ABN AMRO, in its latest Diamond Market Outlook report released last week says that the recovery in the diamond market which was seen towards the end of last year has ground to a halt as a result of “disappointing” consumer spending in Q1 in the US, the world’s largest diamond market, and the continued weak jewellery demand in China.

Bank analyst, Georgette Boele says that as a result, bottoming out of polished diamond prices may continue, though rough prices may not dip significantly due to the “oligopolistic structure of the industry”.

According to the bank, trade data of the last few months from Antwerp confirms that “the improvement in rough trade has already peaked while polished trade never recovered in the first place”. It says that Antwerp diamond exports to China, Hong Kong and the US have been “very weak”, and while there has been a “pick-up in activity in Indian diamond manufacturing” there are some areas of concern, including the impact of GST on small traders and manufacturers.

The report also notes that though there has been only a limited change in volume terms in rough and polished exports from India, there has been some improvement in value terms in both segments.

Looking forward, ABN AMRO believes that higher US net-worth and strong economy should support jewellery spending. The bank says that as “households’ net worth continues to rise in the US based on higher house prices and stocks” and the “US labour market is tight, which will provide some job security”, it is likely that US consumer spending will rise and the savings rate will decline leading to “higher US demand for jewellery (including set with diamonds)”.

Projections for China are more cautious, and the bank notes that “Chinese demand remains a risk”. It says that for now Chinese economic growth appears to have peaked in Q1 and that it will gradually slow down going forward. This will “weigh on private consumption and jewellery demand”, while anti-corruption measures “will probably continue to weigh on Chinese jewellery spending as well”.

However, the bank estimates that “in the years ahead, it is likely that the growing of the middle class will result in higher overall jewellery demand (including diamonds) but this will take time”.

In terms of prices too, ABN AMRO believes that stronger US demand will “provide support to polished diamond prices going forward”, but cautions that “the upside will probably be dampened by weak demand from China”.

On the rough side, it notes that production guidance from major miners indicates a “substantial increase in global mine production in 2017”. It projects an increase of 9% in global production, from around 128 mn carats in 2016 to around 140 mn carats in 2017, noting that both De Beers and Alrosa are targeting production in carats terms that will put them “back at 2015 levels”,  while Rio Tinto’s diamond production “would be the highest since 2008”.

Despite the increase in supply, however, “the oligopolistic structure of the industry is likely to prevent rough diamond prices from dropping substantially” and “mining companies will find different ways to avoid lowering their prices substantially like for instance keeping the surplus diamonds in inventory until end-demand strengthens”.