diamond demand - solitaire...
TRANSCRIPT
Edward Sterck is a London-based research analyst
at BMO Capital Markets. He
specialises in researching listed
diamond, PGM and uranium mining
companies as well as evaluating the
supply/demand economics of these
sectors.
Diamond Demand in India, China To Stay Robust: Study
INTERNATIONAL AUGUST 201170
Edward Sterck, BMO Capitals Market analyst, offers an in-depth overview of polished diamond prices, global diamond demand, and rough diamond production in the near future. Here are some excerpts from his research paper which he shared exclusively with Solitaire.
he last several years have proved turbulent for the diamond industry. During the global financial crisis (GFC), the prices of both rough and polished diamonds declined dramatically before starting a recovery process from the middle of Q2/09. Today, rough and polished diamond
prices in many categories appear to be trading at nominal all-time highs. What is the near-, mid- and long-term outlook for diamond supply and demand and are current prices sustainable?
Polished Diamond Demand to Almost Double by 2020Turning first to polished diamond demand, analysis of historical data shows that demand for diamond jewellery and thereby polished diamonds can be closely linked to changes in disposable income at a household level. On a national level, this can be broadly correlated to GDP growth.
Sources: BMO Capital Markets, IMF, WWW International
-20%-15%-10%
-5%0%5%
10%15%20%25%30%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Per
cent
age
Cha
nge
(%)
EU - Change in GDP EU - Change in Diamond Demand
USA, US$6.9B, 39%
Europe, US$3.0B, 16%
Japan, US$1.7B, 10%
Rest of Asia, US$1.3B, 7%
India, US$1.6B, 9%
Other, US$2.5B, 14%
China, US$1.0B, 5%
USA, 15.4Mcts, 50%
Japan, 4.4Mcts, 14%
India, 1.7Mcts, 6%
China, 0.9Mcts, 3%
Rest of Asia, 1.8Mcts, 6%
Other, 3.4Mcts, 11%
Europe, 3.1Mcts, 10%
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2000A 2002A 2004A 2006A 2008A 2010A 2012E 2014E 2016E 2018E 2020E
Dia
mon
d C
onte
nt in
Dia
mon
d Je
wel
lery
(US
$M)
OtherRest of AsiaChinaIndiaJapanEuropeUSA
DiavikOrapa (doubles)
Argyle
Jwaneng
Venetia Ekati Catoca
0
20
40
60
80
100
120
140
160
180
1945
1948
1951
1954
1957
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
2011
2014
2017
2020
Mcts
Diamond Production (Mcts, lhs)
Forecast
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2006
A
2007
A
2008
A
2009
A
2010
A
2011
E
2012
E
2013
E
2014
E
2015
E
2016
E
2017
E
2018
E
2019
E
2020
E
Rou
gh a
nd P
olis
hed
Dia
mon
d S
uppl
y an
d D
eman
d (U
S$M
)
0.0
10.0
20.0
30.0
40.0
50.0
60.0
Diam
ond Inventory (Mcts)
Rough Diamond Year End Inventory Polished Diamond Year End Inventory Rough Diamond Supply Polished Diamond Demand
Inventory Restocking
0
1000
2000
3000
4000
5000
6000
1948A 1953A 1958A 1963A 1968A 1973A 1978A 1983A 1988A 1993A 1998A 2003A 2008A 2013E 2018E
BMO Rough Diamond Index Gold Index
2010Rebased to 1948 = 100
2006A 2007A 2008A 2009A 2010A 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E .
