Rough diamond prices are likely to recover from the lows of last summer and will gradually increase over the course of 2012, although the improvement is likely to be volatile and dependent on growth in Asian demand and U.S. consumer demand, RBC markets said in its 2012 Diamond Outlook report.
Figures for the end of 2011 showed Asia remains “a relatively bright star in the diamond firmament,” the report said, but in the U.S, the largest global market for diamond jewelry, sales were somewhat disappointing.
“Diamond cutters, polishers and dealers say rough prices have recovered from the lows of July and August last year, but business is slow. Most expect no material let up until mid-year,” RBC said in the report.
The pace of sales from De Beers, the world’s biggest diamond producer, and Russian diamond miner Alrosa would be important for the recovery in prices.
“Should both companies restrain sales in H1 (the first half of 2012) it will help the diamond sector regain confidence after the knock to profits in Q3 (the third quarter of 2011) when rough prices fell sharply,” the report said.
The weaker Indian rupee is also having an impact on the market.
“With large debts, sometimes in USD (US dollars), and receivables hedged at strong exchange rates, we believe many companies in India will be hard pressed to aggressively rebuild inventories,” the report said.
Nevertheless, most diamond miners still believe that the second six months of the year will see better prices, RBC said.
“The long-term outlook for the sector, however, remains good in our view with limited new production ahead and growing demand for jewelry in Asian markets bolstering the large U.S. market,” it said.
It continues to favor companies such as Petra, Harry Winston, and Gem, which are in production, and those which are near to development and are in a position to raise finance, such as Stornoway.