The industry’s main tool was stopping production of diamonds. De Beer’s mines in Botswana, Canada, and Namibia were mostly shut down with only about 10% production in the first quarter of 2009 compared to the same time in 2008. While production is slowly being brought back online, some companies like Harry Winston Diamond Corporation has decided to cancel winter production at their Diavik Diamond Mine in Canada after a summer shutdown and production returning in the fall.
Rio Tinto shut down its Argyle diamond mine in Australia during the first quarter of this year resulting in a production drop for the country of almost 90%.
Alrosa, the Russian diamond producer, continued to produce diamonds but protected prices by having the Russian government purchase and stockpile the diamonds.
Even with the cuts in production, the dramatic drop in demand results in global polished diamond prices dropping 15.7% from August 2008 to August 2009. Most of that drop occurred in the November to February period with prices being stable since May.
The past year produced the largest drop in diamond demand in more than 50 years with the most visible fall out being the weekly reports of bankruptcies in the retail and manufacturing sectors of the diamond industry. Retailers in particular simply could not cut enough costs to compensate for the lack of sales. Retailers and wholesalers who had made money by leveraging purchases of diamonds as the prices were going up suddenly saw their credit lines cut and interest rates rise at the same time their inventories lost 15% or more in value.
What can the diamond industry expect in the months ahead? With the US economy slowly coming out of the recession and demand continuing to grow in China and India, demand should become more stable and head back up. At the same time, many of the large diamond mines are moving from open pit to underground production, which will lower production levels. The economic crisis has also delayed opening of any new mines so global production of diamonds will soon be outpaced by supply again, which means diamond prices will soon return to their historic 3 to 4 percent annual inflation trends. However, the that price inflation will likely see considerably short term fluctuations as the industry continues to react to the more chaotic global financial times.