Diamonds hit rough patch as demand falls – Pav Jordan (Globe and Mail – July 18, 2012)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

Harry Winston Diamond Corp. is grappling with rising diamond inventories and falling prices, as the slack global economy prolongs a year-long slump.

The Toronto-based gem company said on Tuesday that it would likely not sell all of its production in the fiscal second quarter ending this month, and that it expects to have higher-than-normal inventories as diamond cutters encounter difficulties arranging affordable financing.

“The rough diamond market has experienced softened demand since the beginning of the year,” Harry Winston said in a report. The premier diamond jeweller and luxury retailer – with locations in fashion capitals from New York and Beverly Hills to Paris, Beijing and Hong Kong – estimated that market prices have dipped 8 per cent since April.

Diamond prices are still struggling to recover since falling off a cliff over a year ago, when the global economic outlook darkened suddenly, spoiling the plans of speculators who had stocked up in anticipation of a stronger economic recovery after the 2008-09 crisis.Successive waves of the European sovereign debt crisis kept prices low and leery lenders passed higher borrowing costs on to diamantaires, the craftsmen who cut diamonds and who depend on financing for 90 per cent of their rough diamond inventory.

“The biggest thing going on here is the euro crisis, where the main diamond-lending banks are capping their lending facilities,” said Edward Sterck, a London-based analyst with Bank of Montreal’s investment arm, pointing at diamantaires who have gone out of business because they couldn’t afford to buy raw material to work with.

“Effectively they are drawing down on their working inventory at the moment, and when they do need diamonds they are purchasing them more on a hand to mouth basis,” Mr. Sterck said.

Volatility has been an issue for the industry for over a decade, ever since diamond giant De Beers saw its monopoly grip over the industry thwarted by producers in Russia, Canada and Australia, ending more than 80 years of predictable pricing and forcing diamantaires to fend for themselves in a market subject to the whims of supply and demand.
 
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