Rough-diamond prices will extend gains through the next decade as dwindling production fails to meet rising demand from India and China, Rio Tinto Group said.
“We have seen a rapid recovery and prices are back to pre-crisis levels,” Harry Kenyon-Slaney, chief executive officer of diamonds and minerals at London-based Rio, said in an interview.
“What we see going forward is a long decline in production and a significant growth in demand.”
Diamond miners are struggling to keep pace with growing consumption in emerging economies as older mines are exhausted and producers lack new discoveries.
Prices of rough, or unpolished, diamonds have risen as much as 91% from a six-year low in early 2009 as jewelry sales collapsed, according to data compiled by WWW International Diamond Consultants Ltd.
“From about 2015 you are going to really see very strong price increases,” said Des Kilalea, an analyst at RBC Capital Markets in London.
“By the end of the decade China will probably be 30% of the market. It just doesn’t look like there are going to be enough diamonds” to meet demand, he said.
China consumed 8% of global output last year.
Global production fell to 161,1 million carats in 2008 from 176 million in 2005, RBC said.
Output in Botswana, the biggest source of the gems, declined for three straight years, while production in Australia dropped by more than half over the period, it said.
De Beers, Alrosa World output slumped a further 30% during the recession in 2009 as Johannesburg-based De Beers shuttered mines and Russia’s ZAO Alrosa halted sales to adapt to lower demand, according to IFC Metropol.
Now companies including Rio, the third-largest producer after Alrosa and De Beers, are seeking to restore growth in output.
Rio said last month it would invest $803 million to complete the underground expansion of its Argyle mine in Western Australia, the biggest diamond mine in the world, after slowing development of the project in 2009.
The company estimates the expansion will extend the life of the mine until 2019.
“Rio is making it its business to be in diamonds,” said RBC’s Kilalea, who rates Rio “outperform,” adding that the diamond division remains smaller than other units.
“Compared with iron ore and aluminum, it’s tiny,” he said.
Gem Diamonds Ltd., a miner in southern Africa and Australia, said August 24 that the average selling price of the precious stones from its Letseng mine in Lesotho rose to $1 728 a carat in the first six months of 2010 from $1 308 a year earlier.
A carat is a fifth of a gram.
Asian Buyers Rio is targeting a slice of the market in emerging economies, where diamond sales are rising as a more affluent middle class seeks luxury goods.
De Beers forecast last year that Chinese diamond consumption will grow to 16% of global output in 2015, double its share in 2009, while Indian demand will rise to 11% from 7 %.
“China, India and the Middle East will be the pace-setters in an upturn in global cut-diamond demand,” Andrey Lobazov, an analyst at Metropol, said last month.
“Under conditions of rising demand, this could mean a diamond deficit as soon as 2012, which would drive raw-diamond prices higher.”
In July, De Beers reported an 84% jump in first-half rough-diamond sales, while Alrosa said prices may climb as much as 31% by 2018 from 2008 and output will return to pre- crisis levels of 165 million carats a year no earlier than 2015.
Production at many of the world’s biggest mines is falling as supplies of more accessible diamonds near the surface are depleted.
De Beers’s Orapa mine in Botswana began output in 1971, while its Jwaneng project, the world’s largest diamond mine by production value, and Rio’s Argyle started in 1982.
The last major mine to enter production was Rio’s Diavik in 2003.
“We’ve reached peak diamonds, there have been no new discoveries,” John Ryder, chief executive officer of Canada’s Dianor Resources Inc., said by phone from Toronto.
Dianor is seeking to extract as much as 20 000 carats from a sampling program at Canada’s Leadbetter project next year.
“As stability occurs in China and India and they continue on their rise, I think we will see quite a demand and prices will reflect that”.