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Rough Prices to Remain Flat in 2012 Says BMO
Jun 11, 2012 6:13 AM
By Dilipp S Nag
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RAPAPORT... Rough diamond prices are likely to remain flat at current levels in 2012 given near-term economic uncertainty, BMO Capital Markets projected.
“The 2012 outlook for rough diamond prices appears to be more muted,” said BMO analysts Edward Sterck, Kodees Waran and Venkat Nandyal in a research note. “Ongoing uncertainty related to the euro-zone debt crisis and the sustainability of economic growth in other parts of the world may weigh on sentiment in the rough diamond market.”
Diamond prices do, however, remain at historically elevated levels and should drive profitability for the established producers, the analysts noted. BMO said that its preferred companies are Lucara Diamonds for its near-term production outlook and potential upside, and Mountain Province for its prospective Gahcho Kué development project in Canada.
The researchers stated that the mid- to long-term outlook remains positive for the diamond industry due to constrained supply and strong demand growth from emerging markets. BMO projected that rough diamond prices will grow 3 percent in 2013, followed by a 5 percent to 7 percent annual growth thereafter.
BMO estimated that rough diamond supply fell 5 percent year on year to 127 million carats in 2011 due to production declines at De Beers and Rio Tinto’s Argyle mine. Production is expected to rise again as development projects are brought on stream and De Beers catches up with its stripping programs. On current forecasts, BMO expects production to peak at 159 million carats per annum by around 2016 but not to surpass that level.
BMO projected that the rough diamond market will be valued at around $29 billion by 2020, up 53 percent from $19 billion in 2011.
Polished Demand
BMO projected that overall demand for polished diamonds will grow between 6 percent and 9 percent to reach more than $33 billion in total market value by 2020.
Polished demand from the U.S. -- the biggest market for diamonds -- is expected to remain relatively robust, growing at 3 percent in 2012, before gradually increasing to 5 percent per year by 2015, BMO stated. Leading economic indicators suggest that the U.S. economy is showing steady, if not overwhelming, signs of growth, it noted.
BMO’s outlook is slightly less certain in Europe due to ongoing uncertainty regarding the true depth of the euro-zone crisis and its eventual outcome. The researchers forecast polished diamond demand in Europe to shrink by 3 percent in 2012, before returning to 3 percent growth thereafter.
The researchers noted that polished demand in Japan has remained surprisingly strong, despite the 2011 earthquake. However, Japan’s economic growth remains relatively muted and could face headwinds due to power shortages this summer if nuclear reactors are not restarted. BMO expects Japan’s polished demand to grow 2 percent in 2012, falling to 1 percent in 2013 and thereafter at 2 percent to 3 percent annually.
BMO stressed however that demand would be driven by emerging economies, especially China and India, where increasing personal wealth is translating into aspirations for diamond ownership.
The researchers projected that India’s polished demand will grow by 6 percent in 2012 before remaining close to 10 percent per year thereafter. They added that polished demand from China appears more sustainable than in India. BMO expects growth in China to be maintained at 20 percent in 2012 but to retreat to 13 percent annually thereafter.
Demand growth from other developing nations is expected to range between 5 percent and 9 percent per annum going forward.
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Tags:
asia, BMO, China, De Beers, demand, Dilipp S Nag, economic, Europe, Eurozone, India, Japan, Lucara Diamonds, mountain province, polished, Rapaport, Rio Tinto, rough, supply, US
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Jun 13, 2012 12:56AM
By Swaroop Biswas
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Really insightful report Dilip. The current economic situation is quite nicely analysed and extrapolated over time.
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