Nicholas White Predicts Diamond Prices will Decrease over the next Five Years
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From Gerson Lehrman Group:
Nicholas White, whom I hold to be one of the premier analysts of the diamond industry, has written an interesting new analysis of De Beers and how they’re losing control of prices. He claims that due to slumping demand, and with the old external forces no longer available to tighten the vice on the supply line, prices are most likely headed south.
In effect, there are more economic reasons to expect diamond prices will materially decline over the next half decade, than significantly increase in price. If true, that should have the jewelry industry worried. As much as 70% of the jewelry product sold by mid market jewelers contains diamonds. For near 60 years diamond products have been the segment of the jewelry business that has driven the industries profitability.
Deflation is problematic for any industry, but for the diamond industry, it’s positively lethal. The production process from mine to retail transaction can easily take a year in the most common cases. In that time, someone is financing that inventory. If the inventory is constantly declining in value, the loan becomes ever more risky. Inventory that was previously financed to make a profit, will now be financed to perhaps only break-even.
If this does indeed happen, and the price drops are significant, you can be certain there will be many more bankruptcies throughout the industry in the years ahead.