Rough Diamond Supply (Mcts) 162.1 158.6 149.8 108.5 123.7 125.0 133.8 149.1 149.8 155.5 157.8 158.3 158.2 157.4 157.7Rough Diamond Supply (US$M) 14,541 15,912 16,663 10,392 16,027 17,233 19,984 21,862 22,776 24,347 25,494 25,835 26,136 26,507 26,819
Rough Diamond Year End Inventory (Mcts) 54.4 39.7 45.0 38.5 34.3 27.0 20.0 20.0 25.0 30.0 35.0 35.0 35.0 35.0 35.0Rough Diamond Year End Inventory (US$M) 3,271 2,816 2,286 2,402 2,606 2,180 1,750 1,718 2,226 2,752 3,313 3,346 3,387 3,452 3,486Rough Diamond Inventory Movement (Mcts) 7.5 -14.7 5.3 -6.5 -4.2 -7.3 -7.0 0.0 5.0 5.0 5.0 0.0 0.0 0.0 0.0Rough Diamond Inventory Movement (US$M) 130 -455 -530 116 204 -426 -431 -032 508 526 561 033 041 065 034
Rough Diamond Supply to Market (Mcts) 162.1 173.3 144.5 115.0 127.8 132.3 140.8 149.1 144.8 150.5 152.8 158.3 158.2 157.4 157.7Percentage Change (%) n/a 7% -17% -20% 11% 4% 6% 6% -3% 4% 2% 4% 0% 0% 0%
Rough Diamond Supply to Market (US$M) 14,411 16,367 17,193 10,276 15,823 17,659 20,415 21,894 22,268 23,822 24,932 25,802 26,094 26,442 26,785Percentage Change (%) n/a 13% 5% -40% 54% 12% 16% 7% 2% 7% 5% 3% 1% 1% 1%
Average Rough Diamond Price (US$/ct) 89 94 119 89 124 133 145 147 154 158 163 163 165 168 170Percentage Change (%) n/a 6% 26% -25% 39% 8% 9% 1% 5% 3% 3% 0% 1% 2% 1%
Rough Supply as Polished Equivalent (Mcts) 29.2 31.2 26.0 20.7 23.0 23.8 25.3 26.8 26.1 27.1 27.5 28.5 28.5 28.3 28.4
Polished Diamond Year End Inventory (Mcts) 13.8 11.2 16.2 14.5 11.3 8.0 7.0 7.0 7.0 7.0 7.0 8.0 9.0 10.0 11.0Polished Diamond Year End Inventory (US$M) 10,353 8,667 11,270 9,632 8,476 6,546 6,028 6,347 6,689 7,070 7,479 9,049 10,788 12,714 14,847Polished Diamond Inventory Movement (Mcts) 1.6 -2.6 5.0 -1.6 -3.3 -3.3 -1.0 0.0 0.0 0.0 0.0 1.0 1.0 1.0 1.0Polished Diamond Inventory Movement (US$M) 1,546 -1,686 2,603 -1,638 -1,156 -1,930 -519 320 341 381 409 1,571 1,739 1,926 2,133
Polished Diamond Demand/Availability (Mcts) 29.0 29.4 28.6 26.0 30.8 27.1 26.3 26.8 26.1 27.1 27.5 27.5 27.5 27.3 27.4Percentage Change (%) 0% 0% -3% -9% 18% -12% -3% 2% -3% 4% 2% 0% 0% -1% 0%
Polished Diamond Demand (US$M) 17,711 18,954 18,471 16,345 18,127 19,706 20,737 21,837 23,012 24,323 25,730 27,241 28,867 30,618 32,505Percentage Change (%) n/a 7% -3% -12% 11% 9% 5% 5% 5% 6% 6% 6% 6% 6% 6%
Average Polished Diamond Price (US$/ct) 611 645 645 628 589 728 787 814 883 898 936 991 1,051 1,120 1,187Percentage Change (%) n/a 6% 0% -3% -6% 23% 8% 3% 8% 2% 4% 6% 6% 7% 6%. .
EU GDP Growth vs. P-Diamond Demand (%)
INTERNATIONAL AUGUST 2011 71
ExclusivE REpORT
BMO has used the IMF’s projections of GDP growth for forecasting polished diamond demand for countries and regions that are established diamond consumers, and projected changes in disposable household income for nations that are emerging diamond consumers.
For the nations and regions with established diamond consumption, such as the US, Europe and Japan, the outlook appears to be one of diamond demand growing broadly in line with a post GFC expectation of recovering economies.
The US remains the world’s single largest consumer of diamonds, with an estimated market share of 38% in 2010, or
2010 Global Polished Demand (US$M, %)
-20%-15%-10%
-5%0%5%
10%15%20%25%30%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Per
cent
age
Cha
nge
(%)
EU - Change in GDP EU - Change in Diamond Demand
USA, US$6.9B, 39%
Europe, US$3.0B, 16%
Japan, US$1.7B, 10%
Rest of Asia, US$1.3B, 7%
India, US$1.6B, 9%
Other, US$2.5B, 14%
China, US$1.0B, 5%
USA, 15.4Mcts, 50%
Japan, 4.4Mcts, 14%
India, 1.7Mcts, 6%
China, 0.9Mcts, 3%
Rest of Asia, 1.8Mcts, 6%
Other, 3.4Mcts, 11%
Europe, 3.1Mcts, 10%
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2000A 2002A 2004A 2006A 2008A 2010A 2012E 2014E 2016E 2018E 2020E
Dia
mon
d C
onte
nt in
Dia
mon
d Je
wel
lery
(US
$M)
OtherRest of AsiaChinaIndiaJapanEuropeUSA
DiavikOrapa (doubles)
Argyle
Jwaneng
Venetia Ekati Catoca
0
20
40
60
80
100
120
140
160
180
1945
1948
1951
1954
1957
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
2011
2014
2017
2020
Mcts
Diamond Production (Mcts, lhs)
Forecast
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2006
A
2007
A
2008
A
2009
A
2010
A
2011
E
2012
E
2013
E
2014
E
2015
E
2016
E
2017
E
2018
E
2019
E
2020
E
Rou
gh a
nd P
olis
hed
Dia
mon
d S
uppl
y an
d D
eman
d (U
S$M
)
0.0
10.0
20.0
30.0
40.0
50.0
60.0
Diam
ond Inventory (Mcts)
Rough Diamond Year End Inventory Polished Diamond Year End Inventory Rough Diamond Supply Polished Diamond Demand
Inventory Restocking
0
1000
2000
3000
4000
5000
6000
1948A 1953A 1958A 1963A 1968A 1973A 1978A 1983A 1988A 1993A 1998A 2003A 2008A 2013E 2018E
BMO Rough Diamond Index Gold Index
2010Rebased to 1948 = 100
2006A 2007A 2008A 2009A 2010A 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E .
