Adjustments in rough prices would support the profitability of manufacturers and improve the mood of the market.
Rough prices are currently too high and it is important to lower them. Not only is this necessary to ensure the profitability of manufacturers and merchants, but it would also improve the mood in the market. These days, the mood is surprisingly low for a first quarter.
Moreover, in the long term mining companies would also benefit from a correction, as this would strengthen demand and prevent a freezing of the market. This seems inevitable at times, if the rough prices do not fall. That is in fact what happened in 2015, when mining companies, after experiencing record sales in the previous year, tried to keep rough prices high, even at levels that had become unbearable and unprofitable. Until manufacturers started rejecting goods.
The current market reminds me of that period. In the first three months of 2019, the trade in rough and polished diamonds was hesitant. Strange, as this is generally the most active period of the year. The stock of polished goods is still high. To be blunt, I believe that mining companies should reduce their sales forecasts for 2019.
Rough prices must fall by at least 10% to restore profitability at the manufacturing level. Although a fall in prices this year will lead to lower sales for mining companies, this will swiftly stimulate trade. Ultimately, it will place the miners in a good position to continue to grow healthily in the future. Moreover, if prices remain unchanged, manufacturers must refuse – for business reasons – to support the increased supply of raw.
The manufacture (and mid-stream) must be viable to guarantee the sustainability of the industry. Reports have already been published announcing that more manufacturers are focusing on synthetic materials in their pursuit of better margins. In addition, the market must be driven by demand rather than supply.
It is up to mining companies to stimulate momentum by reducing prices now. Otherwise, manufacturers must impose their will by refusing to pay the unprofitable rough prices.
