Quarterly Review of Rough Diamond Prices in the 10 Years Since the Global Financial Crisis
This year marks 10 years since the onset of the global financial crisis. In 2007 the first signs of a collapsing sub-prime mortgage bubble in the U.S. were seen, although rough diamond prices were not impacted until the fall of 2008, just shortly after achieving record high prices in summer 2008. As the global economy crashed, rough prices bottomed out in the beginning of 2009, congruent with the U.S. stock market. Two years later new all-time highs were made in the summer of 2011, highs that have yet to be retested.
Over the last decade the diamond industry has been wrought by historically high volatility. A surge in demand for diamonds from the economic and social liberation in China along with other emerging economies that consequentially benefited, was followed with overt speculation by industry players that left the industry oversupplied when the growth tempered. Banks lending to the industry consequently reined in liquidity, some leaving the business altogether, further exacerbating the situation.
The upstream segment of the industry responded by curtailing supply, reducing prices, implementing a marketing campaign and increasing transparency attempting to restore profitability and confidence to its customers and their lenders. The proactive response by the miners showed signs of success as industry-wide inventories returned to more normal levels and supply/demand balanced. However, just as the recovery was underway India demonetized its highest denomination bank notes, directly impacting the largest base of manufacturers in the industry.
Today the diamond industry continues to navigate internal challenges, such as the advancement of lab-created alternatives, with an arguably more challenging structural backdrop of generational shifts in consumer preferences. However, the inherent allure of diamonds has existed for centuries, and the resilient diamond industry has an impressive track record of survival.
Below is a quarter-by-quarter outline of catalysts effecting diamond prices over the last decade with the corresponding quarterly change in the Zimnisky Global Rough Diamond Price Index, representing a proxy for rough diamond prices:
Q3 2017 (through mid-July)
Rough diamond index change: +0.5%
Demand for rough remains stable although slightly abated in some categories compared to earlier in the year
Recovery in lower-quality rough impacted the most by demonetization has somewhat stalled as demand has slightly come off and supply is robust
Bifurcation between stronger rough and weaker polished resulting in more cautious sentiment
Some concern of excess inventory in pipeline returning
Q2 2017
Rough diamond index change: +1.2%
Lower relative allocations to De Beers’ Sightholders following liquidation of excess inventories in Q1 and also higher beneficiation allocations to government partners, particularly Namibia
ALROSA said to increase production and sales guidance for 2017
India to transition to more centralized goods and service tax regime equating to higher net tax rate for diamond manufactures and luxury consumers
Diamond Producers Association increases marketing budget
Q1 2017
Rough diamond index change: +2.1%
Significant return in demand for lower-quality rough which was severely impacted by India’s demonetization in Q4 2016
Most Indian manufacturers recovering from demonetization faster than anticipated
U.S. retail failed to meet holiday 2016 expectations resulting in some excess stock in industry pipeline
Mainland China retail demand improvement seen as well as signs of stabilization in Hong Kong and Macau
Gahcho Kué mine in Canada begins commercial production
Q4 2016
Rough diamond index change: -6.0%
Much of Indian diamond manufacturing sector brought to halt by demonetization in November
Lower-priced rough impacted the most by demonetization, producers having difficulty selling the category
Disappointing Christmas for U.S. retail, but somewhat offset by stronger buying ahead of Chinese New Year
Continued overall demand declines in Hong Kong and Macau, especially domestic demand
First Diamond Producers Association generic diamond marketing campaign launched targeting millennials and non-bridal diamond jewelry
Renard mine in Canada commences commercial production
Q3 2016
Rough diamond index change: -3.8%
Overall decrease in demand for rough, especially lower-priced goods, due to build in polished stocks and Diwali seasonal weakness
Upbeat Hong Kong trade show indicates enthusiasm of Mainland China-based jewelers, however, Hong Kong and Macau markets continue to be subdued
U.S. market stable as anticipation builds for holiday season
