The challenging trading conditions experienced in the first six months of 2012 are expected to spill over into the second part of the year although a slightly more positive trend in consumer demand is anticipated.
According to Botswana Stock Exchange (BSE) listed exploration company, Botswana Diamonds, the second half of 2012 should be slightly more encouraging for the market as reduced levels of manufacturing - due to lower trading levels - coupled with demand in polished for the important Diwali and Indian wedding season, will spur buyers.
This, according to the company's commercial director, Robert Bouquet, is expected to drive demand and a subsequent rise in prices allowing destocking, liquidity and bank credit to return. "The long-term still looks very bright, but in the short-term, as we enter the second half of 2012, the diamond market is unsure what the next few months will bring. The major producers are trying to hold firm on price, while allowing customers to defer some of their purchase obligations.
"Traders and manufacturers are seeking alternative goods with profit, however, liquidity is very tight and the devaluation of the Indian rupee is hurting the Indian manufacturers. The pre-Diwali trade and the Hong Kong trade show in September are now important milestones in how the rest of 2012 unfolds," Bouquet said in a report. The diamond market weakened in the first half of 2012 although, in relative terms, prices still remain at historically high levels. Unlike in 2011, when prices rose by up to 50 percent between January and August, followed by a sharp drop in September, the prices of rough diamonds have struggled during the first six months of this year. Overall rough diamond prices are considered to be in the range of 10-20 percent year-on-year.
"The banks, who finance the trade, are watching carefully the levels of trade debt. The trade in rough diamonds has continued during the six months, but the liquidity has tightened and prices have come under significant pressure. "The devaluation of the Indian rupee has also put additional pressure on the Indian manufacturers. Longer-term, the fundamentals of the diamond market remain healthily robust," reads the report.
Looking ahead, Bouquet says that the price trend is certainly expected to be upwards driven by limited supply going forward, few new mines coming on-stream and continued growing demand from the emerging markets.
A report published by Bain & Co in December 2011 estimated that rough diamond demand would increase by 6.6 percent per annum until 2020, doubling the size of the industry. Global rough production for 2011 was estimated at 140mcts, value $14 billion or (P107 billion), and this figure is predicted to remain relatively stable in the coming years, growing to 175mcts by 2020.
Merrill Lynch recently stated its positive view on the long-term fundamentals of the industry, citing diamonds as a "secular, late development commodity" with significant growth potential due to the low per capita consumption at present in the emerging markets and the expected supply-demand deficit in the medium-long term. Announcing their results on Friday, top diamond company De Beers said they expect trading conditions in the mid-stream to remain challenging during the second half of 2012. "Provided there are no unforeseen economic shocks, De Beers expects to see moderately positive growth in global diamond jewellery sales for the full year 2012, albeit at relatively modest levels, especially when compared to the exceptional growth levels seen in 2011.
"In the short term, the USA, China, the Gulf and Japan are expected to contribute the bulk of the growth, while India and Europe are expected to remain weak," said De Beers.