Canadian bling is climbing back from the brink.
After virtually abandoning diamonds last year amid the global economic crisis, consumers are once again lusting after the shiny stones, albeit cautiously.
Industry executives say diamond buyers are sticking to modest stones measuring between 3/4 carats and three carats in size, the type most commonly used for engagement rings. The improving market is having a positive effect in the North.
The Diavik diamond mine in the Northwest Territories confirmed Wednesday that due to rising demand for its diamonds, it has cancelled a planned month-long shutdown in December.
The head of De Beers Canada said his company is also reconsidering a winter work stoppage at its nearby Snap Lake operation.
Bob Gannicott, the chairman and chief executive officer of Harry Winston Diamond Corp., which owns 40 per cent of the Diavik mine as well as the high-end Harry Winston retail chain, says diamond demand is picking up in part because of stronger-than-expected sales to China, India and Japan. Wide-scale production shutdowns by diamond miners in Africa, Russia and Canada have also cleared out the inventory of diamond supplies enough to ensure the worst is likely over.
"There are certainly going to be some wobbles along the way but they are probably not going to be the extreme panic we saw in the later half of last year," Mr. Gannicott said in an interview.
When the market selloff and commodity crash struck the global economy last year, few sectors got beaten up more than diamonds.
Prices for rough stones produced at Canadian mines, including Diavik, Snap Lake and BHP Billiton Ltd.'s Ekati mine, skidded as much as 50 per cent last fall.
With the financial markets imploding, demand for diamonds and other frivolous baubles evaporated virtually overnight as consumers dramatically cut their discretionary spending.
"[People]buy diamonds because it is an emotional thing. It displays a confidence in your future. That is the connection. When they lose that confidence, they just stop buying," Jim Gowans, the head of De Beers Canada Inc., the Canadian arm of the South African industry giant De Beers SA, said in an interview.
De Beers, which coined the famous marketing tagline "Diamonds Are Forever," reduced its worldwide production in the first quarter by 91 per cent and cut 23 per cent of its work force or about 4,700 jobs. In addition to major shutdowns in Africa, the 121-year old company temporarily suspended production at Snap Lake this summer and halted mining at its Victor mine in Northern Ontario for two weeks.
Both Canadian mines are back in operation and Mr. Gowans said consumer confidence has returned enough that his company is now revisiting plans to shut down Snap Lake in December. A final decision on whether or not to cancel the furlough hasn't been made.
Both Mr. Gowans and Mr. Gannicott said wedding-related diamond demand has been a key driver of recovery, remaining constant even during the downturn's darkest days last winter.
"Even through the depths of this recession, bridal demand, thank goodness, keeps on going. People still get engaged. The stone might not have been as big or as high quality but a diamond is still required. That has underpinned this market," Mr. Gannicott said.
What hasn't returned is demand for high-end diamond jewellery and large carat stones that are the hallmark of the Harry Winston brand. With the exception of stores in Asian tourist destinations, as well as Hawaii and Las Vegas, Harry Winston's sales remain extremely weak.
"It's fledgling at best," Mr. Gannicott said of the recovery for big-ticket diamond jewellery. "What has improved in our jewellery business is sales in the Far East, particularly Japan as well as the locations related to China. In the U.S., life remains difficult," he said.
Tiffany & Co., the storied jewellery retailer that buys rough diamonds from Canadian mines including Diavik, believes that wholesale diamond prices have stabilized thanks to swift production cuts by miners and improving consumer demand. While Tiffany's sales in the Americas were down by 22 per cent in the second quarter, Asia-Pacific sales, excluding Japan, increased 14 per cent.
"The softest area for us in the United States, which is our biggest market, has been at the very, very high end," Mark Aaron, Tiffany's vice-president of investor relations said in an interview.
The coming weeks will be crucial for diamond miners and retailers banking on a recovery. Forty per cent of annual global diamond sales typically come during the holiday season between Thanksgiving and New Year's Day.
With a file from Bloomberg News