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Bain report sees strong growth in diamond demand in next decade

Demand for diamonds will expand by in excess of 6 percent annually over the next decade and almost double due to rising demand from from China and India, according to a report by business consultants Bain & Company who added that supply will be hampered by a lack of new mines. Demand is forecast to grow at an annual rate of 6.4 percent to almost 250 million carats, and 6.6 percent in value terms by 2020.

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According to Bain, rough diamond supply is expected to grow at a compound annual growth rate of 2.8 percent globally in the decade to 2020 in carat terms. That takes into account new projects coming onstream in the short term but also the impact of relatively flat growth towards the end of the decade as no major new deposit discoveries have been made since Murowa in Zimbabwe in 1997. The forecast of precise supply figures is complicated by the fact that Russian state mineral repository, the Gokhran, could have supplies of rough valued at more than $1 billion bought from Alrosa during the financial crisis, Bain said. However, even if new sources are discovered, supply will remain tight since it could take a decade for the first diamonds to be brought to market. The supply shortfall will support prices even during possible periods of volatility and demand may be further boosted if investment in diamonds grows.

The concept of diamonds as a potential investment commodity has long been debated, but - unlike for gold and silver - difficulties with valuation, the lack of a spot market and a lack of liquidity means efforts to create diamond funds have struggled. Bain, however, said industry efforts to increase transparency could help attract investors to individual, high-end polished gems, with the lack of supply also making top quality diamonds increasingly rare. "(It could be) not necessarily investment funds, that invest on behalf of investors into diamonds - that model seems to have been less than successful - but individuals buying into investment diamonds in places like China, India and the Middle East," said Gerhard Prinsloo, a Moscow-based Bain partner and the lead author of the report. Prinsloo said the industry would need to develop benchmarks to allow investors to get market prices for investment gems, Reuters reported. "The model of having 12 to 16,000 different price points will probably need to undergo to change if you want to stimulate demand for investment," he said.

Written by: CHLOÉ POUPON-DUMONTET Diamond Jewellery Advisor

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