JOHANNESBURG (Business Day) -- Prices for polished diamonds showed signs of stabilising last month after four months of price decreases, according to research published yesterday by Idex Online, the website of a diamond trading organisation, International Diamond Exchange.
There has been a sharp increase in exploration for diamonds in southern Africa in the past three years as analysts have forecast that supply will fall short of demand by 2009.
But in the past year, producers such as De Beers, Trans Hex [JSE:TSX] and Petra Diamonds [AIM:PDL] have reported weaker prices for rough diamonds on average, although large, high-quality gems have continued to fetch high prices. One of the main reasons was the pressure of higher interest rates in the U.S. on jewellers' credit lines.
Idex Online, which publishes a monthly index showing trends in polished diamond prices, said the December index firmed slightly to 110.43 against 110.41 for the same month a year ago. This followed a 1.1% decline in the index in November and falls of 1.2%, 1% and 0.7% in each of the preceding months.
While there was a notable softening in demand for diamonds of one to two carats, diamonds larger than two carats were still selling well, Idex Online said. The average price for polished diamonds of about five carats rose 17.5% in December compared with December 2005, while the average price for a 0.5 carat diamond fell 4.8% in the same period.
The main factors depressing polished diamond prices have been expectations of a global economic slowdown this year, as jewellery sales are closely tied to economic cycles.
Pre-Christmas jewellery sales in the U.S., the world's biggest market for diamonds, have been disappointing initially, while jewellers raised polished diamond prices towards the end of the year to recover cost increases.
There were several reasons for diamond prices to stabilise, Idex Online said. The Diamond Trading Company (DTC), the supply and marketing arm of De Beers, was expected to reduce supply of rough diamonds, according to Idex Online's estimate, by 15% to 30% in the first half of this year.
De Beers Group spokeswoman Lynette Gould confirmed yesterday that the DTC had provided each sightholder with an intention to offer (ITO) for the first half of this year.
"In some instances, the level of the ITO has been lower than anticipated by DTC sightholders, because the DTC anticipates a lower availability of rough diamonds to sell in the first half of this year," she said.
Other reasons for diamond prices to stabilise, according to Idex Online, are that during the past year, high diamond inventories have gradually been reduced. The past year's excess inventories and lack of pricing power resulted in an increase in business failures among diamond suppliers, which gives the remaining diamond suppliers better pricing power.