Rough Diamond Supply (Mcts) 162.1 158.6 149.8 108.5 123.7 125.0 133.8 149.1 149.8 155.5 157.8 158.3 158.2 157.4 157.7Rough Diamond Supply (US$M) 14,541 15,912 16,663 10,392 16,027 17,233 19,984 21,862 22,776 24,347 25,494 25,835 26,136 26,507 26,819
Rough Diamond Year End Inventory (Mcts) 54.4 39.7 45.0 38.5 34.3 27.0 20.0 20.0 25.0 30.0 35.0 35.0 35.0 35.0 35.0Rough Diamond Year End Inventory (US$M) 3,271 2,816 2,286 2,402 2,606 2,180 1,750 1,718 2,226 2,752 3,313 3,346 3,387 3,452 3,486Rough Diamond Inventory Movement (Mcts) 7.5 -14.7 5.3 -6.5 -4.2 -7.3 -7.0 0.0 5.0 5.0 5.0 0.0 0.0 0.0 0.0Rough Diamond Inventory Movement (US$M) 130 -455 -530 116 204 -426 -431 -032 508 526 561 033 041 065 034
Rough Diamond Supply to Market (Mcts) 162.1 173.3 144.5 115.0 127.8 132.3 140.8 149.1 144.8 150.5 152.8 158.3 158.2 157.4 157.7Percentage Change (%) n/a 7% -17% -20% 11% 4% 6% 6% -3% 4% 2% 4% 0% 0% 0%
Rough Diamond Supply to Market (US$M) 14,411 16,367 17,193 10,276 15,823 17,659 20,415 21,894 22,268 23,822 24,932 25,802 26,094 26,442 26,785Percentage Change (%) n/a 13% 5% -40% 54% 12% 16% 7% 2% 7% 5% 3% 1% 1% 1%
Average Rough Diamond Price (US$/ct) 89 94 119 89 124 133 145 147 154 158 163 163 165 168 170Percentage Change (%) n/a 6% 26% -25% 39% 8% 9% 1% 5% 3% 3% 0% 1% 2% 1%
Rough Supply as Polished Equivalent (Mcts) 29.2 31.2 26.0 20.7 23.0 23.8 25.3 26.8 26.1 27.1 27.5 28.5 28.5 28.3 28.4
Polished Diamond Year End Inventory (Mcts) 13.8 11.2 16.2 14.5 11.3 8.0 7.0 7.0 7.0 7.0 7.0 8.0 9.0 10.0 11.0Polished Diamond Year End Inventory (US$M) 10,353 8,667 11,270 9,632 8,476 6,546 6,028 6,347 6,689 7,070 7,479 9,049 10,788 12,714 14,847Polished Diamond Inventory Movement (Mcts) 1.6 -2.6 5.0 -1.6 -3.3 -3.3 -1.0 0.0 0.0 0.0 0.0 1.0 1.0 1.0 1.0Polished Diamond Inventory Movement (US$M) 1,546 -1,686 2,603 -1,638 -1,156 -1,930 -519 320 341 381 409 1,571 1,739 1,926 2,133
Polished Diamond Demand/Availability (Mcts) 29.0 29.4 28.6 26.0 30.8 27.1 26.3 26.8 26.1 27.1 27.5 27.5 27.5 27.3 27.4Percentage Change (%) 0% 0% -3% -9% 18% -12% -3% 2% -3% 4% 2% 0% 0% -1% 0%
Polished Diamond Demand (US$M) 17,711 18,954 18,471 16,345 18,127 19,706 20,737 21,837 23,012 24,323 25,730 27,241 28,867 30,618 32,505Percentage Change (%) n/a 7% -3% -12% 11% 9% 5% 5% 5% 6% 6% 6% 6% 6% 6%
Average Polished Diamond Price (US$/ct) 611 645 645 628 589 728 787 814 883 898 936 991 1,051 1,120 1,187Percentage Change (%) n/a 6% 0% -3% -6% 23% 8% 3% 8% 2% 4% 6% 6% 7% 6%. .
