Engineering and Mining Journal - Whether the market is copper, gold, nickel, iron ore, lead/zinc, PGM, diamonds or other commodities, E&MJ takes the lead in projecting trends, following development and reporting on the most efficient operating pr
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Rough diamond prices will remain under pressure over the next 12-18 months. Prices dropped by about 18% during the first 11 months of 2015 due to slowing sales of diamond jewelry, according to Moody's Investors Service. This latest drop in prices, which would be 28% below the 2014 peak, may be insufficient to revive demand, and the analysts said producers may have to cut costs (reduce prices) even more in 2016. Diamond mines are concentrated in four countries: South Africa, Russia, Australia and Canada. Miners in these regions benefit from U.S. dollar-denomi- nated pricing. Increasing production costs have, however, eaten into profit margins. Three companies, De Beers (South Africa), Alrosa (Russia) and Rio Tinto (Australia), supplied 64% of the world's rough-cut dia- monds. Alrosa is the largest by volume and De Beers is the largest by value. Unlike other commodities, which have multiple sources of demand, the diamond industry relies almost entirely on consumers' appetite for diamond jewelry. About 42% of global demand for polished diamonds comes from the U.S. and 16% from China, a sign of wealth and jewelry-buying tradi- tions. U.S. consumer spending growth slowed to 3.2% from 3.6% and this is like- ly to weigh on future jewelry sales, where growth already slowed in 2015. China's growth also slowed in 2015 to 6.9%. Growth in the global diamond jewelry market slowed to 3% in 2014 from 12% in 2012 and Alrosa estimated that the mar- ket is likely to contract by 0.5% in 2015. Although diamond jewelry sales in the U.S. were robust during the first nine months of 2015, sales in China are falling, due to sagging sales in Hong Kong. While exports of polished diamonds from India in the first half of 2015 decreased by 4% to $11.1 billion, imports of un- processed rough diamonds fell dramatically by 18% to $7.6 billion over the same peri- od. The Moody's analysts believe there is an oversupply of rough stones and/or prices are too high for buyers. Although inventory lev- els are not reported, anecdotal evidence suggests there is also overstocking of pol- ished diamonds, which means rough dia- mond producers may have to cut prices fur- ther to revive purchasing activity. In the meantime, some diamond mines will likely close while others will deplete resources. A lack of new discoveries means that global production will not start to decline until 2023, which should support the pricing power of rough diamond producers. Moody's report, Metals & Mining—Global: Diamond Miners May Have to Cut Prices Further to Revive Demand , is available on www.moodys.com . M A R K E T S 48 E&MJ; • JANUARY 2016 www.e-mj.com (December 28, 2015) P r e c i o u s M e ta l s ( $ / o z ) B a s e M e ta l s ( $ / m t) M i n o r M e ta l s ( $ / m t) E x c h a n g e R a te s ( U . S . $ E q u i v a l e n t ) Gold $1,068.50 Aluminum $1,541.00 Molybdenum $12,000 Euro (€) 1.119 Silver $13.92 Copper $4,665.50 Cobalt $24,900 U.K. (£) 1.516 Platinum $882.00 Lead $1,747.00 Canada ($) 0.822 Palladium $559.00 Nickel $8,590.00 Ir o n O r e ( $ / d m t ) Australia ($) 0.783 Rhodium $660.00 Tin $14,650.00 Fe CFR China $40.50 South Africa (Rand) 0.083 Ruthenium $42.00 Zinc $1,535.00 China (¥) 0.162 Gold and silver prices provided by KITCO Bullion dealers (http://www.kitco.com). Platinum group metals prices provided by Johnson Matthey (http://www.platinum.matthey.com). Non-ferrous base and minor metal prices provided by London Metal Exchange (http://www.lme.co.uk). Iron ore prices provided by Platts Iron Ore Index. Currency exchange rates were provided by GoCurrency.com. Diamond sales and production 2013-present. Rough diamond prices have fallen by about 28% since the middle of 2014. ( Source: Bloomberg ) Rough Diamond Prices Remain Under Pressure Rough diamond sales (millions of ct) YTD 2015* 2014 2013 Alrosa 22.9 39.6 38.0 De Beers 16.3 32.7 29.3 Rio Tinto 13.2 13.9 16.0 Petra Diamonds 0 1.7 0 3.1 0 2.5 Total 54.1 89.3 85.8 Rough diamond production (millions of ct) Alrosa 29.6 36.2 36.9 De Beers 21.7 32.6 31.2 Rio Tinto 13.2 13.9 16.0 Petra Diamonds 0 2.4 0 3.1 0 2.7 Total 66.9 85.8 86.8 ( Source: Moody's ; *First nine months of 2015)