Diamonds to Rise as Demand Expands at Double Supply, Bain Says

Diamonds from Duttson Diamonds
A 6.12 carat diamond, left, and a 3.1 carat diamond from Duttson Diamonds are displayed in London. Photographer: Suzanne Plunkett/Bloomberg News

Diamond prices are poised to rise as demand grows at double the pace of supply through 2020 because of expanding middle class populations in China and India, said Bain & Co. in a report for the Antwerp World Diamond Centre.

World demand is expected to expand an average 6.4 percent a year to almost 247 million carats by 2020 while production grows an annual 2.8 percent to 175 million carats, it said in the report. Output totaled 133 million carats last year, it said.

“Historically such supply-demand imbalances have provided the foundation for firm prices in the industry,” the Boston, Massachusetts-based consultant wrote in the report.

Rough-diamond prices rose 49 percent in the first half, accelerating after two straight years of more than 30 percent growth as stagnant output failed to meet Asian demand, according to data from De Beers, supplier of about a third of all rough diamonds, was among those caught on the back foot after idling mines following the global financial crisis.

De Beers Chief Executive Officer Philippe Mellier said in October that prices may “stick” at current levels after the first-half rally. Retail demand in India and China is “very, very strong” and U.S. sales are growing, defying expectations of a slide in consumption, he said. A index of overall prices has dropped 6.8 percent in the second half.

China and India will increase their share of world diamond demand to about 30 percent by 2020, from 21 percent, as middle class populations in the two countries will more than double to 469 million people, according to Bain & Co. World demand will grow to $23 billion in 10 years from $12 billion last year.

Supply will be driven by a recovery to pre-crisis output at current mines and as much as 23 million carats from 13 new mines from companies such as De Beers, OAO Alrosa and Rio Tinto Group.

Investment in diamonds is unlikely to become significant for demand, Bain & Co. said. “Even though diamonds may seem like an attractive investment, much like gold or silver, the difficulties with valuation, the absence of a spot market and the lack of liquidity make them largely unsuitable,” it said.

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