-20%-15%-10%
-5%0%5%
10%15%20%25%30%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Per
cent
age
Cha
nge
(%)
EU - Change in GDP EU - Change in Diamond Demand
USA, US$6.9B, 39%
Europe, US$3.0B, 16%
Japan, US$1.7B, 10%
Rest of Asia, US$1.3B, 7%
India, US$1.6B, 9%
Other, US$2.5B, 14%
China, US$1.0B, 5%
USA, 15.4Mcts, 50%
Japan, 4.4Mcts, 14%
India, 1.7Mcts, 6%
China, 0.9Mcts, 3%
Rest of Asia, 1.8Mcts, 6%
Other, 3.4Mcts, 11%
Europe, 3.1Mcts, 10%
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2000A 2002A 2004A 2006A 2008A 2010A 2012E 2014E 2016E 2018E 2020E
Dia
mon
d C
onte
nt in
Dia
mon
d Je
wel
lery
(US
$M)
OtherRest of AsiaChinaIndiaJapanEuropeUSA
DiavikOrapa (doubles)
Argyle
Jwaneng
Venetia Ekati Catoca
0
20
40
60
80
100
120
140
160
180
1945
1948
1951
1954
1957
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
2011
2014
2017
2020
Mcts
Diamond Production (Mcts, lhs)
Forecast
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2006
A
2007
A
2008
A
2009
A
2010
A
2011
E
2012
E
2013
E
2014
E
2015
E
2016
E
2017
E
2018
E
2019
E
2020
E
Rou
gh a
nd P
olis
hed
Dia
mon
d S
uppl
y an
d D
eman
d (U
S$M
)
0.0
10.0
20.0
30.0
40.0
50.0
60.0
Diam
ond Inventory (Mcts)
Rough Diamond Year End Inventory Polished Diamond Year End Inventory Rough Diamond Supply Polished Diamond Demand
Inventory Restocking
0
1000
2000
3000
4000
5000
6000
1948A 1953A 1958A 1963A 1968A 1973A 1978A 1983A 1988A 1993A 1998A 2003A 2008A 2013E 2018E
BMO Rough Diamond Index Gold Index
2010Rebased to 1948 = 100
2006A 2007A 2008A 2009A 2010A 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E .
Rough Diamond Supply (Mcts) 162.1 158.6 149.8 108.5 123.7 125.0 133.8 149.1 149.8 155.5 157.8 158.3 158.2 157.4 157.7Rough Diamond Supply (US$M) 14,541 15,912 16,663 10,392 16,027 17,233 19,984 21,862 22,776 24,347 25,494 25,835 26,136 26,507 26,819
Rough Diamond Year End Inventory (Mcts) 54.4 39.7 45.0 38.5 34.3 27.0 20.0 20.0 25.0 30.0 35.0 35.0 35.0 35.0 35.0Rough Diamond Year End Inventory (US$M) 3,271 2,816 2,286 2,402 2,606 2,180 1,750 1,718 2,226 2,752 3,313 3,346 3,387 3,452 3,486Rough Diamond Inventory Movement (Mcts) 7.5 -14.7 5.3 -6.5 -4.2 -7.3 -7.0 0.0 5.0 5.0 5.0 0.0 0.0 0.0 0.0Rough Diamond Inventory Movement (US$M) 130 -455 -530 116 204 -426 -431 -032 508 526 561 033 041 065 034
Rough Diamond Supply to Market (Mcts) 162.1 173.3 144.5 115.0 127.8 132.3 140.8 149.1 144.8 150.5 152.8 158.3 158.2 157.4 157.7Percentage Change (%) n/a 7% -17% -20% 11% 4% 6% 6% -3% 4% 2% 4% 0% 0% 0%
Rough Diamond Supply to Market (US$M) 14,411 16,367 17,193 10,276 15,823 17,659 20,415 21,894 22,268 23,822 24,932 25,802 26,094 26,442 26,785Percentage Change (%) n/a 13% 5% -40% 54% 12% 16% 7% 2% 7% 5% 3% 1% 1% 1%
Average Rough Diamond Price (US$/ct) 89 94 119 89 124 133 145 147 154 158 163 163 165 168 170Percentage Change (%) n/a 6% 26% -25% 39% 8% 9% 1% 5% 3% 3% 0% 1% 2% 1%
Rough Supply as Polished Equivalent (Mcts) 29.2 31.2 26.0 20.7 23.0 23.8 25.3 26.8 26.1 27.1 27.5 28.5 28.5 28.3 28.4
Polished Diamond Year End Inventory (Mcts) 13.8 11.2 16.2 14.5 11.3 8.0 7.0 7.0 7.0 7.0 7.0 8.0 9.0 10.0 11.0Polished Diamond Year End Inventory (US$M) 10,353 8,667 11,270 9,632 8,476 6,546 6,028 6,347 6,689 7,070 7,479 9,049 10,788 12,714 14,847Polished Diamond Inventory Movement (Mcts) 1.6 -2.6 5.0 -1.6 -3.3 -3.3 -1.0 0.0 0.0 0.0 0.0 1.0 1.0 1.0 1.0Polished Diamond Inventory Movement (US$M) 1,546 -1,686 2,603 -1,638 -1,156 -1,930 -519 320 341 381 409 1,571 1,739 1,926 2,133
Polished Diamond Demand/Availability (Mcts) 29.0 29.4 28.6 26.0 30.8 27.1 26.3 26.8 26.1 27.1 27.5 27.5 27.5 27.3 27.4Percentage Change (%) 0% 0% -3% -9% 18% -12% -3% 2% -3% 4% 2% 0% 0% -1% 0%
