Buoyant sales of rough stones by major producers have confirmed the continuing strength in the diamond market, according to the latest research by RBC Capital Markets. Prices for diamonds, which are not quoted on futures exchanges like precious metals, have almost doubled since the low in early 2009. This promises significantly higher revenue and cash flow for diamond miners, although concerns remain about the fragile nature of demand in the US, the largest diamond market.
China and India continue to perform very strongly, and the RBC analysts believe these markets could match the US in diamond jewellery demand within a decade. Dominant producer De Beers estimates that Asian markets will overtake the US by 2016. Leading producers and retailers are already reporting that Asia is the fastest-growing market they serve.
Further price rises may be muted in the short term as major producers restore output from mines that were mothballed when the sector was at its nadir. But the longer-term outlook remains one of constrained supply. Major miners are experiencing declining production and there are few major new mines on the horizon to bolster output.
The prospect of tightening supply causing firmer prices is attracting growing interest in the diamond sector. But investors face a dilemma between preferring the security of existing production, but finding few diamond producers in which to invest. As a result, this is extending interest to near-term producers such as Firestone Diamonds and African Diamonds and making it easier for them to raise capital. African Diamonds has just raised £9.6m to develop the attractive AK6 project in Botswana and increase its stake to 40 per cent.
