[2007-10-22]  Demand for diamonds exceeds supply
Botswana is set to lose an estimated US$460 million in potential revenues from the diamond industry as the gap between demand and supply of the precious stone continues to widen, leading to supply constraints, analysts predict.

Driven by high economic growth and a subsequent acquisition of expensive tastes in emerging markets such as China and India, demand for diamonds has risen sharply in recent years. It is estimated that 40 percent of women in the 1.32 billion population of China are now getting married with diamond rings, and that the trend is expected to increase significantly over the coming years.

As an illustration of growth in expensive tastes, India recorded a growth rate of 26 percent in diamond sales last year. Delivering a speech at the 2007 Paydirt World Diamond Conference in Perth on Tuesday, respected international diamond expert James Allan of the Allan Hochreiter finance group said diamond-producing countries will be overwhelmed by the demand for the stones, losing out on potential revenues if they do not measure up.

The weakening of the US dollar has propped up demand in other markets. Botswana, by virtue of it being the world's largest diamond producer by value, is expected to lose the most with estimations running in the order of US$460 million , while Russia will forego US$260 million and South Africa US$160 million between 2005 and 2015.

Mining analysts believe demand will rise by around five percent per annum in the next ten years. According to statistics, global diamond jewellery sales have more than trebled from about US$20billion in the early 1980s to US$72 billion in 2006. In 2004, rough mine supply was US$1 0.8billion against a demand of US$11 billion. Destocking by De Beers, which controls around 60 percent of the world's rough diamond supplies, and Russian mines covered the US$0.2 billion deficit. However, De Beers' stockpile has gradually been sold off over the last five years to fill the gap between demand and supply, which is expected to hit US$14bn by 2012, creating a US$3bn shortage in the rough diamond supply.

The world's major players like De Beers, BHP Billiton, Rio Tinto, Russia's Alrosa and Aber are not expected to be able to satisfy the market. A development that could exacerbate the situation, analysts reckon, is the fact that some of the world's major producing mines are reaching the end of their economic life.

However, speaking at the Antwerp diamond conference in Belgium this week, Group Managing Director of De Beers Gareth Penny said the opening of new producing countries with the development of new diamond centres should increase production. He pointed out that with the recovery of previous strife-torn countries such as Sierra Leone, Liberia, Angola and the DRC, business opportunities will be maximised. "Over the last few years, it is remarkable just how well the industry as a whole has met some challenges presented by the changing world," he said.

"Chief among these was the real threat posed by 'conflict diamonds' and it is of great credit to the industry and those of our members who worked tirelessly on our behalf that the Kimberley Process is now in place to secure rough diamonds from abuse by criminals and terrorists." Penny said De Beers has invested a lot of money in Africa to increase production in view of the ever- increasing demand.

"We are investing significantly in Africa today," he said. "As part of our US$2.6 billion capital investment programme, we are building new mines and reinvesting in existing ones in South Africa, Botswana, Namibia and Tanzania.

"In addition, we are spending more than US$100 million annually on exploration, principally in Africa and significantly in the DRC and Angola." However, a development that is likely to balance off the situation and compensate producers is the anticipated diamond price hikes in the next 12 months and beyond as the divide between demand and supply continues to widen.

"Prices will increase by up to 10 percent over the next year, as the industry attempts to 'balance the market,'" said Allan. At current production prices, that would equate to a rise of about US$9 to about US$99 a carat.

"If you are actively involved in the production and sales of diamonds, the future looks extremely bright," Allan continued. "So as demand increases and supply decreases, the market will balance itself by sharp increases in the price of diamonds from next year through to 2015."

Source: © Mmegi, Since 2002