Diamonds are not forever

Wednesday, 17 September, 2014

So South African diamond firm De Beers has ‘warned’ us all, in this case via the medium of jewellery-buyers favourite The Guardian, that diamonds are going to get more expensive. This shocking claim is made on the basis that global production is expected to fall from 2020, due to low levels of new finds and ever-increasing demand from America, China and India.

Apart from philosophical witterings about whether scarcity is not in fact the actual point of diamonds, there’s not a lot of comment we can offer on this story at four o’clock on a muggy Wednesday afternoon - because it’s all in fact rather conditional anyway. De Beers’ own caveat for this announcement is rather wide-ranging: "Unless major new discoveries are made in the coming years… supply can be expected to decline.” Well, quite. 

They forecast a difficult future for the industry as a result: current mines in Southern Africa are running dry and deeper digging makes work less profitable. 

As compensation to industry, one imagines that the human condition itself means the ability of existing diamonds to make money for somebody is unlikely to fall away.

The rest of the Guardian piece:

De Beers, owned by FTSE mining group Anglo American, said exploration has now turned to Angola, the Democratic Republic of Congo, Zimbabwe, the Siberian Arctic and Canada.

The last major mine discovery came a decade ago in India, at Rio Tinto's yet to be completed Bunder project.

A supply shortage might not necessarily be bad news for the Luxembourg-based firm, which accounts for around 33% of global rough diamond sales.

Demand from the US – the world's largest market for diamonds – and a growing appetite for the gems from China and India's middle class, will likely create a seller's market.

"Even under scenarios of volatile or weaker global economic growth, demand for diamonds is expected to show positive real growth in the next decade," De Beers said.

China has the fastest growing demand, jumping to a share of about 15% of the world's diamond market from less than 3% in 2003. But it is not expected to overtake the US market's 40% share for more than a decade, De Beers's CEO, Philippe Mellier, said.

"China and India, the engine for growth, these two big markets clearly could be as big as the US in the next maybe 15 years," said Mellier, adding that he expects the Chinese market to grow at more than 10% per year for "many more years".

De Beers said China's anti-corruption drive, which has hurt demand for luxury goods, would not affect the diamond industry.

The company had said earlier than it expects "good to very good" second quarter results in India, which has seen increasing demand for the gems. De Beers last year reported £600m in operating profit, more than double that of 2012.