Russian government removes export duty on rough diamonds
New Diamond Technology produces largest ever lab-created blue gem-quality diamond at 10.07 carats
Q2 2016
Rough diamond index change: 6.3%
Stabilization in demand for rough after strong finish in Q1
Reduced inventory across pipeline, however, mid-stream financing availability remains constrained as Standard Chartered announces exiting diamond lending business in June
U.S. end-market supporting global demand, but strong dollar continues to negatively impact markets outside U.S., especially in Europe, Middle East, and Hong Kong
Growth seen in Mainland China middle-class consumer demand
Second largest rough diamond ever recovered, the Lesedi la Rona, fails to sell at auction in London
Q1 2016
Rough diamond index change: -3.4%
Significant improvement in demand for rough, especially towards end of quarter, as producer responses to indigestion play out
Manufacturers left understocked following a better than anticipated holiday season
U.S. primary driver of demand growth while Mainland China stabilizing, however Hong Kong and Macau noticeably weak
Stronger dollar continues to negatively impact non-U.S. markets
Indian jewelers strike over proposed excise tax
Potential for new diamond project in Angola, Luachi, to be largest new diamond mine in decades
Q4 2015
Rough diamond index change: -4.4%
Weaker industry-wide conditions continue as excess inventory spanning all segments of industry remains
Liquidity available to manufacturing segment remains tight
Miners aggressively respond to state of industry by further curtailing supply to market, reducing pricing, offering purchase deferment to contract buyers, and initiating plans to increase generic diamond consumer marketing
Strength of U.S. dollar continues to negatively impact international demand
Retail slowdown continues to be seen across Greater China
De Beers puts non-profitable Snap Lake mine in Canada on care and maintenance
Second largest gem-quality rough diamond in history uncovered in Botswana by Lucara Diamond Corp, at 1,111 carats
Q3 2015
Rough diamond index change: -12.4%
Chinese stock market sells off sharply further pressuring a weakening Chinese jewelry market as major retailers continue to sell down inventory and opening of new stores slows
Weak global polished demand impacting demand for rough, especially small and medium sized categories
Manufacturing capacity continues to be restrained by limited financing availability
Demand for rough weaker due to seasonality as manufacturers shut ahead of Diwali
Q2 2015
Rough diamond index change: +2.0%
Retail demand in U.S. stable and growth in emerging markets remains positive however at lower rates
Softer demand for polished from Chinese retailers in particular has resulted in more cautious industry-wide sentiment
Chinese retailers seen able to fulfill current demand with existing inventories
Stronger U.S. dollar continues to make polished goods relatively more expensive in non-U.S. markets translating to somewhat lower demand globally
Major miners seen curtailing supply and reducing prices in some categories in response to current market conditions
Q1 2015
Rough diamond index change: -0.1%
Stabilization in demand for rough at quarter-end after slight downward pressure at beginning of year
Downstream holding low stocks with the expectation that goods are available from midstream as needed, midstream consequently cutting stocks
Some new sources of financing seen becoming available to manufactures
U.S. consumer market resilient, but growth slowdown in Mainland China
Hong Kong, Macau, and Indian market weak, the latter impacted by a weaker rupee
Stronger U.S. dollar has put pressure on international diamond prices
Q4 2014
Rough diamond index change: -10.1%
Current level of polished stock has led to further tightening of bank financing available to manufacturers
Overall decrease in demand for rough as polished stocks build despite relatively good U.S. Christmas season and optimistic lead-up to Chinese New Year
Rate of new jewelry store openings in China seen slowing
Diamond jewelry demand in Macau continues to significantly decline on government anti-corruption crackdown
Q3 2014
Rough diamond index change: +0.8%
New demand for bridal diamonds in Mainland China remains strong, but weaker macroeconomic conditions in China and Japan, in particular, have somewhat offset growth in global diamond demand
Business-gift related jewelry purchasing in Macau plummets amidst aggressive corruption crackdown by Chinese government
Moderate weakness in rough demand due to post-summer seasonality
In September the largest lender to the diamond manufacturing industry, Antwerp Diamond Bank, announced it will be winding down operations after never fully recovering from the financial downturn in 2008-2009
