It is not often that the yearly summary for an industry will show a balance between supply and demand. In many instances, the supply will be higher than the demand, which will cause prices to decrease, or the supply could be lower than the demand, which will result in an increase in prices. In 2007, the diamond industry was one of the few industries to be balanced when it came to supply and demand, which is one of the reasons why the price of diamonds has remained steady. Another reason the diamond prices have remained fairly constant is that the price of rough diamonds has firmed, which resulted in an increase in diamond production.There are many other factors that determine the supply, demand and price of diamonds. For most of 2007, diamond producers repeatedly expressed the need to increase diamond production for fear of there being a diamond shortage in the near future; however, many experts have projected that the diamond supply will remain constant or increase slightly until at least 2015. Diamond producers argue that the demand for diamonds will increase more than the current production rate, which will lead to a shortage, which will cause the rough price of diamonds to increase. While these are sound arguments for diamond producers, what they fail to take into consideration is the extremely large stocks of rough diamonds from the currently producing pipelines.
Experts have estimated that consumers around the world purchase about twenty billion dollars worth of diamonds on an annual basis, which is measured in polished wholesale price. The diamond industry is more efficient than ever before at producing finished diamonds in a timely manner; however, it still takes an estimated twenty eight months for a diamond that is freshly mined to be presented as a finished gemstone in a jewelry store. This means at any given time there is an estimated forty five billion dollars of diamonds in production and any change in supply would not be felt by the consumer for at least two years after the shortage is discovered.
If anything, the diamond industry is likely to expect to see a decrease in demand of diamonds from consumers in certain areas of the world. This is partially due to the foreseen recession in the United States, which is the single largest market for diamonds in the world. In 2007, consumers in the United States purchased an estimated forty three million pieces of diamond jewelry that is worth approximately thirty six million dollars.
Some experts believe that the production of synthetic diamonds will also have a negative impact on the production of natural diamonds in the future. Currently, synthetic diamonds only account for about five percent of the total diamond supply; however, this is expected to change in the future. Many experts believe that as more gem quality synthetic diamonds are produced, they will draw the attention of consumers, which will have a negative impact on producers of natural diamonds. This is because a synthetic diamond can be produced in a very short period of time and will not have near the expense of production as natural diamonds. Many producers of natural diamonds will stop spending the required money and time that it takes to search for potential diamond pipelines and to begin production on those pipelines.
One of the reasons for the balance of pipeline diamond production in 2007 was due to the production driven mentality of manufacturers. Even though the rough supply of diamonds was lower in 2007, manufacturers were purchasing the diamonds at an increase rate than in previous years. This was due to manufacturers wanting to increase the amount of work for their employees. One of the negative effects of this activity is that manufacturers failed to see that there was not a current demand for the final jewelry products that were being produced, which lead to a surplus of inventories with no buyers. One of the only options left for manufacturers is to undergo mass reductions in their surplus items, or continue to purchase rough diamonds at the current rate. However, the second option could prove to be more difficult than in previous years because the supply of rough diamonds has been decreasing for several years.
Another factor that could have a significant impact on the price of diamonds is the demand for their purchase from investors. In today’s market, there is already a great demand for diamond use other than to produce jewelry. In many instances, these individuals are investors that are collecting diamonds for their own private collection. While it is known that investors are currently purchasing diamonds for their own personal gain, it is difficult to determine how this activity will impact the pipeline production in the near and distant future.
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October 6th, 2011 at 1:02 am
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