Rough diamond bubble bust (Part 2) – by Martin Rapaport (Miningweb.com – November 25, 2015)

http://www.mineweb.com/

What can be done to save the diamond trade?

So how do we get out of this mess? While a comprehensive plan detailing all the necessary initiatives is beyond the scope of this article, there is one vital emergency measure that must be taken. The mining companies must urgently inject profitability into the diamond trade, by immediately reducing rough prices by 30 percent to 50 percent.

Discussion issue 1

Many in the trade oppose lower rough prices because they think this will not increase demand. They miss the point that the primary reason for the rough price drop is to rapidly and effectively increase profits and liquidity in the trade. An increase in demand due to a rough price drop is an added benefit.

If we don’t pump money into the trade quickly there is significant risk that a lack of liquidity will result in a cascade of bankruptcies that will cause a severe drop in polished prices. Much better to have rough prices fall than polished prices.

We also run the risk of an additional collapse of confidence by the diamond trade. Drop prices now and you can manage the situation. Don’t drop prices now and the situation will manage you.

If there are no profits in the diamond manufacturing and distribution system, why should any bank lend money or any person invest their own money in the diamond business? Frankly, why should diamond people that stashed their personal money in foreign bank accounts, bring that money back into the industry if there are no profits? No profits mean no money and no business.

Profits mean we can get the ball rolling again after this disastrous rough bubble bust. The De Beers November 2014 sight was $527 million, the November 2015 sight was about $70 million. What does that tell you?

For the rest of this article, click here: http://www.mineweb.com/news/diamonds-and-gems/rough-diamond-bubble-bust-part-2/

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