Diamonds may be for ever, but their high price is not, as recession starts to hit even the richest. Gem Diamonds, the London-listed miner, said yesterday that it may make a loss this year because of a sharp fall in diamond prices over the past two months.

Shares in Gem plunged by 38 per cent to 213½p after the company said that it has had to stop some exploration activities in the Democratic Republic of Congo and that it may suspend output at an Indonesian mine. The average price per carat for a rough diamond from its mine has fallen this year from about $2,500 (£1,670) to about $1,400.

Meanwhile, leading players in the diamond industry, such as De Beers, which mines almost half the world’s diamonds, and Alrosa, the Russian mining group, gathered in Antwerp, the world’s diamond capital, to try to tackle falling prices.

Prices of polished diamonds have fallen by 10.8 per cent since August, according to the PolishedPrices.com diamond prices index. At the rough diamond end of the market, in which miners sell to diamondaires, industry-watchers are talking about even greater falls as people pay less for jewellery and diamondaires find it harder to borrow cash to buy gems.

With ABN Amro Diamond Bank, the diamond industry’s biggest creditor, in the hands of the Belgian Government after Fortis, its parent company, had to be bailed out, credit has dried up. If the $3 billion that ABN used to lend to the industry is no longer available, many of the smaller companies may suffer.

Des Kilalea, an RBC Capital Markets analyst, said that prices for the sort of stones that ordinary consumers might buy could fall by 30 to 40 per cent, with top-end jewels falling even more or being withheld from the market. “These stones are the equivalent of a Picasso or a Renoir – and if you own a Picasso you are not going to sell it at the moment,” Mr Kilalea said.

As the United States, which buys about 45 per cent of the world’s diamonds, teeters into recession, the industry is waiting to see how Christmas trading, which accounts for 40 per cent of its diamond sales, is affected.

The big players can try to control prices by reducing the amount of diamonds that they mine, but Mr Kilalea said that this would be more difficult to do than during the last long diamond price slump, in the 1980s, because competition regulations now were tougher.

Freddy Hannard, head of the Antwerp World Diamond Centre, said: “The market situation is unprecedented. We are in the midst of a global economic crisis. All of us have felt the pressure . . . no market, no liquidity, no demand and, worst of all, no confidence.”

Laurence Graff, chairman and founder of Graff Diamonds, which bought a 4.5 per cent stake in Gem this month, was more confident about the future of the market. The billionaire, who has a necklace called the Lesotho Promise on sale for $75 million, said: “Top-quality gems are rare, hard to find and polish. There will always be a demand for these high and top-quality diamonds, both to be worn and in which to invest. In the short term, their prices may fluctuate, but in the long term they retain their quality, unlike other commodities.”

Glen Turner, commercial director of Gem, was optimistic that in the medium to long term demand would become much greater than supply.

The sale of one huge diamond, such as the 478-carat giant that Gem Diamonds found in its Letseng mine this year, can greatly affect a company’s results for the quarter.

Sergei Vybornov, the president of Alrosa, said that the company may have to reduce production by up to 40 per cent to ease the glut of rough diamonds on the market.

David Abery, finance director of Petra Diamonds, said: “We are watching this thing develop and it’s changing on a daily basis.”

Charles Wyndham, of Polished-Prices.com, said: “The diamond industry is a passenger in the train smash that has occurred throughout the world’s financial markets and not some lucky ‘decoupled’ bystander. Everyone is going to be suffering to a greater or lesser extent. We are not at the worst part of the crash yet, which looks likely to come in the first quarter of 2009.”

Facet values

— About 20 per cent of mined diamonds are suitable for use in jewellery and are cut, polished, set and sold as jewellery

— Drilling diamonds are embedded in large steel drill bits that drill into rock for wells to find water, oil, and natural gas

— Gemstones are cut and polished using a mixture of oil and diamond powder

— Circular diamond-tipped saws are used in industry and construction

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