Falling demand hits diamond prices

May 22, 2009

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"Diamonds are forever," according to the famous advertising slogan. Diamond prices, however, aren't. Like other commodities, diamonds have been hit by the global downturn as consumers have cut back on luxury items. The price of polished gems has dropped by an average of 30% from its peak last August, according to an index published by Polishedprices.com, which also reckons that the market for wholesale polished diamonds will shrink from $21.5bn to around $12bn this year.

Antwerp, the world's biggest gem trading hub, saw exports of polished diamonds slump by 28% year-on-year in the first quarter. The world's top diamond producer, De Beers, has announced that it slashed production by an annual 91% in the first quarter due to the slump in demand. Demand has eased in emerging markets such as Asia and Russia, while in America, which accounts for 40% of diamond sales, the jewellery market has been hit by bankers' slumping bonuses, says Judith Lembke on Faz.net.

Longer term, the reduction in supply implies a shortage of rough diamonds and therefore higher prices once demand returns following the end of the downturn, says Des Kilalea of RBC Capital Markets. But that may not be for some time. While Kilalea reckons diamond prices may have found a floor and that there are green shoots on the demand front in China, RBC isn't recommending a punt on a diamond miner just yet, says Lembke.

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