Q2 2014
Rough diamond index change: +2.3%
Stable diamond jewelry demand growth in U.S. and Greater China continues to support rough prices
Grib mine in Russia commences production independent of primary Russian producer ALROSA
Q1 2014
Rough diamond index change: +9.2%
Continued growth in the industry's two most important markets, the U.S. and Greater China, along with a pickup of consumer demand seen in India, supporting higher rough prices
Production at Zimbabwe’s alluvially mined Marange fields drops significantly as most easily accessible ore has been depleted
Q4 2013
Rough diamond index change: +3.3%
Industry-wide pipeline stocking demand strong driven by new store openings in Greater China
Strong holiday demand seen in the U.S. as well as Greater China leading up to Chinese New Year 2014
Positive consumer demand trends for diamond jewelry seen returning in India
Q3 2013
Rough diamond index change: -3.5%
Tighter credit availability for Indian diamond manufactures and regular seasonal weakness ahead of Diwali has translated to lower demand for rough
Cautious jewelry manufacturers globally seen accumulating less inventory
Weaker rupee has put pressure on domestic consumer demand for diamond jewelry in India
Continued reduction in Chinese purchases of higher-quality diamonds seen as consumers gravitating towards mid-quality diamonds typically bought by U.S. consumers
Botswana begins selling portion of its De Beers production independent of DTC under Okavango Diamond Company
Q2 2013
Rough diamond index change: +5.4%
U.S. retail market stable, with noticeable demand for medium-quality-and-sized polished
Economic stimulus in Japan boosting retail demand
Greater China and India markets fundamentally weaker on macroeconomic concerns, with noticeable decrease in demand for higher-quality goods by Chinese
Gemesis Inc. produces largest ever gem-quality colorless synthetic diamond at 1.29 carats
Q1 2013
Rough diamond index change: +1.5%
Strong restocking demand following Christmas and Chinese New Year, especially in lower-priced categories
Global retail jewelry market stable led by a resilient U.S., followed by slower but recovering Chinese and Indian markets
Continued shortages of global rough supply due to production disruptions at De Beers and lower Russian output
In March publicly-traded Indian diamond and jewelry manufacture Winsome defaults on loans approaching US$1 billion equivalent
Q4 2012
Rough diamond index change: +0.6%
Notes:
Continued weaker global economic backdrop attributed to economic uncertainty in Europe, softening of consumer demand in China, and budget policy issues in the U.S.
Some demand weakness offset by relatively strong Diwali, Christmas, and lead-up to Chinese New Year
Hurricane Sandy impacted key northeastern U.S. markets due to store closures towards the beginning of the quarter
Overstocking still seen in upstream segment of industry, but beginning to clear towards end of year
Shortage of rough supply due to production disruptions at primary De Beers mines and lower relative supply from Russia due to a temporary decrease in mine plan production
Q3 2012
Rough diamond index change: -3.2%
Some demand improvement seen against continued weak global economic environment, primarily U.S. and European markets benefiting from Chinese tourism
Upstream segment of industry is overstocked as expectations of strong 2012 have not played out
Financing to midstream segment of industry marginally improving
Q2 2012
Rough diamond index change: -4.8%
Midstream segment of industry experiencing a buildup of excess stock, in addition, liquidity has tightened for manufacturers putting pressure on rough prices
Industry lenders cautious due to weaker global macro conditions, especially in Europe, and a weakening rupee in India
U.S. market is stable and Japanese market has recovered following earthquake, while retail conditions in China and India have weakened
Rate of new jewelry store openings in China showing signs of slowing
Increasing trend of wealthy tourists from emerging economies buying luxury abroad
Q1 2012
Rough diamond index change: +1.1%
U.S. market improving and Japan continues to recover from earthquake in March 2011, but concerns over slowing economic growth in China and ongoing European sovereign debt problems weighing on sentiment
Global macro concerns have led to reduced financing available to midstream segment and have made retailers cautious about replenishing inventory
Q4 2011
Rough diamond index change: -12.0%
European sovereign debt crisis and weaker global economic sentiment continues weigh on global diamond demand, however young, wealthy, emerging market consumers in Asia and Latin America still supporting longer-term diamond jewelry demand trend
