Will the price of diamonds rise?

In the next 3 decades, the diamond market will face an enormous challenge. On the one hand, the demand for diamonds will grow, driven mainly by the richer societies of China, India and the USA, which are the largest recipients of these stones. On the other hand, diamond production will decline due to rising mining costs. In this situation, the demand and supply gap will increase dramatically within 30 years, which may lead to an increase in the price of diamonds.

Dynamically changing diamond market

The demand-supply gap is nothing more than a difference between the demand for rough diamonds and the volume of mining production. Analyses show that in the next three decades it will grow and will amount to 278 million carats in 2050. The shortage is expected to push up the price of diamonds in the future.

Chart 1. Forecast of the demand-supply gap in rough diamonds in 2018-2050

Source: Frost & Sullivan

Diamond mine extinction and unprofitable mining

The decreasing supply will have the greatest impact on increasing the supply-output gap. The deposits are exploited very quickly in the mines, which requires extraction from the deeper layers of the Earth. In most cases, it is unprofitable to excavate and many large mines (producing at least 5 million carats per year) have already reached their peak of production.

Some large mines, such as Argyle and Diaviak, have already closed down or are close to end their operations. Some of the mines could operate longer, but it would involve mining underground. In the current conditions, it is unprofitable for many companies, so they decide to terminate their projects.

In 2020, consulting company Frost & Sullivan reported that by 2015, more than 8,000 kimberlite deposits, from which diamonds can be obtained, were discovered but only 67 of them were profitable to start mining. The conversion of an opencast mine into an underground mine requires a great deal of investment. In 2015, the budgets of mining companies allocated to the exploitation of deposits fell by 50% compared to 2008. Currently, companies are starting to invest more and more, but the pre-crisis records in 2008 are still far away to achieve.

There are up to 30 significant kimberlite mines in the world. Only 7 of them have Tier1 status (diamond reserves worth at least USD 20 billion: Jwaneng and Orapaw Bostwanie, Udacznyj and Mir in Russia, Premier (Cullinan) and Venetia in South Africa and Catoca in Angola). About 60% of the diamonds mined come from Africa.

The new generation of diamond buyers - millennials and Generation Z

The demand for diamonds will grow - mainly due to Chinese and Indian consumers. Millennials and Gen Z are projected to increase 150% and 200% in wealth in China and India over a decade, respectively. This is very important information as these groups are the main buyers of diamond jewellery in their markets.

Millennials account for 80% of the demand for diamond jewellery in China and India.

Changing ethical standards and new markets for the diamond giving tradition

Diamond jewellery makers are starting to increase their marketing spending to reach the new generation of customers. Consumers are also aware of the need to celebrate special occasions with diamond jewellery.

Not only do engagements require a gift in the form of a diamond ring. The occasion to present valuables may be, for example, the birth of a child. The new "gift for yourself" trend is very popular in the US. This most often applies to women who buy diamond jewellery for pleasure. The tradition of handing out a diamond engagement ring is also becoming stronger in China and Japan.

More interest in smaller-size diamonds

The importance of affordable jewellery with a smaller stone that can be worn for any occasion, the so-called “costume jewellery”. It is estimated that in the years 2019-2027, the market for this type of jewellery will grow by nearly 82%, to the level of USD 59.7 billion.

Development of the synthetic diamonds market

The demand for diamonds will grow and the supply will gradually decrease, therefore the supply and demand gap will increase every year. On the one hand, this may increase the price of cut diamonds, and on the other hand, drive the demand for stones created in laboratories. Their low prices and the inability to distinguish them with “the naked eye” from natural stones may result in the growing demand for laboratory-made diamonds in the future.

Undoubtedly, gemstones produced in laboratories are and will be increasingly used in jewellery, also in the premium class. However, they are aimed at a completely different audience. The development of this market is inevitable, with the decreasing extraction of natural diamonds, the technological process advancing and the related costs of producing synthetic stones falling.

In 2020, 6-7 million carats were grown, compared to 113 million carats of extracted natural diamonds, the annual supply of which will decline in the coming years. As the demand for diamonds will grow, synthetic stones will fill part of the gap. It is estimated that 19.15 million carats of synthetic diamonds will hit the market with a gap of 159 million carats in 2030, which will still be not enough.

Diamonds grown in laboratories do not pose much of a risk to natural diamonds because they are bought by a different consumer. The profitability of investing in these stones is negligible, therefore they should not constitute an investment asset. They are a good solution for the consumer who wants to have diamond jewellery, but for whom natural diamonds are financially unattainable.

A chance for diamond prices to rise

The demand for diamonds will grow. This is supported by macroeconomic forecasts. Unfortunately, the supply of the current mines will not be able to meet the demand. Including synthetic diamonds in this puzzle, little will change. Nearly 140 million carats will still be missing. In this situation the increase of the price of diamonds in the coming years is highly probable. 

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