment of the market. BHP Billiton's 2.5-6 carat tender last week closed with prices sinking between 15.9 percent (Z White High) to 23 percent (Z White Low), with an average 20 percent decline.
This week, the 4-8 grainers sank even further. The ZMC Brown goods lost "only" 13.8 percent but the CLV White goods declined 31 percent. The rest of the 4-8 grainers fell by 28.0-28.6 percent.
The list goes on. The +9-3 items lost on average 27.6 percent and the -9 Run of Mine goods 28.6 percent. Considered a good indicator of real demand, the BHP tender exposed distress in the rough sector.
What needs pointing out is that generally, the cheaper the goods, the deeper prices fall. That is true for the +9-3 items – Sawable White dropped by 20.9 percent to $325.11 p/c while the rejection goods fell by 33.2 percent to $30 p/c. The reason for that is simple – the smaller and cheaper goods were the most inflated ones.
While prices were drastically slashed, many traders agree that this is a correction, bringing prices closer to where they should be. If polished prices hold and rough comes down then manufacturers will be able regain some of their margins.
Outlook
It is worth looking back to understand how we got here. In March, rough prices were economical and we predicted that prices will keep rising, in April, prices kept surging and it was clear that there is a ceiling that was not reached yet. In June, the feeling was that rising polished prices gave an excuse for further rough price increases – and the market paid double-digit premiums. In July, it was clear that the rough market has reached a saturation point and in August, the market came to a halt.
From here on, the path is an easing of prices, slimmer premiums and steady manufacturing. If manufacturers succeed in maintaining polished prices, and once they see their polished stock levels going down, active rough trading will return. As it looks now, producers will not hike rough diamond prices – the rest is in the hands of secondary market traders.
| Demand for Key DTC Boxes - Sight 7
|