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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
Really insightful report Dilip. The current economic situation is quite nicely analysed and extrapolated over time.
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