Diamonds regain their sparkle

Things are looking up for the diamond industry, which managed to weather the storm of the financial crisis in typically canny fashion. De Beers, still responsible for 40% of the world’s diamonds, significantly reduced supplies and prices held up. Increasing interest from Asia has lifted demand but volumes are still 28% down on pre-crisis levels.

Global diamond output is currently 145m carats, having peaked at 175m carats in 2005. In 2012, China and Hong Kong accounted for 13% of sales. This is set to rise to 18% by 2017, according to consultants Bain. There are only around 30 functioning diamond mines in the world, and those in Africa (principally Botswana, DRC, South Africa, Angola and Zimbabwe) account for about half of all rough diamonds – and, with Russia, 70% of global reserves. Diamond demand continues to grow but there has not been a major diamond deposit found since 2007 (in Zimbabwe).

Bain sees the market beginning to tighten from 2018 onwards, as supply for the 10 years from 2013 grows at 2% a year while demand grows 5.1%. There will likely be more finds in Africa (due to the relatively limited prospecting done to date) but the challenge is – as ever – seizing the value chain opportunities. Currently, rough diamond sales account for $14bn, sales of cut and polished diamonds $41bn and retail diamonds $79bn.

The Namibia Diamond Trading Company, a joint venture between Namibia and De Beers, is looking to cut and polish more of the country’s diamonds output domestically.

Petra Diamonds has interests in five mines in South Africa and one in Tanzania; its market capitalisation is nearly £1bn.

Africa accounts for disproportionately less of cutting and polishing than it does of output. India accounts for half of cutting and polishing sales due to its highly skilled, low-cost workforce. Botswana has had some success in growing the share of the diamonds it mines that are cut and polished locally, growing its workforce from 300 to 3,000. However, the cost per carat of cutting and polishing in Africa averages $50, compared with $35 in China or Thailand and just $25 in India.

Petra Diamonds has just sold a 122.52 carat diamond from its Cullinan mine for $23.5 and will retain a 15% interest in the polished and cut sales, after expenses. The mine has been the source of a quarter of all diamonds greater than 400 carats and is the only source of blue diamonds in the world.