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Diamond prices seen trending higher until 2015

02 september 2013

The average diamond price per carat value of annual global production declined last year driven primarily by softer pricing across all diamond categories as well as the increased production of lower quality diamonds.

However, Russian and Australian diamond prices remained firm.

Equity Communications said in a report that Russia’s gem prices leaped 8.88 percent from $76.12 per carat in 2011 to $82.88 per carat in 2012 while those from Australia went up 4.11 percent to $29.35 in 2012 from $28.19 per carat in 2011.

Sales to Gokhran by Alrosa as well as the company’s long-term supply contract renewal period kept the prices high, said Equity in reference to Russia.

No reasons were given on the upward movement of Australia’s stones.

Despite the setback in other diamond producing centres, Equity is of the opinion that the chips will not remain down.

“We have observed a trend of accelerated rough diamond prices increases beginning in the twelve to eighteen months before the expected announcement of new long-term supply contracts by major diamond producers,” said Equity Communications.

“Indeed, competition for limited long-term contracts is the greatest source of price increases for major diamond producers.”

It said that for this reason, diamond prices were expected to trend higher in the period 2014-2015.

Green global economic conditions would provide the background to bullish sentiment in the diamond industry pipeline, said Equity.

It projected the average per carat value of world diamond production to increase by 5 percent to $103.81 per carat this year.

Meanwhile, the research company noted that world diamond production had entered a period of rising output, fuelled by the expected increases in the supply of lower quality diamonds from Rio Tinto's Argyle Mine and the Marange region in Zimbabwe.

It said De Beers continued to produce below capacity while it focuses on clearing its waste stripping and maintenance backlog.

Development of the Grib Mine by LUKoil had also kick-started.

Grib, it said, would likely produce 2 million carats in 2014, and reach capacity the year after of between 4 - 4.5 million carats.

“In the next three years, development projects by De Beers (Gahcho Kué), Alrosa (Underground expansion), Dominion Diamonds (Misery open pit), and perhaps Stornoway Diamonds (Renard project) will eventually add to world diamond production,” it said.

“No major diamond mine is expected to exhaust production in the next five years.”

Equity also suggested trends that would likely influence diamond supply and demand dynamics.

Here is what is said:

1. Diamonds from Marange are a major discovery of diamonds in the global scheme of things. High value gem diamonds are not the only mining projects that matter.

2. Analysis points to a trend whereby demand for small value diamonds will rise faster than demand for high value diamonds in the coming years. Equity attributed this to shifting consumption patterns in diamond retail markets, powered by the growing number of Asian consumers who would like to wear diamonds as part of their everyday jewellery.

3. The aggressive politicization of rough diamond markets is moving rough diamond trade out of Europe to Dubai, Asia and Southern Africa. UAE has become the primary destination of rough diamonds from Angola, DRC, and Zimbabwe while Botswana now handles marketing of De Beers produced diamonds.

4. De Beers' Forevermark project is fast gaining momentum; in a few years other diamond producers will have to respond in one way or another.

5. Major diamond producers have reduced exploration budgets while juniors are facing increased difficulty in obtaining new finance. Moves by De Beers to brand and grade its premier diamonds could force more retailers to provide alternative funding for viable small-scale diamond projects in a bid to lock-in supply.

Mathew Nyaungwa, Editor in Chief of the African Bureau, Rough&Polished