Toronto - Sabrina Thompson, a 30-something restaurant
manager from Toronto, said she turned to Craigslist to sell her diamond
engagement ring after her relationship ended.
An embittered Thompson, who wants $1 800 for the half-carat
ring, said the cash will help her move on with her life.
"He said I could keep it, but I wouldn't have given it
back anyways," she told Reuters. "If it doesn't sell in the next
month, I'm probably just going to go to a pawnshop."
Experts say a growing cadre of people, especially in North
America, are thinking along the same lines. Rather than hanging on to memories
of a failed relationship or departed relative, they are opting to
"recycle" their diamonds.
"You have no money to pay your medical insurance, you
have no money for your mortgage," said Chaim Even-Zohar, a consultant with
Israel's Tacy. "So you take your jewellery and your diamonds to the pawn
It's a trend that is sending ripples through the gem
industry at a time when high quality rough diamonds have become more difficult
to find, and more expensive to mine.
The growing influx of "used" gems means prices
could stagnate over the long term despite the supply restraints, Even-Zohar
said during a presentation at PDAC, the huge mining industry convention held
last week in Toronto.
To be sure, analysts were already expecting a short-term dip
in prices as a weak global economy cuts disposable income in Europe and North
America. But the forecast by Even-Zohar, a respected expert, seemed to confirm
a nagging fear that recycling could hurt explorers and miners for years.
The numbers already point in that direction, he said. The
rough diamond market, before the stones are polished and cut, was worth about
$15.2bn in 2011, and could drop some 10% to 13% in 2012. At the same time,
Even-Zohar expects $1bn worth of recycled diamonds to be put back into the
market this year.
Toronto's 'cash man'
Anecdotal evidence signals that something is afoot. Russell
Oliver, a Toronto jeweller known for camp TV spots where he waves fistfuls of
cash at the camera, said more diamonds than ever are passing through his shop.
"I can't tell you if there's more divorces, or more
people are handing over their inheritances," said Oliver, who calls
himself "The Cash Man". "I can't tell you why, but in the last
year, 2011, I bought so many diamonds."
By his estimate, Oliver bought 30% more diamonds last year
than in years past.
Cash-for-gold operations like Oliver's buy rings, remove the
diamonds, melt down the gold and sell the materials to wholesalers. They ship
the diamonds to cutting houses for polishing and recutting, and the gems go
back on the market.
In the early 1900s, diamonds became a popular means of
ensuring that if a man broke off an engagement, the woman would have financial
compensation for any damage to her reputation.
Later, as Americans become more wealthy, engagement rings
got bigger and more expensive. But that is changing fast.
"Men are still buying diamonds for women, but they're
not as expensive as they used to be," said Salmon Partners analyst Raymond
Add to the mix an ageing population, fewer marriages and an
uncertain financial outlook, and the traditional market for diamonds is losing
In January, Tiffany & Co said holiday season sales had
weakened markedly in the United States and Europe, prompting the retailer to
lower its full-year forecast.
But in Asia, it's a different story. Polished diamond demand
rose 25% in China in 2010, while demand in India climbed 31%, according to BMO
Capital Markets data.
That same year, 18% of Tiffany & Co's retail sales were
in the Asia-Pacific region excluding Japan, compared with 51% in the Americas.
The luxury retailer's 2011 results and geographical sales mix are due later
The growth in new markets is expected eventually to make up
for slowing or stagnant demand elsewhere, according to analysts
But the supply side of equation is another story. There are
new sources of lower quality diamonds, mainly from Zimbabwe, but high quality
projects are small, with big operational challenges.
To mine the Gahcho Kué project in Canada's Northwest
Territories, for example, parts of a 793 hectare lake must be drained, and then
refilled after mining is over.
The project, owned by De Beers Canada and Mountain Province
Diamonds, is expected to cost at least C$550 million to build and production is
not likely before 2016.
"Economic diamond deposits are just very, very
difficult to find," said BMO Capital Markets analyst Edward Sterck.
"I do see some growth in supply going forward," he
said. "But we're coming from a depressed base after the global financial
crisis when a lot of production was shuttered."
BHP Billiton [JSE:BIL], one of the world's largest diversified miners,
has put its capital to work elsewhere. It has put its remote Ekati diamond mine
in Canada's Northwest Territories up for sale and sold its stake in the
Chidliak diamond project, on the Arctic's Baffin Island, to Peregrine Diamonds.
Long-term problem for industry
Despite the supply curbs, analysts don't see any imminent
rally in rough diamond prices, in part because of the current global economic
environment. Indeed, Bank of America Merrill Lynch expects a 7% pullback in
prices this year.
Rough diamond prices crashed during the economic crisis as
luxury spending waned, but then regained lost ground. Prices turned down again
in mid-2011 as cutting houses faced credit issues and lower-quality material
flooded the market.
"The first half of this year could be challenging for
the diamond sector with rough and polished prices remaining fragile and
volatile," RBC analyst Des Kilalea wrote in a note to clients earlier this
But even when the global economy recovers, recycling could
remain an issue, warned Even-Zohar. As more consumers decide to cash in their
memories, the industry could struggle to keep prices high enough to sustain the
investment in new mines.
Up to $1 trillion worth of "used diamonds" are
locked away in safe deposit boxes and jewellery cases, and many gems could find
their way onto the market, according to Even-Zohar's data.
"We have a problem with diamonds," he joked.
"The problem is diamonds last forever."