World loses passion for diamonds

The prices on both rough and cut diamonds have been unstable recently. The uneasy situation on the market can be explained with dominating sentiments of major consumer of diamond jewelry in Asia, Europe and the USA, RBC Capital Markets said.

Sales volumes were not bad at all last year. Asia still takes leading positions in terms of the industry growth. The USA, the world's largest market for the diamond industry, showed unpromising results, albeit not in all parts of the country.

The world's largest diamond wholesale center - Antwerp - is worried about the results achieved in the first quarter of the current year. It will be possible to reach success only when the US market retrieves the situation that it had before the crisis. The leading diamond-mining companies - De Beers of Britain and Alrosa of Russia - can improve the situation if they voluntarily restrict the shipments of precious stones on the diamond market.

According to RBC Capital Markets, the program to recreate the sub-industry of rough diamonds includes three basic factors. First off, it goes about the movement of cash assets on the volumes of annual sales of diamond products in large centers. The sales income of De Beers and Alrosa are the second factor. The degree of the debt capital of the bank industry in diamond-cutting centers, particularly in India (due to the fall of the local currency) is the third one.

Nevertheless, the majority of diamond companies believe that the second half of the current year will be marked with more favorable price policies. RBC analysts say that the situation on the market will be favorable enough for both old-timers (Petra DiamondsHarry Winston DiamondGem Diamonds) and newcomers (Stornoway Diamond).

Russian analysts are not so optimistic in their forecasts. They believe that the reason of the international economic crisis, which directly influences the diamond industry, lies in the deindustrialization of the USA and its allies. The level of mass consumption of goods and services remains too high, though. The States is a country with five percent of the global population. At the same time, this country consumes 50 percent of luxury goods. To crown it all, the USA controls 50 percent of international defense budgets of the world. That would be ok if it was not for one little detail. The US GDP is a bubble.

America and many of its allies do not live within their means. This situation lasts for several decades. The total debt o the US government, corporations and households exceeded $50 trillion. The government tries to solve the problem with the help of unbacked money. In the meantime, the number of industrial enterprises in the USA dropped by 56,000 during the past decade. The country was losing 15 factories every day.

For the time being, the USA needs to have political uncertainty and debt problems in Europe. The worse it is for Europe, the better it is for the USA. America needs to be careful, though: the pressure on the Old World must not lead to its collapse.

No grand changes are expected in the United States before the presidential election in the fall of 2012. Brazil, Russia, India and China will be used as sales markets for American and European products with an opportunity for credit and speculative bubbles to grow. As a result, the world diamond market will grow by five percent a year.

Vladimir Teslenko


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Author`s name Dmitry Sudakov