Johannesburg, South Africa — MININGREVIEW.COM — 16 January 2009 – The outlook for diamond prices in 2009 has been described as “very poor”, and some analysts are forecasting that prices could drop by up to 30% this year, and that they are unlikely to recover until 2010.
“I wouldn’t be surprised if prices drop by more than 30%,”says international corporate and investment bank analyst Des Kilalea of RBC Capital Markets. “There will be no material recovery in 2009,” he told business news agency Fin24.
Another Johannesburg analyst expects prices to fall between 15% and 20%. “Prices aren’t easy to predict, but I expect them to remain flattish throughout 2009,” he estimated.
In 2007, total diamond production worldwide was 160 million carats with an estimated value of US$14 billion (R144 billion). South Africa contributes 12% of overall production by value.
Fin24 reports that the US recession is a significant threat to the diamond market, because that country accounts for half of the market. Diamond cutters are building up debt because there are no credit options available to them. This makes them reluctant to buy additional stock.
On the rough 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 is scaling back production. “I expect DiamondCore to close down its South African operations completely this year, and to focus on its prospects in the Democratic Republic of Congo (DRC),” says Kilalea.
Rockwell Diamonds has announced that it is extending its year-end shutdown by four more weeks in January because of weak market conditions. Kilalea expects Rockwell to re-start all its operations by the end of January, except its unprofitable Wouterspan mine.
“De Beers is going to be hurt the most, since it mines the most diamonds,” he adds.
“The juniors who are producing diamonds at the moment, such as Rockwell, Namakwa Diamonds and Petra Diamonds, are likely to survive the year,” Kilalea predicts. “The ones that are still developing and exploring are just consuming cash without making any money, and it is these juniors that are likely to merge with other mining operations in the year ahead,” he concludes.