Diamond producers have made a massive miscalculation.
Around two years ago, they thought that demand for their gems would boom between 2013 and 2015, and so kept up production to prepare for the frenzy.
Instead their market was hit by a slowdown in luxury spending, a crackdown on Chinese corruption and anaemic global growth.
This has led to a big supply glut, with jewellers, cutters and polishers forced to sit on inventory until prices improve.
Analysts at Credit Suisse said (emphasis ours):
Based on our supply and demand estimates 2013-15 and sales volumes from the two major producers we estimate the industry built up in the region of 15-20 mcts of excess (above normal) diamond inventory between 2013 and mid 2015 when the major producers began cutting back on sales volumes.
Anglo American, which owns 85% of De Beers, said in October it has slashed production of diamonds by 27% in the past quarter “to better reflect current trading conditions.”
Diamonds are historically one of Anglo American’s key revenue drivers but the cuts may come too late.
De Beers and Alrosa, the two biggest producers of diamonds in the world, may have flooded the market with enough diamonds to last until 2020.
Here’s Credit Suisse:
Although we expect supply capacity to peak around 2017, surplus capacity at De Beers and high inventory levels at Alrosa will keep the market well supplied until 2019/2020.
Prices have crashed as a result, falling 18% between 2014 and the end of 2015. But there is always medium term optimism. Credit Suisse says the pain will continue for almost a year, and then the market will pick up.
So you’re thinking of proposing, you might want to buy that ring now.
Here’s the sales forecast:
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