Demand in China and India to Keep Diamond Prices Firm

Diamond prices, which witnessed an average rebound of 30 percent in 2010, are going to stay firm in the medium term, thanks to the strong demand growth in emerging economies such as China and India, as well as mining players’ prudent supply management policies during the economic downturn, the global credit rating company Crisil said on May 2.

Crisil predicts that China and India’s consumer demand for diamonds will continue with their double-digit growth in the medium term, after enjoying a 20 percent increase in 2010. The two markets have both rapidly recovered from 2008’s slowdown (12 percent growth) and together contributed 20 percent to the global demand over the past year.

Crisil Director Gurpreet Chhatwal believes that both China and India will experience “a structural shift in consumer preference for diamond jewelry over the long term” that is going to result in “a strong demand growth.”

The recovery of the U.S. market – the market that takes up 40 percent of global diamond consumption – will become another drive to underpin diamond prices. In 2010, the U.S. market saw a 7 percent climb in jewelry sales, driven by a recovery in consumer spending and inventory restocking by retailers. It is believed that such recovery in consumption over the medium term is likely to continue.

The resumption of many major diamond players’ full production makes another reason for stable diamond prices in the medium term. In the face of shrinking demand, many diamond producers, led by the largest rough diamond supplier De Beers Group, curtailed their supply over the Global Financial Crisis. However, the situation is about to change as De Beers may achieve its full production capacity and Rio Tinto Group’s Argyle mine – the world’s largest diamond producer in volume – will start its underground operations.

Crisil describes the short-term diamond prices to be “volatile” since the market will need some time to adjust to the temporary demand-supply mismatch. A more stabilized market will appear as customers steadily absorb price rise over a medium period.