A speculative bubble in rough diamond prices is likely to pop by mid-2010 and threaten a rerun of last year's industry crisis, according to an executive of the world's second-largest producer, Russia's Alrosa, Reuters reported.



Prices for rough or uncut diamonds roughly halved from August, 2008, peaks to March but have since pulled back about 50%, without an appreciable pick-up in polished diamond prices or consumer demand for diamond jewelry, the report said.

Speakers at a diamond conference in trading capital Antwerp on Monday talked of a possible speculative bubble, it said.



“It is very likely that it will explode in late spring or summer,” Sergey Oulin, a vice-president of state-owned Alrosa, said during a break in the event. “We will have difficult times, maybe more than in September/October 2008.”



That crash, prompted by the global financial crisis, led to job losses for almost half a million of some 800,000 diamond workers in India, the center of diamond cutting and polishing. Some industry insiders have speculated the industry will emerge from the crisis 30 to 40% slimmer, the report said.



However, wide-scale bankruptcies have been averted, partly because diamond producers slashed output and banks did not abruptly pull credit in an industry with debt last year of up to $15 billion.



“If the stakeholders had not acted in a coordinated fashion we would have had a massacre in terms of liquidity,” said Victor van der Kwast, international diamond and jewelry group head at ABN AMRO, one of the main names in the business.



He said the recovery was fragile and warned market players not to “jump too fast.”

Global retail demand for diamond jewelry will decline by almost 10% this year after falling 9% in 2008, with a pick-up of only 0.4% seen in 2010, an industry report says.

The United States, whose consumers buy over 40% of the world's diamonds, emerged from technical recession in the third quarter but the run-in to Christmas, normally accounting for 40% of annual sales, is expected to be little better than a year ago.

Diamonds are displayed in a polishing diamond workshop in Antwerp February 5, 2009.



U.S. imports of polished diamonds dropped 43.5% in the first nine months and by 23.4% in September. U.S. consumer sentiment fell to its weakest level in three months, according to November data released last week.



The diamond industry has great hopes for growth in emerging markets, notably China and India, but neither will make up for shortfalls in the developed world for now, the report said.



“If the U.S. falls 10%, China has got to double to make up,” RBC Dominion Securities analyst Des Kilalea said, adding diamond sales normally picked up late in a recovery with consumers more interested for example in first paying off debt.



One challenge facing the industry is to ensure that consumers are willing to buy gems in the future, stemming decreased interest from a younger generation more focused on iPods and addressing a rise in ethical consumerism.



Top diamond producer De Beers, 45% owned by Anglo American, used to foot the bill for generic advertising, but the big players plan to share the marketing burden from next year with the newly formed International Diamond Board.



It will seek to promote buying diamonds and also counter “shocks” or negative publicity such as from the 2006 Hollywood movie “Blood Diamond” about conflict stones.