A significant increase in production from the Marange fields in Zimbabwe has contributed to a build-up of global rough inventories
Q3 2011
Rough diamond index change: -2.6%
An accelerating European sovereign debt crisis and a U.S. credit rating downgrade has impacted global stock markets and eroded consumer confidence which has been felt by the diamond industry
Excessive build-up of rough inventories by mid-stream segment has begun to result in downward pressure on prices
Q2 2011
Rough diamond index change: +15.5% **10-year Index high
Rough prices up over 30% year-to-date through the end of Q2 as demand for polished continues to outstrip supply as new retail stores in China stock
Despite economic uncertainty in U.S. and Europe, manufacturers actively stocking ahead of holiday season
Towards the end of quarter the market has begun to show some signs of resistance to additional rough price increases
Q1 2011
Rough diamond index change: +17.7%
Demand for rough currently outpacing supply as manufactures aggressively buy stock to cater to new polished demand from Chinese retailers supplying new store openings
U.S. consumer market recovery leading to increased demand for polished, further supported by a weaker dollar that has attracted tourism, especially from Asia
Secular trend in growing global demand for diamond jewelry led by China, is more than offsetting a subdued Japanese market recovering from earthquake and geopolitical concerns in Middle East and North Africa
Q4 2010
Rough diamond index change: +7.5%
Industry-wide shortages of rough and polished as new demand from emerging markets combined with a recovering U.S. economy have elevated prices
Global consumer demand for luxury continues to strengthen particularly from a rapidly expanding economy in China and from the Middle Eastern and Russian markets driven by higher energy prices
In the U.S. a relatively weak dollar, a strong rebound in the equity markets, and a solid holiday season has contributed to global demand growth for diamond jewelry
Q3 2010
Rough diamond index change: -1.85%
Global diamond jewelry market seen improving quarter-over-quarter, but global economy still fragile as tepid growth and unemployment, particularly in the U.S. and Europe, limit demand
High-net worth individuals in China and other emerging markets continue to drive new demand for diamond jewelry
Some shortages of rough and polished categories seen as industry prepares for optimistic holiday season
Q2 2010
Rough diamond index change: +7.1%
Consumer demand for diamond jewelry continues to strengthen globally, particularly from growing number of high-net worth individuals in China as well as Middle East, where higher energy prices are driving wealth
U.S. and European markets continue to be impacted by weaker domestic economies, although recovery is underway
Industry-wide shortages of rough resulting in some major manufacturers and retailers buying directly from producers, rather than via traditional industry trade channels
Potential for incremental Russian supply to be released into market currently held by state's Gokhran which purchased diamond stocks from domestic producers during demand lull in 2008-2009
A significant increase in production from Zimbabwe’s Marange fields could fill industry void of lower-quality categories as Argyle production declines
Q1 2010
Rough diamond index change: +7.6%
Rough prices have returned to 2008 highs driven by continued diamond jewelry consumer demand growth in China and India, economic recovery in the U.S., and luxury demand in the Middle East and Russia driven by high oil and gas prices
Relative shortages of some popular polished categories seen
Q4 2009
Rough diamond index change: +15.8%
Rough prices just shy of 2008 highs as demand recovers relatively rapidly following global financial crisis
Polished prices, which were impacted less than rough by the global financial crisis, have returned to pre-crisis levels and some categories have even surpassed previous highs
Credit availability to mid-stream segment of industry seen improving as lenders respond to returning demand for polished
Sustained demand for luxury goods in China and India and renewing interest in U.S. driving demand for diamond jewelry
China positioned to overtake Japan as the industry's second largest market
U.S. holiday season stronger year-over-year
Q3 2009
Rough diamond index change: +7.6%
Shortages seen in some popular polished categories as sustained demand from China and India outpaces reduced rough supply and curtailed manufacturing capacity
Russian Gokran inventory seen being released into market without suppressing prices
