London: A six-month swoon in diamond prices has already run its course, according to the head of the company that mines some of the world's biggest stones.
"Price declines since September were driven by a funding squeeze rather than the excess supply that still dogs oil and iron-ore markets,'' said Clifford Elphick, chief executive officer of Gem Diamonds Ltd, which has mined stones including the 603- carat Lesotho Promise, the largest unearthed this century.
"Prices are moving sideways," he said in an interview at the company's London office. "Demand is certainly not strong, but definitely not weak."
"Prices will rise this year, Elphick said.
Rough diamond prices dropped 6.9% in the last three months of 2014, the biggest quarterly decline in more than two years, and weakened further this year as banks tightened credit, forcing traders, cutters and polishers to sell more inventories.
The lending drought followed a decision by KBC Groep NV to wind down its Antwerp Diamond Bank unit, a source of finance for 80 years to the network of companies that trade and process the stones in the Belgian port city.
ABN Amro Bank NV and Standard Chartered Plc also curbed funding for gem buying after double-digit price gains for diamonds in four of the past six years.
The 15% erosion of gains from September contrasts with oil and iron-ore prices that have fallen almost by half as supply of those commodities is growing faster than demand.
"It's not an iron ore or coal or oil story," Elphick said. "This is to do with liquidity, it's not to do with production."
Anglo American Plc's De Beers unit, the world's biggest producer of diamonds, said last month that there was scope to raise prices this year.
"We would certainly hope that as liquidity comes back into the system, and as polished starts to move a bit, there will be scope for some price increases in the year," Bruce Cleaver, head of strategy at London-based De Beers, said. "We hope that as the fundamentals improve we would react accordingly."
De Beers was one of Anglo's best-performing units last year, contributing about 28% of earnings compared with about 15% a year earlier.
Petra Diamonds Ltd is the best performer in the 14-member FTSE 350 Mining Index in the past year and the only company to post a positive return.
That contrasts with Gem Diamonds, which was down 18% in the same period as it struggled to get its new Ghaghoo mine in Botswana into production.
The company's Letseng project in Lesotho is famous for the size and value of its stones. As well as the Lesotho Promise, Gem Diamonds uncovered a 550-carat rock in 2011. bloomberg