Editorial: Diamond market in wait-and-see mode

The response of diamond miners to the decline in rough prices over the past year — they’ve fallen around 16%, according to the WWW rough diamond index — has been variable.

The world’s largest diamond producer by value, De Beers, has slashed production three times in 2015 in response to the market slowdown. For the first nine months of the year, De Beers’ output is down 11% compared to the same period in 2014. De Beers’ guidance for 2015 has shrunk to around 29 million carats from between 32 million and 34 million carats at the start of the year. Perhaps more telling, De Beers’ sales volumes were down 35% as of the end of the third quarter compared to the same period in 2014, as the diamond powerhouse has allowed sightholders to defer purchases.

Alrosa, the world’s largest producer by volume, has gone in the opposite direction. The Russian diamond miner increased production for the first nine months of 2015 by 16% over the same period in 2014. Its production target for the year remains unchanged at 38 million carats, and its third-quarter output of 11.6 million carats was its highest quarterly output recorded in seven years.

At the same time, Alrosa has reported prices for its goods fell 8% in the third quarter alone, while diamond sales fell 44% year on year to $563 million for the quarter.

Rio Tinto has also cut production by about 2 million carats to 18 million carats for 2015.

Meanwhile, smaller diamond miners who don’t have the volume to influence the market haven’t pulled in production.

Whether the decline in rough prices is a mere blip — or something longer-term as seen in other parts of the mining industry over the past few years — may become apparent during the upcoming holiday season.

Diamond jewelry demand in China has weakened due to the economic slowdown there, and diamonds have become more expensive for most of the world, as other currencies have fallen against the strong U.S. dollar. Therefore, demand in the United States will play a paramount role.

In this issue of Diamonds in Canada, Matthew O’Keefe, vice-president and senior analyst at Dundee Capital Markets, helps explain what’s going on in the diamond market and the reasons for the decline in prices (see facing page). O’Keefe expects diamonds to pick up next year — if we see a strong holiday season this winter.  He also shares his top diamond equity picks with us.

Our interview with De Beers Canada’s new CEO, Kim Truter (Page 18), also touches on the market, as well as the company’s corporate restructuring and progress at its 51%-owned Gahcho Kué project.

And we also include some intriguing news from diamond explorers: Northern Miner staff writer Lesley Stokes reports from Kennady Diamonds’ Kennady North project (Page 10), and we report the latest news from several explorers and developers who are finding fertile ground for diamonds in Botswana (Page 14).