Jun 15 2009
This article might (or might not) have appeared in the Financial Times this morning. It was written by a German journalist and appeared in the Financial Times Deutschland. I thought it was important enough to translate and publish anyway. Here we go:
Diamonds sparkle (again)
Precious stone dealers get higher prices at auctions than in previous month
Christine Mai, Frankfurt
The global recession-hit market for diamonds has shown first signs of recovery. But, experts warn against premature optimism, because the retail trade still shows no signs of improving. “The upswing is driven by re-stocking of supplies and will lose momentum without a breakthrough on the retail side of the jewelry market,” said diamond analyst Des Kilalea of RBC Capital Markets in South Africa.
The excitement was big when the world’s biggest diamond producer De Beers halted almost all mining activity in the first quarter of 2009. Now production rises again, while prices seem to have found their bottom. But, analysts warn demand remains weak.
With the economic downswing the demand for diamond jewelry collapsed and pulled prices down – for cut and polished diamonds as much as 30%. Jewelry concern Tiffany & Co registered a drop in profits in the first quarter of almost two-thirds to $24.3 million. Producers reacted with shorter working hours and the temporary closing down of mining operations.
In the first three months of the year De Beers stopped mining almost completely – production dropped by 91% to 1.1 million carat (one carat equals 0.2 gram). The market was hit especially hard by the severity of the downswing in the USA, where almost half of the demand for diamonds comes from.
This had terrible consequences for countries mining and processing diamonds. According to sector representatives, about 400,000 jobs had been lost in the Indian diamond cutting and polish sector since October last year. In a few countries, especially in Africa, the crisis is existence-threatening. For instance, Botswana gets about half its gross domestic product from diamonds. To bridge the crisis, Botswana last week took up a credit line of $1.5 billion from the African Development Bank.
Positive signals have, however, been surfacing in the past few weeks. According to information provided by the sector, the diamond producer Gem Diamonds got about $1,600 per carat at an auction for uncut diamonds in May, after only about $1,100 was paid at the previous auction. Even this price was still way below the $2,500 per carat obtained in the first six months of 2008.
Gareth Penny, head of De Beers, reckons the bottom has been reached. Prices stabilised in April and May, he told diamond traders in Antwerp last week. “December and Xmas 2009 will be better than December and Xmas 2008,” was his forecast for the most important sales season of the year.