$1bn diamond sales by De Beers and Alrosa PJSC may be much too soon

The world’s two biggest diamond miners have just sold $1bn worth of gems and it is making smaller rivals nervous.

January offerings by De Beers and Russia’s Alrosa PJSC, which control almost two thirds of the market, far exceeded everyone’s expectations.

The sales were driven by supply cuts last year that led to shortages, lower prices and better-than-expected holiday demand.

However, there are concerns that it is too much too soon for an industry still reeling from the biggest rout in seven years.

“It’s going to be very difficult to sustain the current exuberance of the market,” said William Lamb, chief executive of Lucara Diamond, which last year discovered the second-biggest ever diamond.

“We’ll most probably see diamond prices softening in the back end of this year.”

The smaller producers are at the mercy of the two biggest, whose market dominance helps them control prices by reducing output or withholding sales.

About a quarter of global supply disappeared last year as miners tried to arrest an 18% drop in rough prices after China’s slowdown and an industry-wide credit crunch curbed demand.

Helped by a 7% price cut, Anglo American-owned De Beers sold $540m (€479m) of diamonds in its first sale this year, more than twice its December offering and beating analysts expectations.

Alrosa extended its January sale and shifted about double the $200m to $250m it originally planned.

“January was a good start on that road to recovery, but whether we’re firmly on that road, it’s too early for me to call that,” said Stuart Brown, chief executive of Firestone Diamonds and a former chief financial officer of De Beers.

“Time will tell. You don’t get any prizes for being bullish in this industry.”

While prices for Gem Diamonds’ smaller stones dropped 30% to about $150 a carat last year, they’ve since risen about 5%, according to chief executive Clifford Elphick.

“It could be an indicator that there is starting to be a little bit of appetite and the decline has stopped,” he said.

“But you need three or four months in a row to be able to say there’s a trend.”

Last year was bruising for the $80bn industry, with prices dropping the most since the global financial crisis in 2008. Cutters, polishers and traders said miners were still demanding more than many could afford to pay.

Mine Revival Prices should remain steady this year, said Paul Loudon, chief executive of DiamondCorp.

The London-based company plans later this year to revive the 1930s Lace mine in South Africa, reportedly named after the mistress of Britain’s King Edward VII.