The average price of three carat diamonds fell 8.5% and one carat diamonds 5% over 2016, diamond trading company Rapaport said in its monthly report released on Tuesday.
Diamond sales suffered in the fourth quarter following Indian Prime Minister Narendra Modi’s move on November 8 to eliminate high-value bank notes as part of a drive against corruption.
"The policy wiped out an estimated 85% of currency in circulation, denting orders from local jewelers. Domestic Indian demand slowed as smaller dealers and manufacturers adjusted to the new laws, while larger export-focused manufacturers were relatively unaffected," Rapaport said.
India’s move to eliminate 500 and 1,000 rupee notes from circulation contributed to the average price of half carat diamonds falling 4.8% and one carat diamonds falling 3% over the fourth quarter. But three carat diamonds appeared immune to India’s cash crunch, rising 1.4% over the quarter.
Rough diamonds suffered as much as polished diamonds.
"The decline was witnessed at rough auctions across the market and at De Beers and Alrosa’s contract sales in the final two months of the year. Manufacturers also refrained from buying rough as they sought to keep polished inventories in check at the start of the New Year," the report said.
De Beers December sales cycle was its smallest of the year at $418m. De Beers’ second half sales, however, are usually lower than its first half sales because manufacturers tend to do most of their buying in the first six months of the year
De Beers’ overall sales in 2016 grew 36% to $5.58bn — a rebound from a slump in 2015, but still below its 2014 sales.
Rapaport said mining companies sold more diamonds in 2016 at lower prices than the previous year.
For instance, Okavango Diamond Company, which sells 15% of production mined by De Beers-Botswana joint venture Debswana, reported sales grew 80% to $546.5m in 2016, with its average price declining 13% to $160.25 per carat.
"There is also some concern rough supply will increase as various new mining projects come to fruition. Miners and manufacturers will be careful not to oversupply rough or polished to the trade, which might lead to a repeat of 2015’s rough price bubble and resultant market slump," Rapaport said.
Diamond retailers are set to release their Christmas sales figures in the coming weeks.
Rapaport said initial indications were encouraging in the US. Diamond sellers are also pinning their hopes on strong Chinese New Year sales.
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