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Diamond Markets Remain Confused

Saul Singer, May 16, 2013

Trading levels in diamond markets remain slow as sentiment wanes. Although the month of May is traditionally a slower month for the diamond industry due to the vacation period in India, many market participants are feeling that the sluggishness in the market is being confounded by fundamental weaknesses in the diamond pipeline. Underlying factors such as the tight financial liquidity in trading markets and the continued misalignment of the rough and polished diamond markets are prompting many market players to believe that a market correction is imminent.

Since the commencement of the year rough diamond prices have increased by an overall average of approximately ten percent while polished diamond prices have remained flat. This mismatch between rough and polished price movements has prevailed since mid-2012 causing downward pressure on profit margins for manufacturers. Last week’s price increase by De Beers at its May Sight was surprising due to the weak market conditions. The price rise and has in turn increased the level of confusion in the market and has consequently dampened market sentiment. One positive outcome of De Beers’ price rise is that it may well suppress the speculative trading activities in rough markets that have been taking place this year. However, this alone will not avert a potential price correction.

The fundamental concern is whether demand from consumer markets in the second half of the year will be sufficient to stimulate some positive momentum in polished trading markets allowing it to shift out of its sluggish state. Two crucial indicators of this will be the market sentiment emanating from the upcoming trade shows in Las Vegas and Hong Kong, taking place over the next six weeks. The absence of any such upswing will prompt a clear market correction forcing rough prices to potentially ease during the ensuing months.