Polished Diamond Demand (US$M) 17,711 18,954 18,471 16,345 18,127 19,706 20,737 21,837 23,012 24,323 25,730 27,241 28,867 30,618 32,505Percentage Change (%) n/a 7% -3% -12% 11% 9% 5% 5% 5% 6% 6% 6% 6% 6% 6%
Average Polished Diamond Price (US$/ct) 611 645 645 628 589 728 787 814 883 898 936 991 1,051 1,120 1,187Percentage Change (%) n/a 6% 0% -3% -6% 23% 8% 3% 8% 2% 4% 6% 6% 7% 6%. .
Source: BMO Capital Markets
2010 Global Polished Demand (Mcts, %)
Source: BMO Capital Markets
$7 billion. As such, small changes in polished diamond demand from the US can have material impacts on the outlook for the diamond prices and the diamond market as a whole.
De Beers reported in its latest annual report that demand in the US grew by 7% in 2010, some way ahead of reported GDP growth of 4%. The IMF forecasts US GDP growth to average 4% per annum going forward, picking up to 6% from 2016. In terms of polished diamond demand, it seems probable that some momentum from 2010 could be carried through into 2011 for demand growth of 7%, but that a conservative outlook would be for demand to slow to 4% per annum thereafter.
INTERNATIONAL AUGUST 201172
Forecast Global Polished Diamond Demand in Nominal Terms (US$M)
Sources: BMO Capital Markets, WWW International, Bloomberg, IMF
Applying a similar methodology suggests that demand for polished diamonds in Europe will likely be flat through 2011, before picking up to 3% per annum thereafter. In Japan, polished diamond demand is expected to fall 2% in 2011 as a result of the Honshu earthquake, and to grow at a nominal 2% per annum thereafter, in line with the IMF’s forecast for Japan’s GDP growth. However, the full economic effects of the earthquake have yet to be established and there is a potential upside to the outlook for Japan. In the aftermath of the 1995 Kobe earthquake, the money spent on rebuilding prompted growth throughout the Japanese economy and a similar effect could emerge again.
On top of the expected recovery in diamond demand from established consumers, demand for diamond jewellery is growing strongly in the emerging markets where the increasing wealth of the growing middle classes is fuelling demand for luxury goods, albeit from much smaller bases. India and Mainland China are two of the countries in this group which are worth focussing on in particular detail.
BMO Capital Markets estimates that Chinese demand for polished diamonds accounted for 5% or $1 billion of the market in 2010. While this represents a relatively small proportion of the market currently, growth is extremely strong. De Beers reported that Chinese demand for polished diamonds grew at 25% in 2010, significantly ahead of GDP growth of 13%. Looking ahead, momentum into 2011 suggests that growth of 15% may be possible. From 2012 onwards, growth in household disposable income is forecast to average 11% to 12% per annum. This translates into minimum growth in diamond demand of 13% per annum. China is currently under
international pressure to relax currency controls; if this occurs, it could result in an immediate jump in household purchasing power in US dollar terms making diamonds more affordable and potentially increasing demand further.
While the general Chinese populous are new consumers of diamonds, Indians had a long history of buying diamond jewellery until being priced out of the market around the beginning of the Twentieth Century. After all, India was the world’s primary diamond production centre until the discovery of alluvial diamonds in Brazil in the middle of the 18th century. The current growth in the wealth and headcount of the Indian middle class has made diamonds more affordable and brought Indians back into the market as consumers of diamonds.
