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Diamond Prices Could Fall In 2012 As Supply, Demand In Balance

Toronto (Kitco News)–Diamond prices could fall about 10% to 13% in 2012 as the supply and demand fundamentals are roughly in balance and diamond recycling starts to finally impact the market, said a diamond-industry consultant.

Chaim Even-Zohar, managing director for Tacy Ltd, an Israeli-based diamond consultancy, said based on research his firm does with Indian firm Pharos Beam Consulting in Mumbai, about $15.2 billion in rough diamond production was done in 2011, which was about $22 billion in polished value. Retail sales globally were about $70.8 billion.

He spoke Monday at PDAC2012, the Prospectors & Developers Association of Canada’s annual convention, which runs through Wednesday in Toronto.

He said the $15.2 billion equates to production of about 125 million to about 130 million carats in 2011, with an average price per carat of USD$121.60 for global rough prices. That figure includes smuggling and underreporting. Based on the 2011 price per carat, he expects 2012′s prices to be 10% to 13% below that level.

Supply and demand should be roughly in balance for 2012, Even-Zolar said. But he noted that for the first time this year that when compiling data for supply and demand tables, his firm is adding a new category: diamond recycling.

“It’s something we’ve never before taken into account,” he said.

The reason is the post credit crisis “new normal,” he said, as U.S. households start to have to pay off debts and sell off valuables such as jewelry, including diamonds.

The figure could be as much as $1 billion for 2012, he said. Even-Zohar admitted there’s not a lot of hard data to back up the idea, but there is anecdotal evidence. He said many of these scrap diamonds are coming to Indian cutters to be recycled; these are usually old, unfashionable styles.

While the precious metals market deals with scrap metal all the time and works it into their supply outlooks, it’s a different story in the diamond industry. “The problem is diamonds last forever,” he joked.

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