Diamond Prices to Increase 6% a Year to 2020 on Supply, BMO Says

Diamond prices will rise an average 6 percent a year through 2020 as tight supply is unable to meet growing demand in China and India, BMO Capital Markets said.

While output is rising, it’s unlikely to surpass the peak of about 160 million carats a year attained before the world financial crisis, BMO analyst Edward Sterck said in a report.

“The primary constraint on supply growth is the lack of new discoveries that match the scale of existing operations in Botswana and Russia,” Sterck said. “Given expanding demand and constrained supply, diamond prices are likely to increase as consumers compete for an increasingly scarce commodity.”

Producers have struggled to find large new mines. Output at many of the biggest mines is falling as supplies of accessible diamonds near the surface are depleted. De Beers, the largest producer by revenue, opened the Orapa mine in Botswana in 1971, and its Jwaneng project, the largest diamond mine by production value, and Rio Tinto Group’s Argyle started up in 1982.

The last major mine to start up was Rio’s Diavik in 2003.

China surpassed Japan in 2011 to become the biggest diamond consuming nation behind the U.S, while sales in India gained 17 percent. Buyers in China and India made up about 20 percent of global demand in 2011 and that will rise to 28 percent in 2016 as the market grows to $31 billion from $23 billion, according to Anglo American Plc (AAL), owner of De Beers.

Rough diamond prices, up about 9 percent this year, will stay at current levels for the rest of 2013 before beginning to increase next year, BMO said. Prices fell 16 percent last year after three straight gains of more than 20 percent, according to data compiled by WWW International Diamond Consultants Ltd.

To contact the reporter on this story: Thomas Biesheuvel in London at tbiesheuvel@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net

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