BMO Capital Markets estimates that India represented 9% or $1.3 billion of global polished diamond demand in 2010. De Beers reports that Indian polished diamond demand grew at 31% in 2010 in dollar terms. Again, some of this momentum is likely to carry through to 2011, potentially resulting in demand growth of 15%. From 2012 onwards diamond demand is likely to grow in line with economic growth at around 10% per annum.
Combining steady demand growth from the established diamond consuming nations and strong growth in demand from emerging consumers results in a forecast of polished diamond demand almost doubling by 2020, resulting in a total market value of over $30 billion in nominal terms.
There are some risks associated with the demand outlook for countries of established diamond demand, not least of which is the ongoing Euro zone debt crisis. However, the unexpectedly strong recovery in demand during 2010, when economic uncertainties still abounded, may provide some comfort.
-20%-15%-10%-5%0%5%
10%15%20%25%30%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Per
cent
age
Cha
nge
(%)
EU - Change in GDP EU - Change in Diamond Demand
USA, US$6.9B, 39%
Europe, US$3.0B, 16%
Japan, US$1.7B, 10%
Rest of Asia, US$1.3B, 7%
India, US$1.6B, 9%
Other, US$2.5B, 14%
China, US$1.0B, 5%
USA, 15.4Mcts, 50%
Japan, 4.4Mcts, 14%
India, 1.7Mcts, 6%
China, 0.9Mcts, 3%
Rest of Asia, 1.8Mcts, 6%
Other, 3.4Mcts, 11%
Europe, 3.1Mcts, 10%
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2000A 2002A 2004A 2006A 2008A 2010A 2012E 2014E 2016E 2018E 2020E
Dia
mon
d C
onte
nt in
Dia
mon
d Je
wel
lery
(US
$M)
OtherRest of AsiaChinaIndiaJapanEuropeUSA
DiavikOrapa (doubles)
Argyle
Jwaneng
Venetia Ekati Catoca
0
20
40
60
80
100
120
140
160
180
19
45
19
48
19
51
19
54
19
57
19
60
19
63
19
66
19
69
19
72
19
75
19
78
19
81
19
84
19
87
19
90
19
93
19
96
19
99
20
02
20
05
20
08
20
11
20
14
20
17
20
20
Mcts
Diamond Production (Mcts, lhs)
Forecast
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2006
A
2007
A
2008
A
2009
A
2010
A
2011
E
2012
E
2013
E
2014
E
2015
E
2016
E
2017
E
2018
E
2019
E
2020
E
Rou
gh a
nd P
olis
hed
Dia
mon
d S
uppl
y an
d D
eman
d (U
S$M
)
0.0
10.0
20.0
30.0
40.0
50.0
60.0
Diam
ond Inventory (Mcts)
Rough Diamond Year End Inventory Polished Diamond Year End Inventory Rough Diamond Supply Polished Diamond Demand
Inventory Restocking
0
1000
2000
3000
4000
5000
6000
1948A 1953A 1958A 1963A 1968A 1973A 1978A 1983A 1988A 1993A 1998A 2003A 2008A 2013E 2018E
BMO Rough Diamond Index Gold Index
2010Rebased to 1948 = 100
2006A 2007A 2008A 2009A 2010A 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E .
Rough Diamond Supply (Mcts) 162.1 158.6 149.8 108.5 123.7 125.0 133.8 149.1 149.8 155.5 157.8 158.3 158.2 157.4 157.7Rough Diamond Supply (US$M) 14,541 15,912 16,663 10,392 16,027 17,233 19,984 21,862 22,776 24,347 25,494 25,835 26,136 26,507 26,819
Rough Diamond Year End Inventory (Mcts) 54.4 39.7 45.0 38.5 34.3 27.0 20.0 20.0 25.0 30.0 35.0 35.0 35.0 35.0 35.0Rough Diamond Year End Inventory (US$M) 3,271 2,816 2,286 2,402 2,606 2,180 1,750 1,718 2,226 2,752 3,313 3,346 3,387 3,452 3,486Rough Diamond Inventory Movement (Mcts) 7.5 -14.7 5.3 -6.5 -4.2 -7.3 -7.0 0.0 5.0 5.0 5.0 0.0 0.0 0.0 0.0Rough Diamond Inventory Movement (US$M) 130 -455 -530 116 204 -426 -431 -032 508 526 561 033 041 065 034
Rough Diamond Supply to Market (Mcts) 162.1 173.3 144.5 115.0 127.8 132.3 140.8 149.1 144.8 150.5 152.8 158.3 158.2 157.4 157.7Percentage Change (%) n/a 7% -17% -20% 11% 4% 6% 6% -3% 4% 2% 4% 0% 0% 0%
Rough Diamond Supply to Market (US$M) 14,411 16,367 17,193 10,276 15,823 17,659 20,415 21,894 22,268 23,822 24,932 25,802 26,094 26,442 26,785Percentage Change (%) n/a 13% 5% -40% 54% 12% 16% 7% 2% 7% 5% 3% 1% 1% 1%
Average Rough Diamond Price (US$/ct) 89 94 119 89 124 133 145 147 154 158 163 163 165 168 170Percentage Change (%) n/a 6% 26% -25% 39% 8% 9% 1% 5% 3% 3% 0% 1% 2% 1%
