Diamond Market – Botswana Diamonds

Global diamond supply remains dominated by the two majors, De Beers of Anglo American and Alrosa of Russia. World production is then supplemented by several other mining companies, including Rio Tinto Diamonds, Dominion Diamond Corporation, Petra Diamonds, Gem Diamonds and Lucara Diamond Corporation. 2015 was a very challenging market for the diamond trade. Producers, manufacturers, traders and retailers all suffered from tight liquidity and low margins in the middle market resulting in a drop in business levels and revenue. Following on from 2014, which saw rough diamond price increases in the first half and subsequent decreases in the second half, the difficult market situation continued throughout 2015. Rough Diamond Market Over the course of the past twelve months, the market has faced significant challenges. Producers have attempted to sell as much as possible, but faced with continued, rejected allocations by their clients they have been forced to reduce both volumes and prices, as well as allow their clients to defer purchases. The larger producers have either cut production in H2 2015 or reduced supply to the market and they will face a fall in revenue (expected to be up to 35%) for the full-year 2015. Smaller producers, who sell via tender/auction, have fared better as they were able to place their lower volumes into the market at prevailing prices. Companies such as Lucara Diamonds, which famously unearthed the second largest diamond in history (a 1,111 carat Type IIA diamond) as well as several other large gems from its Karowe mine in Botswana, have continued to perform well. The so-called middle market, comprised of traders and manufacturers, has seen financial weakness and several bankruptcies in key cutting centres. This situation has been caused by a combination of high rough diamond prices, declining polished prices and reduced demand from the emerging markets, particularly China. India as the world’s largest cutting and manufacturing centre has been worst hit. Beneficiation (value-adding activities such as polishing in producer countries) in African countries has struggled with Botswana, South Africa and Namibia all seeing factory closures due to the reduced ability of manufacturers to operate profitably in these relatively high cost centres. Since the beginning of 2015 rough prices are estimated to have fallen by 15-20%. The market is not expected to show stable price growth until mid-2016, as destocking continues. However, as the market re-opened in January, there were positive signs that supply shortages in polished are bringing back some demand for rough diamonds. The pricing strategies of the key producers over the next few months will be a major factor in whether the rough market stabilises.

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