Slowdown takes sparkle off Canadian diamond industry

The Canadian diamond industry is bracing for cutbacks and slowing sales as demand for luxury items wanes.

Royal Bank of Canada analyst Des Kilalea says over the last four months, diamond prices have dropped an average of 30 per cent.

"Demand has just hit a wall and diamonds are really a discretionary spend item," he said.

De Beers plans to scale back production by 10 per cent in Canada. The company is closing an Ontario mine for two weeks over Christmas to perform planned maintenance while 105 workers in the Northwest Territories were laid off in November.

Kilalea said the company may have to scale back even more in the new year.

"I don't think 10 per cent will be enough," he said. "I think the market is so soft."

Meanwhile, the company has doubled its advertising budget in the U.S. in a bid to attract holiday shoppers. Pierre Leblanc, a diamond industry consultant, said holiday sales will be decisive for many in the diamond industry.

"For the jewelry industry Christmas is critical," he said. "That's where reportedly about 40 per cent of the profits of the year are made, so in many cases it's a make or break situation."