Petra Diamonds (LON: PDL) shares are down 7.5% today. On the face of it, the problem for PDL shares is that the price of diamonds is falling. Which, if you sell diamonds, is indeed a problem. But it’s also possible to read a slightly deeper problem into what they’re saying. Which is that prices are falling even though supply is being restricted. Which could be a sign of deeper problems than just the vagaries of market pricing.
We’ve looked at Petra Diamonds before: “This is the part that worries us. They held back the Tender 6 sale because prices were looking quite soft. But they also insisted that this would only be temporary. Well, yes – but will it be temporary? We remain unconvinced, shall we say.
Our reasoning is precisely this macroeconomic background. No, we don’t think the world is about to tip into recession. But we think something else is going on. There has been a massive build-up of consumer cash over the past few years – lock-up payments and so on, and not much to spend it all on. Consumer savings went through the roof. That’s all coming back to normal now. Consumers are saving back to more normal levels, that is. We don’t expect GDP to fall very much, so we don’t expect consumer incomes to fall very much either, but the spending down of those extra savings seems to have run its course. As a result, we expect discretionary spending to be weak in the medium term, even if a formal recession is unlikely.
Petra Diamonds share price from Google Finance
Well, now we have the results of the later sales: “In response to the recently announced two-month moratorium on diamond imports into India from 15 October 2023, Petra has brought forward its Tender 2 sales. In these first tender results, 344,554 carats, representing approximately 75% of the total tender volume, were sold for a total of US$30.2 million at an average price of US$88 per carat, including Williamson. These prices are 16% to 18% lower than those achieved in Tender 1 FY2024 on a comparable basis, reflecting the prevailing market weakness. The steps taken by the major producers to curb supply to the market and the two-month moratorium in India are expected to provide some much-needed stability and support to the market and therefore to prices.
Well, now we’ve got the results of the later sales: “In response to the recently announced two-month moratorium on diamond imports into India from 15 October 2023, Petra has brought forward its Tender 2 sales. In these first tender results, 344,554 carats, representing approximately 75% of the total tender volume, were sold for a total of US$30.2 million at an average price of US$88 per carat, including Williamson. These prices are 16% to 18% lower than those achieved in Tender 1 FY2024 on a comparable basis, reflecting the prevailing market weakness. The steps taken by the major producers to curb supply to the market and the two-month moratorium in India are expected to provide some much-needed stability and support to the market and therefore to prices.
