The world of diamonds as we know it might become more interesting beyond its connection to engagements & weddings.
Diamond prices have dropped just about 15 percent over the last 12 months and as Nicholas Colas, the chief market strategist at Convergex, seeing think theres a larger trend happening.
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(“The reason all this intrigues me is not as a prospective shopper, but rather because the price of ‘Commodity’ diamonds is a intresting case study in macroeconomic deflationary pressures,” Colas wrote for some clients.
The recent decline in diamond commodity prices is attributed to a few factors, one of them including reduced consumer demand in China, Japan and India. But Diamond Manufacturing companies are also facing finance pressure as banks are less willing to give loans. Decreasing demand and less capital requirements added to little inflation “is causing a slow-turnover inventory with increasing inventories and all of this is pushing prices lower,”
How does Colas connect falling diamond commodity prices to a case study on worldwide deflation?
He wrote demand from China has fallen in 2015 and reduced purchase-for-Stock among Chinese jewelers. Part of this could be connected to the government’s new push for anti-corruption. There are still isn’t any numbers to show just how much the Chinese diamond market has fallen thus far.
Diamond manufacturers have also taken quite a hit, and have begun working on thinner and thinner margins. They now have to manage their inventories far more carefully and watch all their capital expenditures. Colas questioned whether all of this could be linked to the decreasing Chinese diamond demand.
This past September Antwerp Diamond Bank closed its relations to any new Diamond buyers or manufacturers, closing one of the major sources of capital in the diamond industry. Additionally, reports have surfaced about how De Beers, the world’s largest supplier of diamond stones (by value), is requiring clients to have higher credit scores.
Alot of this is contributing to downward deflationary pressure on diamond prices that Colas said is friendly similar to other industrial commodities, like crude oil.
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