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Diamond output cutbacks pave way for recovery – RBC Capital Markets

LONDON, January 21, 2009 – Cutbacks in diamond production will help the sector to recover, but prices will stay weak in the short term due to the severe economic slowdown, RBC Capital Markets said in a research note.

“The foundation for a strong recovery in diamond prices is being laid as producers brutally cut back output,” it said.

“However, until final jewellery demand bottoms and liquidity improves, prices will remain depressed.”

RBC Capital Markets’ view is that the diamond market will worsen before improving, simply because the chill of global recession is going to become increasingly evident in the form of accelerating job losses.

“People don't rush out to buy luxury goods in a recession,” it said.

Christmas sales of diamond jewellery have been disappointing, RBC Capital Markets said.

Leading diamond producers have responded to the economic crisis fast with deep cuts in production. This is necessary to support rough diamond prices, which have already fallen in excess of 30 percent since their peak last year.