Price decline woes likely over, says Petra Diamonds

Petra Diamonds (LSE: PDL) said on Friday a decline in diamond prices experienced this year has likely bottomed as the company is already seeing improved market conditions.

The South African miner sold 462,794 carats of diamonds for US$58.7 million in its third tender for the 2024 financial year. This represents an improvement from the 444,029 carats it sold in the second tender of the current financial year for US$41.5 million. It’s also a better result than what it obtained in the third tender of financial year 2023 at 303,300 carats for US$41.5 million.

The average price for the third tender was US$127 per carat, higher than the US$91 per carat achieved in the second tender of the year, but lower than the US$137 per carat achieved in the third tender of the prior financial year.

“The 20% increase in like-for-like prices for our third tender of financial year 2024 supports the view that diamond prices have likely bottomed,” CEO Richard Duffy said.

The miner believes actions taken by major producers to curb supply and the two-month Indian moratorium that ends on Dec. 15 have helped. It also mentioned strengthened retail sales in the U.S. as a factor that has improved market conditions and made it easier for inventory levels across the pipeline to rebalance.

“Ongoing discipline by the key players is important to provide some price stability in the new year,” Duffy said.

BMO Capital Markets diamonds analyst Raj Ray wrote in a note to clients on Friday that the volume sold in the third tender was higher than BMO’s previous lower estimate after two-month moratorium by the Indian diamond industry.

“The improvement in prices is a positive indicator that the supply response by both the upstream and midstream participants have had some impact,” he said.

Simultaneously, the company said the increase of its revolving credit facility with South African firm Absa Bank, had been approved. Petra’s facility is now US$93 million from which US$45 million has been drawn. This leaves a balance of US$48 million that will be available under the “upsized” facility, the company said.

The diamond sector was one of the very few to benefit from the global pandemic as consumers who were confined at home splurged on diamond jewelry and other luxury items. As the lockdowns eased, demand also dropped, leaving traders with surplus inventory for which they had overpaid. And what looked like a cool down quickly turned into a plunge.

Prices for wholesale polished diamonds have dropped by a fifth this year, dragging down with them rough diamonds. Uncut precious stones saw declines of as much as 35%, with the steepest drop happening through the end of August.

Petra itself postponed in June what would have been its sixth sale for the 2023 fiscal year due to weak demand related to elevated inventory in the mid-stream sector — mostly cutters and polishers.

De Beers, the world’s No. 1 diamond producer by value, announced in November it would stockpile unsold stones in response to weak prices. Russian rival Alrosa, the world’s No. 1 diamond producer by output, cancelled its sales for two months.

Price decline woes likely over, says Petra Diamonds

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