Diamond Prices Set for a Boost in 2013, De Beers Says

on Dec 18, 2012

On 17 December 2012, Bloomberg reported that De Beers, the world’s largest producer of diamonds, forecast that diamond prices were set for a boost next year. Although 2012 was a difficult year for diamond miners with gem prices headed for an annual drop for the first time in four years, 2013 might provide an opportunity for price growth.

**Constrained Supply**
Bloomberg quotes Philippe Mellier, the CEO of De Beers, who noted in an interview for Bloomberg Television that there would be an opportunity for price growth in 2013 on account of constrained supply. De Beers, which is owned by the mining company Anglo American Plc (LON:AAL), reports that its 2012 output will be the lowest since 2009, when it cut production by as much as 50 percent on account of the global financial crisis.

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“This year we’re going to produce around 27 million, we will be around that number next year,” noted Mr Mellier, as quoted by Bloomberg, adding that the company was adapting “to the marketplace”.
Bloomberg reports that prices of rough diamonds have slumped as much as 16 percent in 2012 due to a slowdown in Asian purchases and eroding demand in the Eurozone. In the past three years, however, prices have risen by more than 20 percent.

Mr Mellier also noted that the company was focusing its efforts on determining where and when to mine so that it “can produce the right diamonds and the right quantity to suit the market.” Diamond producers have been struggling with falling production since supplies of more accessible diamonds near the surface are depleted.
In addition, rough diamond producers have also been affected by the labour conflict in the South African mining industry. In its interim report published in November, Petra Diamonds (LON:PDL) noted that the work stoppages at its South African operations combined with the difficult labour relations environment experienced beforehand, had an impact on its production.

**Growing Demand**
!m[](/uploads/story/1056/thumbs/pic1_inline.png)Mr Mellier also notes that growing Chinese demand will support prices, with miners struggling to keep pace with growing consumption in emerging economies. While in 2012 the market is expected to grow about three to four percent, relative to a 10 percent growth in 2011, De Beers forecasts “at least this type of growth” again in 2013. Mr Mellier expects the US market to expand three to four percent in 2013, whereas China’s demand will expand at about 10 percent and Indian demand will grow by a “minimum” of five percent.

“As a whole, US steady growth, China increased growth, India coming back. I think 2013 should be better than 2012 so the prospect for growth is there,” points out Mr Mellier, as quoted by Bloomberg.
**Tough 2012**
On November 30, Reuters reported that De Beers, which Anglo American acquired from the Oppenheimer family, had a tough 2012, feeling the impact of slower growth rates in China and softer US demand, whereas India was hit by strikes, low consumer confidence as well as by a weak rupee.
De Beers, however, also reported a pick-up in gem demand in the final months of 2012. “We are now entering the festive season… the big season for the selling of polished diamonds, and the outlook is slightly more positive than we thought,” commented Mr Mellier, as quoted by Reuters. “We are cautiously optimistic that the end of 2012 will be better than the beginning of 2012.”


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