Diamonds look 'less than precious'

The price of rough diamonds is in the doldrums, but the longer-term outlook is more encouraging.

Rough diamonds are having a rough time, says Thomas Biesheuvel on Bloomberg.com. Their price has fallen by 14% this year, prompting De Beers, which accounts for 30% of overall supply, to trim output twice in recent months, beef up its advertising budget, and cut prices by 10% in August. So what's gone wrong?

"The real worry, as ever, is China," says Helen Thomas in The Wall Street Journal. It is the second-biggest source of consumer demand for diamonds. But by 2018 it is expected to account for a fifth of consumer demand, compared to America's 41%. Growth jitters and a corruption crackdown have left companies sitting on excess stock.

Meanwhile, a stronger dollar has inflated the cost of buying diamonds in Europe and Asia, further undermining demand. Lower prices for polished stones have discouraged purchases of rough diamonds by diamond cutters, many of whom have low margins and worry about losing profits.

With this backdrop unlikely to change soon, "low diamond prices will take time to clear", says Thomas. The longer-term outlook is encouraging, because only a handful of mines will start up in the next few years, while the increasing wealth of emerging-market consumers also bodes well. But for now, the prognosis is "less than precious".

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