Why Trump will be good for SA’s diamond sector

New York - Here’s yet another commodity that stands to benefit from Donald Trump’s policies: diamonds.

“It’s likely to be positive, certainly in the short-term - lower taxes, more jobs, translates into more disposable income and translates into more diamond purchases,” Bruce Cleaver, chief executive officer of top producer De Beers, said in an interview on Tuesday in Bloomberg offices in New York.

If the president-elect’s policies do lead to increased demand for luxury items in the US, it would give a further boost to a modest recovery forecast for diamonds, according to Cleaver. De Beers, a unit of  Anglo American, expects sales to be flat or slightly lower this year, partly because of US dollar strength, before increasing “a little bit” next year.

De Beers reported a decline in prices of about 7% in the first half and Cleaver said polished diamond prices are “reasonably stable” in the second half. The price outlook for next year probably isn’t “wildly out of kilter” with its sales forecast, Cleaver said.

Longer term, the market will be supported by the prospect of demand growth outstripping supply expansion by 2018 or 2019, he said. Exploration is difficult and De Beers is unaware of any discoveries that would change a flat supply curve.

Trump pump

Industrial commodities from copper to iron ore extended a rally after the US election as investors focused on additional demand from as much as $1trn in infrastructure spending.

While deregulation generally is good for business, it’s less clear what the effect of Trump’s policies will be for the rest of the world, Cleaver said, with a stronger US dollar making commodities more expensive in other currencies.

He expects some consolidation in the cutting and polishing and retail parts of the diamond business, although mergers and acquisitions among diamond miners will be unlikely.

China and India offer “great opportunities” to grow demand, he said. “As more and more middle-class homes come on stream in countries that are growing, there are more and more potential diamond consumers.”