De Beers holds diamond prices to calm market

In order to restore confidence in the Indian diamond industry, especially among the diamantaires in Surat, the global diamond mining giant De Beers and the Canadian diamond producers have decided to maintain their current prices and supplies until the end of the year, hinting that the prices of rough diamonds will not increase.

Varda Shine, CEO of Diamond Trading Company (DTC) - a rough diamond marketing arm of the global mining giant De Beers group - has said in her interview to Israel-based diamond consultancy firm Tacy Limited that the company has no plans to increase the rough prices till the end of this year. Tacy Limited is one of the oldest and most reliable diamond consultancy firms.

"The DTC has taken the unusual step of declaring that it does not plan to increase prices in the near future. This should deter speculators from renewing speculative purchases and reassure those inclined to sell in a panic that there is really no reason to do so," Shine has been quoted as saying.

Shine said that in the first half of this year, the DTC sold $ 3.5 billion worth of rough diamonds and prices increased at an average of 35 per cent. Then, the DTC eased up on its price rises in the last two sights.

TOI had reported on August 31 that the 15 to 20 per cent reduction in the rough prices by Australia-based BHP Biliton, a small firm compared to DTC, had shaken the confidence of the diamanatiares, who are already facing severe liquidity issues.

Industry experts said that if the rough diamond prices increase by 50 per cent, manufacturers need to raise additional money to buy roughs and that this requires bank financing. Diamantiares have to pay cash for the purchase of rough diamonds, while they sell polished diamonds on the 90 to 120 days credit. During the 2008-09 recession, banks in India provided long credit lines, however that stream slowed down, and therefore traders are suffering from

liquidity problems. As a result, prices of polished diamonds started declining to generate a cash flow and finance rough diamond purchases.

Recently, the technical correction in the rough diamond prices by 15-20 per cent in the diamond tender by Australia-based BHP Billiton shook the diamond industry, especially the diamantaires who are in dire need of cash. Fearing the rough prices may further decrease ahead of the Christmas buying, most of the polished diamond traders started selling their inventories by compromising their profit margins.

"In the first half of this year, the rough prices have increased by 50-60 per cent but the polished prices are moving up on a very slow pace," said Dinesh Navadia, president of Surat Diamond Assocation (SDA). "Polished prices are still 15-20 per cent below the prices of roughs, and are supposed to move up," added Navadia.

"Knowing that the price of roughs won't decrease and that there is reason to believe that that holiday season, Chinese New Year and Diwali sales will be large, have no doubt that we can be optimistic and sure that the market will stabilize," said a DTC sightholder.