A Polar Vortex?

It takes a fair bit to stir me out of my inertia and put pen to paper and unfortunately for one and all, enough has happened to stir me.

Since writing several months ago, I have watched the industry bumble along supposedly in reasonable health, with cooing noises coming from various sources about some good sales in America or whatever tit bits of good news could be conjured up. 

Of course good sales in America, if true, or rather, what is ‘good’ meant to mean, most definitely did not include bad sales in Asia and overall what is now being referred to as a ‘disappointing season’.

Anyway, over the past couple of days I noticed that Petra Diamond’s share price plummeted by 20% in one day on announcing its results, which included the notification of lower prices especially in the lower end.

Then De Beers January Sight numbers were released showing a 25% fall from January 2018 to $504 million, which was even a 7% fall compared to the December Sight, traditionally one of the smaller Sights in the calendar year, with January being one of, if not the, largest Sight.  

Some fall, and a fall that was ‘cushioned’ by a comment I read that some Sightholders felt obliged to buy, even at an immediate loss, to make sure they were not dropped or supplies curtailed by De Beers. A loss at a time when all cutters are having difficulties with their financing.

Without this encouragement to buy I wonder just how much less than $500 million the January sight would have been?

Supposedly, the good old monopoly days of De Beers are long gone, well according to them it was, but clearly not, which, in reality, we all knew anyway.

But this push to monopolise, remembering monopolies exist by driving prices down not up, the synthetic market is really impacting on natural.  This is even before De Beers can hope to match its own generated demand with its new Lightbox factory in America later this year. 

Indeed, the launch of De Beers’ Lightbox has it appears only spurred an unrequited demand for synthetic diamonds with Diamond Foundry announcing a ten fold increase in production, and others saying that they will be entering the market.

It looks as if the chickens might really be coming home to roost.

The impact of the Lightbox moment is that the bottom has fallen out of the lower end of natural.  Or as De Beers like to refer to it in their press release on the January Sight “the slow movement of lower value rough diamonds through the pipeline.”

These ‘lower value ranges’ actually cover a wide range of rough diamonds and a very significant proportion of virtually every mines’ production and a large proportion that keeps the manufacturing capacity bowling along.  

This has come on top of the credit squeeze as banks withdraw literally or pull back on lending, flat polished prices, manufacturing over capacity and the painful fact that the effects of a broken model are only now really beginning to bite.

Till recently, it was very much the mid stream that was having a rough time, this has now spread to the mining companies and of course it won’t be long for the  producer countries to feel that they may have landed in a polar vortex.