Rough Supply as Polished Equivalent (Mcts) 29.2 31.2 26.0 20.7 23.0 23.8 25.3 26.8 26.1 27.1 27.5 28.5 28.5 28.3 28.4
Polished Diamond Year End Inventory (Mcts) 13.8 11.2 16.2 14.5 11.3 8.0 7.0 7.0 7.0 7.0 7.0 8.0 9.0 10.0 11.0Polished Diamond Year End Inventory (US$M) 10,353 8,667 11,270 9,632 8,476 6,546 6,028 6,347 6,689 7,070 7,479 9,049 10,788 12,714 14,847Polished Diamond Inventory Movement (Mcts) 1.6 -2.6 5.0 -1.6 -3.3 -3.3 -1.0 0.0 0.0 0.0 0.0 1.0 1.0 1.0 1.0Polished Diamond Inventory Movement (US$M) 1,546 -1,686 2,603 -1,638 -1,156 -1,930 -519 320 341 381 409 1,571 1,739 1,926 2,133
Polished Diamond Demand/Availability (Mcts) 29.0 29.4 28.6 26.0 30.8 27.1 26.3 26.8 26.1 27.1 27.5 27.5 27.5 27.3 27.4Percentage Change (%) 0% 0% -3% -9% 18% -12% -3% 2% -3% 4% 2% 0% 0% -1% 0%
Polished Diamond Demand (US$M) 17,711 18,954 18,471 16,345 18,127 19,706 20,737 21,837 23,012 24,323 25,730 27,241 28,867 30,618 32,505Percentage Change (%) n/a 7% -3% -12% 11% 9% 5% 5% 5% 6% 6% 6% 6% 6% 6%
Average Polished Diamond Price (US$/ct) 611 645 645 628 589 728 787 814 883 898 936 991 1,051 1,120 1,187Percentage Change (%) n/a 6% 0% -3% -6% 23% 8% 3% 8% 2% 4% 6% 6% 7% 6%. .
INTERNATIONAL AUGUST 2011 73
Sources: George C Blakey (1945 - 1975), Rio Tinto (1976 - 1995), WWW (1996 - 2008)
Has Rough Diamond Production Peaked?Statistics on diamond mines can be difficult to obtain and harder to verify. However, BMO Capital Markets has developed a model that examines significant operations on a mine-by-mine basis. Production has expanded dramatically since the end of the Second World War, growing from 18Mcts to a peak of just over 160Mcts in 2006. In 2006, De Beers liquidated its rough diamond inventory, adding to supply, suppressing prices and resulting in an expansion of diamond inventory in the cutting and polishing centres.
Peak supply to the market occurred in 2006; production began to decline in 2007 before dropping dramatically in 2008 with the onset of the GFC. The GFC resulted in a fall in consumer spending, particularly on luxuries, as well as a curtailment of credit lines to the cutting centres, with a resultant negative impact on demand and diamond prices. Producers responded with a dramatic cut to supply to the market starting in late 2008; the curtailment of supply led to an artificial shortage of rough and prices began to rise through the middle of 2009.
Production has now been largely restarted, although some mines are only being re-commissioned this year. However, the major production centres in Botswana and Russia are now largely mature, with deepening open pits and many mines, particularly in Russia, transitioning to underground operations. Unit costs at existing assets are only likely to increase and production could begin to decline over the next several years.
In other words, new projects need to be commissioned in order to maintain world diamond production at current levels. However, the number of quality undeveloped projects is limited and there does not appear to be anything that can match
Historical and Forecast Rough Diamond Production (Mcts)
Debswana or Alrosa’s core projects in terms of scale and quality.In summary, 2006 appears to have been the year of peak
production. Analysis suggests that production should grow towards but not exceed this high water mark. Looking beyond 2020, a significant amount of money needs to be spent on exploration to find new projects for the 2020s and beyond.
Supply Demand Summary and Diamond Price OutlookWhile estimating the increase in consumer demand for polished diamonds in dollar terms and the supply of rough diamonds in carat terms is relatively straight forward (albeit problematic), linking the two forecasts is challenging. BMO Capital Markets has taken into account changes in rough and polished inventory in constructing a diamond supply demand forecast.
