His answer, which might be different to yours, is not for much longer. Diamond time is getting closer.
The best pieces of evidence that the world is preparing for a revival of interest in diamond comes from two sources, one unusual and the other staring us in the face.
The obvious trigger for what might become a bit of an overdue diamond boom is China.
Yes, before you say it, Dryblower knows that China is the cause of everything these days, from bird flu, to global shortages of oil, truck tyres and panama hats.
But with diamonds, there is no denying the fact that the ladies of Shanghai are developing more expensive habits, the men of Shanghai have the readies – and there are an awful lot of both varieties.
The second reason, and this is the odd one, is that the annual profit of De Beers, the company that still largely controls the world diamond trade, reported a lower profit for 2006.
Before saying a profit fall is a rather silly reason to tip a commodity price rise, it’s best to have a look at why De Beers posted a fall – it couldn’t get its hands on enough diamonds … “sales at $US6.15 billion were the second highest on record but were lower than 2005, reflecting reduced Russian supply available to the Diamond Trading Company”
There were other reasons behind the fall in profit from $1.4 billion to $1.23 billion, such as margin pressures and financing costs along the wholesale “pipeline”, which delivers gems from De Beers to its “sight holders”
However, for as far back as Dryblower can remember these pressures are part of the normal cyclical nature of the diamond “system”, which always hits troubles when interest rates rise, as they have done worldwide over the past few years, and wholesalers suddenly discover that they’ve borrowed too heavily.
When this happens, De Beers squeezes the pipeline, demands that wholesalers pay their bills quickly (which it did a few weeks ago), and then the problems passes.
Other signs that the “pipeline” is under pressure can be found in Rio Tinto’s Argyle mine building up a stockpile of unsold low quality diamonds, and reports from the trade that a little bit of discounting has been required to shift stock.
These events in the pipeline are just part of the curious world of diamond marketing that Dryblower has followed for many years.
Of much greater interest are the long-term pressures at work, plus early signs that the pipeline bulge is passing.
A couple of weeks ago www.polishedprices.com reported that its diamond index, which tracks a range of stones measuring from 0.3 of a carat to 3 carats, put in its best performance since last October, rising by 4.4%. Some categories of diamond rose by as much as 11.4%.
It might be Dryblower’ imagination but when you look closely at the world diamond market, and factor in rising demand from China, Russians playing games with their supply chain, and the lack of a major new diamond discovery for at least 15 years, you have an interesting situation emerging, which is called “shortage”
When will this looming shortage hit the market? That’s a job for someone with a crystal ball but as far as can be seen the real bite comes in about two years.
It will be sometime around 2009 or 2010 that the diamond markets discovers that its pipeline bulge has passed, and that China is steaming ahead (with India close behind) and that even if a big new diamond field is discovered it will all be too late, triggering a rather large surge in diamond prices – and a flow of capital into the diamond exploration business.
