The price of the raw diamond could see its price triple in the next fifteen years. Faced with galloping demand, production is declining and nothing suggests an increase in production in the long term.
Is the price of diamonds correlated to the price of gold? While the latter has collapsed by 60% in three years, those of the rough gem have climbed by 75% over five years. And they should continue to progress according to the experts.
According to the specialist consulting firm International Diamond Consultants. The price of diamonds should triple within fifteen years. A year ago, BMO Capital Markets, a subsidiary of the Bank of Montreal, published a note. Estimating that prices would increase by 6% on average until 2020. Since the beginning of the year, the price of diamonds has already increased by 14%.
Speculators inflate prices
Experts give two main reasons for this phenomenon. Demand will remain sustained with an American market in full recovery. But also with the emergence of a Chinese and Indian middle class. China now accounts for 13% of global diamond demand compared to 3% in 2000. It overtook Japan in 2011.
Furthermore, the raw diamond market attracts speculators eager for upside prospects. Which tends to inflate prices.
Declining production
But it is the product that could propel prices higher. Peak production was reached in 2006 and has been declining due to aging sites. Furthermore, there have been very few discoveries of new deposits.
The few discoveries should not change the market equation given the speed of growth in demand. Thus, according to figures from Rio Tinto, demand should rise by 6.1% per year between 2010 and 2020. While supply should grow by only 0.8% on average per year over this same period.
Diamonds of all sizes
The three countries also differ in their choice of precious stones. The demand in the United States for the size of diamonds is almost uniform. With a preference (39%) for “large” stones (over one carat, according to the De Beers definition).
China prefers (63%) medium-sized stones (between 0.18 and 0.99 carats). And denigrates (only 8.1% of demand) small stones (less than 0.18 carats). They are the most successful in India, where they make up three-quarters of the polished diamonds sold.
World production soon to peak
If for Phillipe Mellier, available raw diamonds remain abundant. And the market is doing well, he notes that the world supply of diamonds will peak in the second half of the decade and then decline from 2020. De Beers warns that:
“The reduction in supply from existing sources is unlikely to be offset by new production in coming years. Raw diamond supply is expected to plateau in the second half of the decade before declining from 2020″.
As for the deposits in operation, their operators are forced to dig deeper and deeper. Which makes “the extraction process more and more complex and expensive”. All in all, a “large investment” in production and marketing will be essential to maintain the market and gem prices, warns De Beers.
Growing demand
With 40% of the world market share, the United States remains the leading consumer of diamonds. They should remain so in the medium term. Sales of cut diamonds increased by 7% in 2013.
“India and China could catch up with the United States in perhaps fifteen years”. But, estimated Philippe Mellier, the CEO of the diamond conglomerate, during the presentation of the report’s conclusions to the press on September 17.
In fact, China, already the world’s leading consumer of gold currently represents 15% of the international market. But India experienced an average annual growth rate of 12% between 2008 and 2013.
Some gemstones are much rarer and much more coveted than others. Some continents have many deposits of precious stones and others do not. The exploitation of these deposits must be virtuous. And the ethical diamond must be a model in this field.