Rough-diamond prices will probably take at least another year to recover because the biggest producers are sitting on large stockpiles and demand in markets such as China remains subdued.
The warning from brokerage Liberum Capital Ltd. comes after De Beers and Russia’s Alrosa PJSC sold more gems so far this year than the market had expected. China’s slowdown and an industrywide credit crunch that pushed prices down 18 percent last year has led to about 20 million carats being stockpiled, Liberum estimates.
“Elevated inventory levels of rough diamonds and weak end markets will inhibit any recovery in rough-diamond prices for at least 12 months,” London-based Liberum analysts Ben Davis and Richard Knights said in a note on Thursday.
Anglo American Plc-owned De Beers and Alrosa, which control almost two-thirds of the market, led companies in cutting about a quarter of global supply last year to arrest the slump in prices. Still, the two biggest producers have sold almost $2 billion of rough diamonds this year as cutters, polishers and traders built up inventories. That’s sparked concern that the sales may have been too much, too soon.
“Restocking could lift rough prices, but this is unlikely as midstream margins remain under pressure and polished prices will not recover with weak markets” in key growth regions, the analysts wrote.
De Beers, the top producer, cut prices by as much as 7 percent in January after lowering them by about 15 percent last year. While rough-diamond demand has continued to improve, the company needs to remain cautious, Chief Executive Officer Philippe Mellier said on Tuesday.