[miningmx.com] — THE outlook for rough diamond prices is extremely positive and the sector may be “on the threshold of a purple patch’, according to presentations at the fourth annual diamond conference held in London by RBC Capital Markets.
A report by RBC Capital Markets analyst Des Kilalea on the conference stated: “The message was that jewellery demand from new markets like China and India, allied to the bedrock of sales in the traditional United States market, is likely to keep rough diamond prices firm for the foreseeable future.
“It appears that the supply side, in the form of new-mined output, will simply not be able to keep up with the potential growth in demand.’
Kilalea said: “Demand growth in China is very strong and is likely to remain so. While India is some way behind, and its “diamond affinity’ is not as strong as in the US and China, sales of diamond jewellery (were) around 30% in 2010.
“As De Beers suggests, the sector may well be on the threshold of a purple patch as two new and growing markets start buying diamonds in a market where new-mined supply is likely to grow slowly, if at all.
“What this means, we believe, is that rough diamond prices are like to increase at rates greater than the recent past as no material new production is coming on stream.
“There will be periods of consolidation and rough price retracement but the outlook is for trend growth for some years.’
Kilalea pointed out that solid global economic growth in 2010 drove global spending on luxury goods to an all-time high of €172bn, after the global financial crisis of 2008/2009 had forced the luxury goods market to backtrack by 8% over that period.
The US is still the most important single market, accounting for around 28% of global luxury goods spending, and the 16% recovery in spending in the region was an important contributor to 2010 luxury goods performance.
But Kilalea said: “The 23% growth in greater China to an estimated €17.6bn puts the region within spitting distance of longtime number two player Japan, which remains mired in economic stagnation.
“Based on current trends, China should leapfrog over Japan in 2011. Within the diamond segment the US remains the dominant market accounting for approximately 40% of worldwide consumption.
“Growth in China within the diamond segment has been significant at between 20% and 30% in recent years.
“Based on trend analysis from De Beers, if current trends continue, China and India together are forecasted (sic) to account for 50% of incremental demand or growth in the world diamond markets over the next five years.’
According to De Beers, “China’s fast-urbanising population and growing wealth as well as an “affinity for diamonds’ similar to the US will lead to “remarkably strong sales’.
