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The bulls are running rampant in the diamond market. Overall, demand grew by 8% in 2004, and De Beers, which controls 60% of the global market, has pushed through two price increases this year – which have had no impact on demand.
No wonder: the status-conscious middle classes in China and India are becoming increasingly wealthy and buying more sparklers, while supply is “falling further and further behind demand”, says Wolfgang Drechsler in Handelsblatt. In the 1990s, supply outstripped demand by up to 140% and De Beers built up huge stockpiles, but these have been largely depleted. And miners, deterred from investing in new capacity by the long bear market, will have trouble catching up – it takes up to ten years for a new mine to start producing.
To rectify the supply shortfall, “we would quickly need to discover a couple of diamond-rich countries”, according to James Picton of brokers WH Ireland. As things stand, “we could be looking at a 40% diamond deficit by the end of the decade”, says Cris Heaton in Shares. That makes for “a great investment”.
One diamond stock deemed a “buy” by the Investors Chronicle is Petra Diamonds (PDL, 60p), which has yet to turn a profit, but thanks to a series of acquisitions has been “creating long-term value”. Also of interest is Firestone Diamonds (FDI, 145p), a “high-quality” producer whose venture in South Africa may turn out to be “a company-transforming monster”, says Heaton.
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Precious metals & gems
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Andrew Van Sickle
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