In my last blog post, I discussed how, contrary to popular myth, diamond prices do not always increase. In 2014 and 2015, diamond prices were down. But what does the future hold for diamond prices.
There was an article in Rapaport magazine last November which addressed this issue. It reported on the expectation of DeBeers’ executives that the annual supply of rough diamonds mined is about to peak and plateau at around 160 million carats. By 2030, they expect the annual supply of rough diamonds mined to decrease to around 115 million carats.
There is some finite supply of diamonds in the world. In 150 years of exploration, only 60 commercial mines have been discovered and only 7 of those are major producers. As the end of the commercial life of the existing mines appears on the horizon, diamond mining companies’ have resorted to exploring all over the world, often in extremely remote locations with brutal climates (i.e. northern Canada and Siberia) and “challenging natural obstacles” to overcome in unearthing diamonds.
The costs of exploring and mining in these new locations is significant. One DeBeers’ executive even suggested that, “maybe all the diamond mines have already been discovered.”
Add to this scenario,the emerging markets in India and China caused by their increasing prosperity and growing middle classes. This will add significantly in the future to the demand side of the equation.
So, we have an utltimately limited and annually declining supply of rough diamonds that is increasingly expensive to find and extract. This will be combined with growing populations of people who believe they can afford and who will increase demand for diamonds. If this future of limited and declining supply combined with increased demand materializes, diamond prices will increase in the foreseeable future.