Rough diamond prices are likely to fall because of sluggish consumer demand for jewelry, according to a report from ABN AMRO.
A surge in the Composite Rough Diamond Index so far this year is not sustainable and may have been motivated by traders’ opportunistic behavior, Georgette Boele, the bank’s co-ordinator of FX and precious metals strategy, said in a research note. The improvement in end demand remains "fragile" and does not justify higher rough and polished prices. Higher rough demand may have been the result of hopes that consumer demand might improve and lead to a reduction in inventory levels.
Inventory is another factor that is keeping prices depressed, with prices unable to increase until inventory is cleared, with the industry not yet having reached that stage yet, the report said. Sequential declines in the size of the De Beers May and June sights may signal a negative trend.
“As soon as demand for rough diamonds starts to falter again, despite the cut-back in production, producers may need to cut prices in order to support demand going forward,” the bank said.
“Structural changes in the industry such as more buyers’ power could also weigh on rough prices. Overall, we think rough diamond prices will struggle and lower prices are likely in the current environment.”
However, diamond import and export data for the main trading centers point to a “fragile” improvement. The Antwerp trade is “bottoming out” and exports to the U.S. are improving. Data from the UAE and Israel provide a mixed picture, with the diamond trade to and from the UAE appearing to be stabilize while Israel remains very weak, according to the report.