Driven by resurgent demand in traditional and new markets, as well as long-term forecasts indicating lower supplies of the gemstone, rough diamond prices are trading 20 percent higher than pre-recession levels.
A price index maintained by leading global diamond evaluators, WWW International Diamond Consultants, indicates that rough diamond prices have risen by approximately 20 percent across various grades.
The UK-based company's index indicates that rough diamond prices are higher than at any level since 2002, supported by strong supply/demand fundamentals, a recovering global economy and increasing consumer confidence.
Prior to the recession, rough diamond prices, like those of other resources, were in the last year of a nearly four-year boom, driven mainly by rapid global growth and industrialisation as well as large international capital flows.
Confirming WWW's predictions, Russian diamond giant, Alrosa, released its market outlook forecasting that global rough diamond production will ramp up to the pre-recession 165 million carats by 2015, on the back of growing demand.
The company expects that while global production will rise by up to two million carats after 2015, these levels will plateau "as a result of limited supply of new projects and depletion of existing mines".
"Based on the outlook of each of the main diamond jewellery markets, including the United States, Europe, Asia-Pacific, Japan and the Middle East, the demand is expected to grow by 33 percent over the next eight years," the Russian company said.
"As a result of this emerging fundamental imbalance between supply and demand, the rough diamond prices in 2018 may be as much as 31 percent higher in real terms as compared to pre-crisis 2008 levels."
Alrosa expects global diamond production to return to peak at 166 million carats by 2018, "driven mostly by new mines put into operation", the company said. "No new deposits are expected to be commissioned after 2015," it added.
The Russian giant's calculations indicate that diamond prices could rise by up to 55 percent in eight years when inflation and mark-ups are considered.Other analysts expect the trend in prices to hold in the medium-term, with diamond mines coming up in the next five years expected to benefit from strong demand. Commodity experts predict that increasing demand from China and India could support the possible doubling of global diamond production by 2020.
In the short-term, however, rough prices could be inhibited by the slow growth in polished prices, held down by gradual recovery in traditional gemstone markets. WWW Consultants' research indicates that while polished prices are improving, they are yet to recover to pre-recession levels.
Nonetheless, polished prices are expected to track the rise in rough diamond prices as the global economy warms up.
Firestone Diamonds, which plans to commission its BK 11 diamond mine later this year, is eager to leverage off the prevailing trends in diamond prices. Said Tim Wilkes, the company's Chief Operating Officer at the Resource Sector Conference: "Prevailing prices are higher than the record highs experienced in 2008. Part of the reason is that resources in the ground are declining because there has not been a world class find in many years and this will continue to push rough prices."
Firestone expects to produce about 115 000 carats annually at BK 11 at an average cost of US$7.50 per tonne (P52.50 per tonne), which will be well set off against the current evaluation of US$175 per carat (P1 225 per carat) for its stones.
While the prevailing trends and forecasts bode well for diamond-producing nations like Botswana, they could also be the death knell for its fledgling diamond-manufacturing sector.
With diamond production set to drop at Orapa and Jwaneng after 2020, and the new smaller mines securing alternative processing and off-take agreements, Botswana's 16 cutting and polishing firms could find themselves with costly excess capacity.
Last year, this sector shed 689 jobs as firms cut costs in light of reduced throughput from the Diamond Trading Company Botswana (DTCB), the cost of excess capacity and constrictive credit obligations to banks.
