Global diamond majors hope for recovery of market next year
Diamond majors continue to experience serious losses due to the current weak global demand for diamonds from cutters and manufacturers, but hope for the forthcoming recovery of the market.
For example, in the case of ALROSA, the company was able to sell only 42% of its production in the third quarter of the current year and built up its stocks up to 23 million carats.
Overall, in the first nine months of the current year sales of ALROSA fell by 20%, on year-on-year basis to 23 million carats. Due to the current weak market demand the company had to cut prices twice: by 6% in the first half of the current year and by further 8% in the third quarter.
For the third quarter, ALROSA’s revenue is expected to exceed US$550 million and for the nine months of the current year – US$2.7 billion, which is by 50% and 25% less, compared to the same period of last year.
Despite poor financial results, the volume of ALROSA’s production has increased by about 16% since the beginning of the current year up to 29.6 million carats. The company has retained the forecast for production in 2015 at 38 million carats.
In the meantime, other diamond majors are also looking for ways out of the current crisis.
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In the case of South African De Beers, another leading player in the global diamond market, the company had decided to cut its production in the first half by 2.5% to 15.6 million carats. This is, however, contrary to Rio Tinto, the world’s third largest player, which increased its production by 19%, to 13 million carats during the period of January – September 2015.
De Beers’ revenue for the first half of the current year fell 21% to US$3 billion while Rio Tinto’s by 23% – to US$331 million.
De Beers acknowledges the existence of problems in the industry, however believes in its ability to survive during difficult times.
The diamond industry currently remains one of the most closed segments of global industrial production, most of which companies are family businesses.
Despite the current poor financial results, there is a possibility that the current situation in the global diamonds market will started to improve already in the coming months after the stagnation in the first half of the current year.
At present the demand from diamonds from the jewelry industry remains quite stable, while one of the reasons of the current decline are large stocks, which have been accumulated by cutters last year and had forced them to reduce their purchases by about 50% this year. It is planned that the current cutters’ reserves can be partially exhausted by the early to mid-2016, which may result in a new wave of growth of the demand for diamonds in the global market.
In regard to future prospects, further development of the global diamond market will mainly depend on the pace of economic growth in the United States, China and the Middle East states.
In the case of China, the current stagnation of the country’s economy and anti-corruption campaign, conducted by the local government have resulted in a significant decline of sales of luxury goods in the country, and in particular diamonds.
At the same time in order to ensure stable diamond sales for the near future, producers should pay bigger attention for marketing activities, as in recent years diamonds have started to lose competition to other luxury goods.
Eugene Gerden is an international free-lance writer, based in St. Petersburg, who specializes on writing in the field of mining, metals and rare earth metals. ... <Read more about Eugene Gerden>