Moody’s: Fundamentals solid but diamond miners likely to cut prices

Moody’s, the renowned rating and research agency, says that despite current conditions, which have dragged rough diamond prices down about 18 per cent  this year, the sector’s long-term fundamentals remain solid. However, Diamond miners will remain under pressure over the next 12 to18 months as sluggish jewellery sales and reduced credit availability for cutters and polishers have created a temporary supply and demand mismatch. 

The latest report from Moody’s says that producers may have to cut prices further as supply and demand challenges continue into 2016. Russia's Alrosa, the world's top diamond producer by output in carats, has already slashed prices by 3 per cent  in February, another 3 per cent  in April and a further 8 per cent  in the third quarter of the year. 

Another company, Anglo American's De Beers, the biggest rough diamond producer by value, cut prices by 8 per cent between the end of 2014 and June this year, just to reduce them by a further 8-10 per cent in August, in a fresh attempt to increase sales. 

However, the weak currencies should help companies with production facilities outside the U.S. in the next 12-18 months, Moody’s says. This, as their costs in dollar terms have declined in line with or slightly less than diamond prices, partially offsetting the negative impact of lower prices. 

Moody's expects Russia’s owned Alrosa to be the least affected by the recent drop in rough diamond prices as its revenues are mainly in US dollars, while most of its costs are in roubles- a commodity that has remained weak since depreciating by 42 per cent against the dollar in 2014.