Higher polished prices helping manufactures negotiate better credit terms with lenders
Signs of economic recovery in Asia and indications that U.S. and Europe have already hit bottom has improved global sentiment
Increasing oil and other commodity prices has boosted Russian and Middle Eastern consumer markets
Q2 2009
Rough diamond index change: +25.5%
As of mid-summer, rough prices have rebounded over 25% from multiyear lows hit in Q1 as select demand has returned and supply is tight
Some manufacturers seen actively buying rough to rebuilt stocks ahead of holiday season
Chinese retail demand has remained impressively resilient through the global financial crisis and U.S. buyers have begun to return to market
Rough supply is currently restricted but excess inventory is held by largest producers which will most likely be released in a congruent manner with returning demand
Q1 2009
Rough diamond index change: -14.3% **10-year Index low
Rough prices seen recovering slightly from multi-year low in February
Global luxury market remains challenged as consumer confidence has been eroded by state of the global economy
Major diamond producers, led by De Beers, have strategically reduced supply to market in an effort to restore supply/demand balance
Asian demand for polished and first signs of activity from U.S. buyers has motivated some manufacturers to begin restocking, although credit to the mid-stream segment remains highly restricted
Q4 2008
Rough diamond index change: -20.7%
The impact of the global economic downturn on the diamond industry has accelerated through Q4, as diamond price volatility has increased and prices are pressured further
U.S. and Japanese markets have been hit the hardest while Asia Ex-Japan and the Middle East markets have fared better
Credit availability to the mid-stream segment of the industry has declined considerably, destocking of the industry pipeline occurring
Polished price declines continue to be less relative to rough but overall sales volumes of polished have been substantially impacted
Core engagement-ring-quality diamonds and other bridal goods have suffered the least
Q3 2008
Rough diamond index change: -9.8%
Through the middle of 2008 rough prices achieved record prices, however by the end of Q3 the impact of the global economic downturn has weighed on the diamond industry
Prices in all rough categories have weakened
Polished prices have been less affected than rough as manufactures defend the value of their stocks
Industry lenders said to maintain credit availability to manufactures but not fund customers accumulating stocks, thus destocking of pipeline expected
Production from two new De Beers mines in Canada add to global production
Q2 2008
Rough diamond index change: +6.5%
Expanded global marketplace for diamonds continues to push rough prices to all-time highs
More difficult trading conditions for polished seen in U.S. and Japan, however more than offset by continued new demand from BRIC economies, Brazil, Russia, India and China
Market cautious that stronger U.S. dollar could result in pricing pressure from non-U.S. markets
South African power issues continue to disrupt global diamond production
Q1 2008
Rough diamond index change: +8.9%
Strength of emerging markets led by China and India continue to support global market, driving rough prices to all-time highs
Developed economies, especially the U.S., showing structural weakness as unsustainable consumer debt driven economic growth in previous years showing signs of catching up
Decline in global diamond production primarily due to power shortages at South African mines supportive of rough prices
Q4 2007
Rough diamond index change: +2.4%
Rough diamond prices continue to strengthen to all-time highs
Diamond demand growth seen shifting from U.S. to economies driven by rapid economic expansion and those benefiting from high commodity prices such as China, India, Russia, and Middle East
Concerns of a U.S. recession prompted by signs of a deteriorating housing market and reflected by instability in developed economy equity markets
Higher quality polished categories, those preferred by the Eastern World, are seen outperforming lower-quality categories preferred by the U.S.
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This was highlighted in Mining Weekly.
At the time of writing Paul Zimnisky held a long position in Lucara Diamond Corp, Stornoway Diamond Corp, Mountain Province Diamonds Inc, Kennady Diamonds Inc, and a covered-call position in Signet Jewelers Ltd.
Paul Zimnisky is an independent diamond industry analyst and consultant. He can be reached at paul@paulzimnisky.com, and followed on Twitter @paulzimnisky.