Diamond Prices Set To Sparkle

Diamonds are, apparently, forever, and they are fetching record prices in the rough.

Jeffrey Coolidge | The Image Bank | Getty Images

The alluring sparkle of diamonds is seducing millions more in emerging markets, which the industry believes should keep prices for the precious gems at their current record high for some time.

Diamond prices rose by 17 percent in the first three months of 2011 and sales volumes have continued to be strong since then. De Beers, one of the world’s biggest diamond producers, expects prices for rough diamonds to rise by about 20 per cent this year.

Elizabeth Taylor’s jewellery collection, one of the most famous in the world, including the famous Taj Mahal diamond will be auctioned at Christie’s later this year, with huge interest expected.

Further down the price spectrum, Chinese and Indian consumers will drive demand in the next 25 years, said Stephen Lussier, executive director of De Beers, which is part-owned by Anglo-American, at a recent industry conference organised by the Royal Bank of Canada.

In China, over 11 million couples get married every year, and another 10 million tie the knot in India.

“If one gets to persuade those couples that they are to celebrate engagement and marriage with diamonds those are developments which are just mind boggling,” Glen Turner, commercial director of Gem Diamonds, told CNBC.com.

“We are certainly still seeing very strong sales of Letseng diamonds at tenders in Antwerp,” he said, referring to stones from Lesotho in Southern Africa.

The US is still much the biggest market for diamonds, with around 40 percent of the global market.

While China and Hong Kong currently represent around 10 percent of the market worldwide, this has grown by around 20-30 percent in each of the last five years.

Fancy Diamonds

High-end Asian buyers are particularly keen on coloured, or “fancy”, diamonds, which are much rarer and can now go for about 100 times as much as similar-sized white diamonds. The Graff Delaire Sunrise, an 18 million euro ($26 million) 118.8-carat yellow emerald cut diamond, is one of the highest-profile diamonds on the market.

China and India will provide around 50 percent of sales growth in the next five years, according to McKinsey & Co research.

As the middle classes are expected to nearly double in size in China and India between 2010-15, if jewellers can persuade them that what they really want is diamonds, miners, traders and jewellers could be in the money.

Chinese jeweller Chow Tai Fook, which paid $35.3 million - the highest price ever for a rough pink diamond - when it bought the 507.5 carat Cullinan Heritage from Petra Diamonds last year, is planning a $2-3 billion IPO in Hong Kong later this year. The jewellery chain is planning to open over 1,000 new jewellery stores by 2020.

If the Chinese per capita income increases to the level of Taiwan in the next 15 years, and if urban Chinese consumers acquire diamonds per capita at the same rate as the Taiwanese, the diamond industry will need to double its output just to meet demand, according to De Beers.

One of the reasons that prices are high at the moment is that many diamond miners reduced production after the credit crunch and are only just returning to pre-crisis levels of output.

There was a notable fall in prices during the downturn. De Beers had to go cap-in-hand to its shareholders, including the Oppenheimer family and the Government of Botswana, for a $1 billion injection, and made a loss in 2009. It has since returned to profit.

Part of the preciousness of diamonds has always been their rarity, which will only increase as millions more potential buyers come onto the market.

“Diamonds are going to become increasingly rare as China and India continue their appetite for diamonds,” Turner said.

He added that Chinese upper middle class consumers seem to be very conscious of wanting real high-end luxury goods, rather than settling for fakes or cheaper imitations.

“Diamonds are different to most other commodities currently being mined by the diversified miners,” analysts at Deutsche Bank wrote in a recent note.

“In both base metals and bulk commodities such as copper and iron ore, there are known resources which can be exploited. By contrast, there are limited known resources and hence very limited new supply is being forecast in diamonds.”