Diamonds: Supply, Demand and Investment
The cost of rough diamonds has risen in recent years despite global economic concerns. In fact, the outlook in the diamond market is quite positive. While demand is growing at a constant rate, it seems the real issue is supply. Most experts agree that the mines responsible for the largest production of diamonds have a lifespan limited to within the next 30 years… give or take a decade.
While a small amount of diamonds come from alluvial (loose,- not cemented together into a solid rock) sources, the most part of the supply is produced from Kimberlite mines.
The difficulty of extracting diamonds from alluvial sources is largely due to the reality that alluvial diamond deposits span across large geographic areas and are not easily isolated. It certainly makes industrial mining of alluvial diamonds challenging: at best producing only 10 percent of global production. That is why most alluvial diamonds are mined on a non-industrial small scale (non-regulated manual mining) and account for only 14 percent of global diamond production.
This leaves the bulk of the diamond supply to kimberlites and sometimes, lamproites, which do not always produce diamonds. Only 1 percent of kimberlites discovered thus far are commercially viable. The alarming truth here is that there are a limited number of kimberlites yet to explore, thus, they are a limited commodity.
To get a better understanding of the problem lets look at this exclusive significant fact: Kimberlite mining companies have to dig on average 8000,000,000 tons in order to produce 750, 1-1.39-carat high quality (D-White) diamonds. That is less than 900 carats per year, a mere 750 diamonds for retail and investment. Now consider the rarity of colored diamonds.
A Look at some of the Producers
Traditionally, holding top spot for production, South Africa’s Kimberly Underground is comprised of three mines the Bultfontein, Dutoitspan and Wesselton. With a history of producing large fancy yellow diamonds, the mine is projecting a short life span of 10 more years.
Producing 97 percent of Russian diamonds and 28 percent of diamonds globally is Alarosa’s Nyurbinsk Diamond Mine. The world’s second largest diamond mine Alrosa claims to have reserves that will allow diamond production to continue for about another 25 years. Located in the republic of Yakutia in the northeast of Russia this mine recently produced a stone weighing 158.2-carats worth an estimated $1.5 million.
The third largest mine is located in the Australian outback and is home to the greatest source of pink diamonds, the Argyle mine. A leader in the industry, Argyle mine and its owner Rio Tinto are attributed with initiating global awareness of the shrinking supply of diamonds. Predictions of closure within the decade are showing signs of being fulfilled as the mine has recently begun to cut back on it’s workforce.
It would seem the experts are in agreement as Roskin Gem News Report’s, Gary Roskin says, “I’ve been talking about the end for several years, This year’s (Argyle pink) tender with its smaller than usual goods certainly puts us on warning that this could be the beginning of the end of the Argyle Pinks.” Brit and jewellery historian, Vivienne Becker states, ‘In another decade the Argyle Pink Diamond will emerge as the new Faberge egg, the thing jewelry myths are made of,”
While supply is decreasing the demand for diamonds, especially fancy colored diamonds is increasing. Giving a hint of things to come is India; a country with a history famous for gold investment that is currently shifting to diamond investment. This shift is being attributed firstly to the rising cost of gold, but perhaps more significant is the success of diamond marketing campaigns targeting the wedding industry.
Commenting on this trend is Indian newlywed Saniya Ghandi Bhardwaj who explains that in wealthy families, it is common for the parents of the bride give custom-designed jewelry as a ceremonial gift. The origins of this gift is based in time-honored Hindu belief. In the past, following a long tradition gifts have been of gold only. However, the trend among wealthy gift givers has transformed to diamonds. Of this trend Bhardwaj says, “On Sangeet night (a traditional Indian celebration held on the eve of an Indian wedding), 1,200 guests attended and throughout the night, I wore the diamond sets my parents gave me,” she added.” When I look at my mom’s wedding jewelry, is it mostly gold. Indian wedding jewelry has become much more modern, and more diamonds are used.”
By all accounts, the demand in India is just the tip of the iceberg when it comes to a global demand in the diamond market.
As of 2011 percent, shares were tallied at:
• U.S. 38 percent
• China 11percent
• India 10 percent
• Japan 10 percent
Additionally a report from Rio Tinto of the Argyle mine confirms China and India are demonstrating a large demand for Fancy Color Diamonds. Josephine Johnson business manager for Argyle Pink Diamonds stated, “up until 2007, only one or two of the firm’s colored diamonds would be purchased by India or China, but that today those markets account for a full 20% of colored diamond consumption.”
Given this information, it is easy to understand. When it comes to diamond investment the equation seems to be:
Dwindling supply + Increasing demand + Investment opportunity = Act Now
Given all of the information the only remaining question is…what diamonds do I invest in?
• Fancy color diamonds – unique and rare colors such as pink, blue and green colors.
• Fancy color diamonds – larger stones of more common colors (yellow and brown)
• White diamonds – Stones above 5 carats especially ones that are graded high for clarity and color.
Any of the above would be a good choice. Nevertheless, diamonds as an asset for investment should follow a short list of parameters including a certificate, in addition to consideration for cut, color and clarity.
If directly investing through purchasing diamonds is not your favorite choice perhaps, the approach to consider is investing in an index of public diamond companies, a fund or a trust.
This said, it is important before making any decisions that your investment meets certain conditions such as:
• Resale liquidity
• Market access
• Price transparency
For a complete diamonds investment guide refer the following link:
Regardless of the investment path, you choose it is inspiring to know that most experts share the opinion that within the next five years diamond prices will go up between 21 and 32 percent. Since January 2012 alone, there has been a 7 percent growth in the diamond sector.
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