30% drop in diamond prices predicted

Top financial expert, Des Kilalea at RBC Capital Markets warns today that due to the US recession, the projected diamond prices for 2009 are "very poor". Analysts say the price of diamonds could drop by as much as 30% and may not recover until 2010.

In 2007, total diamond production worldwide was 160m carats with an estimated value of $14bn. SA contributes 12% of overall production by value. He refers to the diamond-jewellery market. He said allluvial diamond-miners, who produce some of the highest-quality diamonds sifted from rivers, also face weak prices due to lower demand in the US, which accounts for half of the entire diamond market in the world, but it's far less certain whether their prices will drop as much as predicted:"Quality diamonds are only used in jewellery, which is still a market driven by consumers." Kilalea says that diamond cutters are building up debts at the moment because there are no credit options available to them. This makes them reluctant to buy additional stock. On the uncut diamond supply side, miners have built up a surplus and are now cutting back on production: the Toronto and Johannesburg-listed diamond junior, BRC DiamondCore,is the latest mining company to announce it would scale back production. "I expect DiamondCore to close down its SA operations completely this year and focus on its prospects on the DRC," says Kilalea. Rockwell Diamonds is extending its year-end shutdown by another month but while restarting its other operations next month, probably will keep its unprofitable Wouterspan diamond mine closed. "De Beers is going to be hurt the most, since it mines the most diamonds," says Kilalea. Alluvial diamond-miners, so-called 'juniors' who sift diamonds from rivers, are more difficult to predict, he said. "The juniors who are producing diamonds at the moment, such as Rockwell, Namakwa Diamonds and Petra Diamonds, are likely to survive the year. "The ones that are still developing and exploring are just consuming cash without making any money." He believes the juniors will very likely start merging with other mining operations in the year ahead. Although alluvial juniors mine some of the highest-quality diamonds, prices will be weak due to low demand, says Kilalea. Congo diamonds: However Bill Champion, MD of Rio Tinto Diamonds, which is earning a 60% stake in BRC DiamondCore's Congo operation, was positive about the long-term of diamond prices."Long-term diamond industry fundamentals suggest that the aggregate level of diamond demand will exceed supply, resulting in sustained price growth over the next decade,' he was quoted as telling the Financial Times of Johannesburg in South Africa.