The China-fueled commodity slump that has torn through the world’s biggest raw-materials markets from iron ore to copper is now hitting the diamond industry. That’s bad news for Anglo American Plc, Bloomberg reported.
Cooling demand for diamond jewelry in China, the biggest market after the US, is the latest sign that the country’s slowdown isn’t only a problem for industrial commodities. At the same time, customers of Anglo American’s De Beers unit, who trade, cut and polish the stones, say the producer is demanding more for the gems than many in the industry say they can afford to pay.
“It is a catastrophe,” said Guy Harari, co-founder of rough-diamond trading platform Bluedax. “De Beers is saying it’s business as usual; it’s not business as usual. The market is much weaker than what De Beers tries to show the world.”
Lower-than-expected demand from the Asian nation has caused a blockage in the notoriously long diamond pipeline as inventories build and prices slide. At the same time, producers have been reluctant to cede their hard-won price gains.
Anglo American, which owns 85% of De Beers, is counting on diamond profits to counter slumping earnings from its other divisions such as platinum, copper and coal. De Beers accounted for more than one third of the company’s first-half underlying earnings and was the biggest contributor to its profit. Anglo shares fell 7.4% in London Monday, the most in three weeks.
What started as a slowdown in construction and industrial production is now hitting Chinese consumers, with luxury products especially vulnerable amid a clampdown on corruption. Chow Tai Fook Jewellery Group Ltd., the world’s largest listed jewelry chain, reported a 13% drop in second-quarter sales of gem sets this month as a government-led austerity campaign that prompted shoppers to cut back on luxury purchases gathered pace.
“It’s not a ‘China is over’ story, it’s just China is normalizing,” said Kieron Hodgson, an analyst at Panmure Gordon & Co. in London. “The problem is the level of inventories that are in the country or with the major retailers. It’s backing up along the pipe.”
