Diamonds prices are poised to rise for the next four years, outpacing gold, as increased spending on luxury goods in China, India and the Middle East outpaces supplies of the precious stone, analysts said.
The average price of rough, or uncut, diamonds will probably rise 9 percent to $145 a carat next year, 1.4 percent in 2013 and 4.8 percent in 2014, BMO Capital Markets analyst Edward Sterck said. The gem should gain 2.6 percent in 2015 and 3.2 percent in 2016, he said. Gold is forecast to decline for three years starting 2013, following a 19 percent gain in 2012, according to the median of seven analyst forecasts compiled by Bloomberg News.
Demand for diamonds may grow at double the pace of supply through 2020 because of an expanding middle class in China and India, Bain & Co. said this month in a report that didn’t give price forecasts. The two nations, and the Middle East, will account for 40 percent of global diamond demand by 2015, compared with about 8 percent in 2005, said Anglo American Plc., which agreed to boost its stake in De Beers, the world’s largest diamond miner, to 85 percent last month.
“We expect emerging nations, first and foremost India and China, to drive the demand for diamonds in the upcoming years, while consumption of developed nations is likely to moderate somewhat,” said Vladimir Sergievskiy, an analyst at Moscow- based Finam Investment. “On the supply side, the commissioning of new mines should be largely offset by depletion of matured ones.”
Global demand for diamonds will probably outstrip supply by 7 million carats in 2016, compared with a shortage of 1 million carats this year, Sergievskiy said. Prices are expected to climb 9.7 percent next year, 2.7 percent in 2013, 3.3 percent in 2014, 3.2 percent in 2015, and 3.1 percent in 2016, he said.
Rough diamonds advanced 24 percent this year, according to an index compiled by PolishedPrices.com, helping OAO Alrosa, the world’s largest diamond miner by output, and Anglo-American post profit gains.
The price of rough diamonds may fall an average 5.1 percent in 2012 and remain little changed in 2013, said Richard Platt, managing director of U.K.-based WWW Diamond Forecasts Ltd., which provides independent valuations. The gem should gain 2.9 percent in 2014 and 2.2 percent in 2015, he said.
Polished diamonds will perform better, reflecting growing Asian demand for diamond jewelry and “flattish supply,” said Platt, who expects prices to increase 4.7 percent in 2012, 9.3 percent in 2013, 6.6 percent in 2014 and 4.4 percent in 2015.
“The current gold price doesn’t reflect the underlying supply and demand fundamentals,” Rob Henderson, chief economist at National Australia Bank Ltd., said by telephone from Sydney. “It much more reflects an artificial demand for gold as a hedge and as a store of value against inflation. That means the market is prone to a pretty substantial correction sometime in the future.”
Global demand for diamonds is expected to expand an average 6.4 percent a year to almost 247 million carats by 2020, while production is likely to grow an annual 2.8 percent to 175 million carats, the Bain report said. Output reached 133 million carats last year. Demand for diamond jewelry will climb to more than $100 billion by 2015 from $73.6 billion in 2010, Platt said.
“Diamond prices have not been inflated by artificial demand to the same degree,” Henderson said. “Therefore as countries like China and India keep growing and the size of the middle-class population rises, more people will be able to afford diamonds.”
While demand for polished diamonds is expected to grow in the “low single digit” in the U.S. for the next decade, it should increase as much as 15 percent in China and India, said Laxmi Deepak, an analyst at Mape Securities Pvt. in Mumbai.
China overtook Japan to become the biggest buyer behind the U.S., where demand rose 7 percent last year, compared with 25 percent in the communist nation, according to De Beers.
“You can see in the Asian market, just walking around Hong Kong, demand for luxury goods is clearly very buoyant,” Rob Edwards, chief metals analyst at Renaissance Capital Ltd., said in an interview in Hong Kong.
Prices of top-quality diamonds climbed 23 percent this year, the biggest gain since at least 2006, according to the Rapaport Diamond Trade Index. The index calculates the average price for the top 25 best quality 1 carat diamond. It rose 14 percent last year and fell 0.5 percent in 2009.
The industry’s positive outlook may attract buyers to BHP Billiton Ltd.’s Ekati mine in Canada, which the world’s largest mining company said may be offered for sale. The Melbourne-based company agreed to sell its 51 percent ownership in the Chidliak diamond project in Nunavut, Canada to Peregrine Diamonds Ltd., the companies said Dec. 20.
“There are lots of companies that would love to have BHP’s diamond assets,” Edwards said. “Some mid-cap, junior would probably pick that up.”
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