Diamond prices likely to rise 20-25% next yr

The prices of both rough and polished diamonds are set to rise another 20-25 per cent in the coming year, despite higher production by De Beers, the world’s largest miner of the precious stone.

Due to less supply and rising demand from American and Asian markets on the back of economic recovery, the prices of rough diamonds (‘roughs’) have risen 50 per cent since July.

De Beers has moved to raise production; it estimated total rough output at 31 million carats in 2010 as against 24.6 million carats in the previous year. In 2011, the company proposes to raise this to 40 million carats.

Yet, the demand is ahead. “The demand is bullish from both domestic and overseas markets. Most important, the demand is not for inventory pile-up or pipelines but from retail consumers. Hence, we expect that both rough and polished prices will continue to move northward,” said Mehul Choksi, chairman of the Gitanjali Group.

Rough prices bottomed at the start of 2009 due to low demand and uncertainty in the global economy. So, De Beers, which supplies 45 per cent of the world’s roughs, dramatically cut production in response to and in line with reduced demand from the Sightholders of its Diamond Trading Company (companies authorised by DTC as bulk purchasers of roughs are called Sightholders; there are about 80 in the world). This resulted in a significant reduction in carats produced compared to 2008.

The demand gradually recovered in the second half of 2009, resulting in an output at 18 million carats during the period, an increase of 173 per cent compared with the first half. In the second half of 2008, De Beers reported an output of 24 million carats.

India factor
In the full year of 2009, therefore, the total rough output was 24.6 million carats, a decline of 49 per cent from the previous year. India figures very largely here, since it is estimated that as much as 92 per cent pieces (by number) and 60 per cent (by value) of the world’s roughs are processed here.

However, the additional production may not save Indian consumers from rising prices, due to resurgence in demand. Consumers’ shift to low-priced diamond jewellery from pure-gold jewellery and good economic numbers in the US have sharply boosted the demand for roughs.

“In the last four-five months, diamond prices have gone up by 20-25 per cent on festival and seasonal buying by retail consumers. Indian consumers are enthusiastic about the wedding season where diamond jewellery is being preferred over traditional gold jewellery. In the US also, the trend is bullish due to Christmas and New Year,” said Rajiv Jain, chairman of the apex trade body, the Gems & Jewellery Exports Promotion Council, and managing director of Jaipur-based Sambhav Gems Ltd.

India imported roughs worth $7.37 billion (Rs 33,800 crore) between April and November this year, as compared to $5.44 bn (Rs 26,150 crore) in the same period of the previous year.