In an effort to keep diamond prices stable while facing a significant decline in demand, the entire diamond industry has shifted from full speed ahead to reverse in terms of production.
The first half of 2008 saw polished diamond prices go up 15% compared the previous year. Diamond mines were implementing expansion plans and there was full employment for cutters, wholesalers, and retailers worldwide.
Starting in July, diamonds started to see the same pressures that commodities like oil were experiencing. Consumer fear, triggered by reduced real estate equity and tightened credit, resulted in reduced luxury purchases and lower demand for diamonds. The inertia of the diamond industry pipeline caused an out of balance between supply and demand with the result being a 11% drop in polished diamond prices during the second half of 2008.
The diamond industry, unlike the oil industry, has low profit margins all the way along the production and wholesale pipeline. If diamond prices drop too quickly, they can quickly bankrupt large segments of the industry. The only way to preserve the viability of the industry is to quickly match supply with demand in an effort to stabilize diamond prices at a level that can sustain the capital-intensive industry.
Diamond prices dropped dramatically in October and November but then flattened out in December. The unrealistic price increases from the first half of 2008 were mostly erased with the result being closer to the historical annual rate of increase (about 3%). Just as the oil price bubble was not sustainable, diamond prices have retreated back to “normal” levels.
The following is brief summary of the actions taken by the diamond industry in response to the falling demand.
DE BEERS
The world’s largest producer, De Beers, is reducing sales of rough diamonds by 50% until April.
ALROSA
Russia’s ZAO Alrosa, the world’s second largest diamond producer, stop selling diamonds to customers in late December. Exploration has been halted at its Catoca mine, which is the fourth-largest diamond mine in the world supplying about 75% of Alrosa’s rough diamonds.
CANADA
Snap Lake mine, owned by De Beers Canada, has planned a total of 10 weeks of shutdown during 2009 with about 430 workers laid off during those weeks.
BHP Billiton’s Ekati mine, remains at full production thanks to a cost reduction program implemented over the previous two months.
Diavik mine, owned by Rio Tinto and Harry Winston Diamonds, implemented a six-month delay in their planned move to underground production.
AUSTRALIA The Argyle mine, owned by Rio Tinto, has mostly halted the Argyle Underground Project that will enable them to move from surface mining to underground operations. The diamond processing facilities will be shut down for maintenance for at least three months in 2009, reducing output while waiting for worldwide demand to return.
In these days (May 2009) the situation is much better and diamonds are getting back their glory
Posted by: Roe K | May 18, 2009 at 08:20 AM
When you look at pictures of how destroyed the earth is after diamond and gold mining practices, it really makes me reconsider going with CZ and lab made diamonds. I heard that a new green jewelry company is coming out on http://www.rebekahgreen.com. Hopefully they will have comparable quality.
===================
Denny's Response:
I find it interesting that folks get so upset about diamond mining's impact on the earth but I do not hear them mention iron, copper, or aluminum mining. I guess they have a harder time boycotting all the products made with these basic industrial metals.
Posted by: Erin | May 19, 2009 at 12:34 PM
Erin, I agree with you. Its silly for people to get upset about diamond mining when there are a billion worse things that people are doing.
Although, I also find it sill why people spend thousands on wedding rings! Why not use that money for a down payment on a home?
Posted by: Jessica | August 27, 2009 at 03:29 PM