Prices for diamonds fell in 2014 on the back of a reduction in demand in the Chinese market and a lack of liquidity in the diamond sector, the Rapaport press release said. Factors such as reduced lending to the diamond industry by banks, a decline in profitability due to high commodity prices, and delays in the assessment at the Gemological Institute of America (GIA), have contributed to the weakening of cash flows to the cutting companies. Banks reduced lending to the diamond sector, demanding greater transparency in trade with representatives of this business.
In December, the volume of commodity stocks remained high in the diamond sales chain, as suppliers of processed stones lowered prices in an effort to increase turnover and get cash.
In 2014, the Diamond Index Index RapNet Diamond Index (RAPI ™) for diamonds weighing 1 carat fell by 8.7%. RAPI for diamonds 0.3 carats decreased by 6.5%, and for stones 0.5 carats - increased by 0.1%. For precious stones weighing 3 carats, the RAPI index was lower by 6.6% in 2014.
In a monthly report, Rapaport notes that the price adjustment for diamonds weighing 0.3 carats was due to supply and demand factors. Demand in China declined due to a slowdown in economic growth. Retailers of jewelry still keep large stocks of diamonds in stores at 0.3 carats after a large volume of purchases of such stones in 2013. In addition, the GIA has finally completed an evaluation of a large number of diamonds weighing 0.3-0.5 carats in the fourth quarter and released stones to the market, which in turn led to its oversaturation.
The instability in diamond markets was also due to the imbalance between the prices of raw materials and diamonds. On De Beers' December website, diamond prices remained at the same level, sightholders refused to purchase about 20% of all stones from this site. More lots were left unsold at spot auctions. In December, diamond trading was marked by low activity, even though many lots were sold at a low price with attractive lending rates.
Diamantaires expect that a confident growth in retail sales in China in the coming months and a successful season of sales during the Christmas holidays will stimulate the trade in precious stones. It is necessary to look for opportunities to overcome such obstacles to growth as high prices for raw materials and a decrease in liquidity, the level of lending to the diamond business and its profitability. This will provide an opportunity for the development of the entire industry in both 2015 and in the long term.