Diamond supply has proven slow to come back to the market. Consequently, in BMO Capital Markets’s assessment, it appears that diamantaires have probably been compelled to reduce working inventory of both rough and polished diamonds to cover demand. Analysis suggests that inventory draw-down is likely to continue through 2013, supporting increases in rough diamond prices as diamantaires compete for supply. At the same time, increasing prices are expected to cannibalize consumer demand for polished diamonds in carat terms. From 2014, rough diamond supply is forecast to be sufficient and an element of working inventory restocking is possible; potentially resulting in continued support for rough diamond prices.
-20%-15%-10%-5%0%5%
10%15%20%25%30%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Per
cent
age
Cha
nge
(%)
EU - Change in GDP EU - Change in Diamond Demand
USA, US$6.9B, 39%
Europe, US$3.0B, 16%
Japan, US$1.7B, 10%
Rest of Asia, US$1.3B, 7%
India, US$1.6B, 9%
Other, US$2.5B, 14%
China, US$1.0B, 5%
USA, 15.4Mcts, 50%
Japan, 4.4Mcts, 14%
India, 1.7Mcts, 6%
China, 0.9Mcts, 3%
Rest of Asia, 1.8Mcts, 6%
Other, 3.4Mcts, 11%
Europe, 3.1Mcts, 10%
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2000A 2002A 2004A 2006A 2008A 2010A 2012E 2014E 2016E 2018E 2020E
Dia
mon
d C
onte
nt in
Dia
mon
d Je
wel
lery
(US
$M)
OtherRest of AsiaChinaIndiaJapanEuropeUSA
DiavikOrapa (doubles)
Argyle
Jwaneng
Venetia Ekati Catoca
0
20
40
60
80
100
120
140
160
180
19
45
19
48
19
51
19
54
19
57
19
60
19
63
19
66
19
69
19
72
19
75
19
78
19
81
19
84
19
87
19
90
19
93
19
96
19
99
20
02
20
05
20
08
20
11
20
14
20
17
20
20
Mcts
Diamond Production (Mcts, lhs)
Forecast
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2006
A
2007
A
2008
A
2009
A
2010
A
2011
E
2012
E
2013
E
2014
E
2015
E
2016
E
2017
E
2018
E
2019
E
2020
E
Rou
gh a
nd P
olis
hed
Dia
mon
d S
uppl
y an
d D
eman
d (U
S$M
)
0.0
10.0
20.0
30.0
40.0
50.0
60.0
Diam
ond Inventory (Mcts)
Rough Diamond Year End Inventory Polished Diamond Year End Inventory Rough Diamond Supply Polished Diamond Demand
Inventory Restocking
0
1000
2000
3000
4000
5000
6000
1948A 1953A 1958A 1963A 1968A 1973A 1978A 1983A 1988A 1993A 1998A 2003A 2008A 2013E 2018E
BMO Rough Diamond Index Gold Index
2010Rebased to 1948 = 100
2006A 2007A 2008A 2009A 2010A 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E .
Rough Diamond Supply (Mcts) 162.1 158.6 149.8 108.5 123.7 125.0 133.8 149.1 149.8 155.5 157.8 158.3 158.2 157.4 157.7Rough Diamond Supply (US$M) 14,541 15,912 16,663 10,392 16,027 17,233 19,984 21,862 22,776 24,347 25,494 25,835 26,136 26,507 26,819
Rough Diamond Year End Inventory (Mcts) 54.4 39.7 45.0 38.5 34.3 27.0 20.0 20.0 25.0 30.0 35.0 35.0 35.0 35.0 35.0Rough Diamond Year End Inventory (US$M) 3,271 2,816 2,286 2,402 2,606 2,180 1,750 1,718 2,226 2,752 3,313 3,346 3,387 3,452 3,486Rough Diamond Inventory Movement (Mcts) 7.5 -14.7 5.3 -6.5 -4.2 -7.3 -7.0 0.0 5.0 5.0 5.0 0.0 0.0 0.0 0.0Rough Diamond Inventory Movement (US$M) 130 -455 -530 116 204 -426 -431 -032 508 526 561 033 041 065 034
Rough Diamond Supply to Market (Mcts) 162.1 173.3 144.5 115.0 127.8 132.3 140.8 149.1 144.8 150.5 152.8 158.3 158.2 157.4 157.7Percentage Change (%) n/a 7% -17% -20% 11% 4% 6% 6% -3% 4% 2% 4% 0% 0% 0%
Rough Diamond Supply to Market (US$M) 14,411 16,367 17,193 10,276 15,823 17,659 20,415 21,894 22,268 23,822 24,932 25,802 26,094 26,442 26,785Percentage Change (%) n/a 13% 5% -40% 54% 12% 16% 7% 2% 7% 5% 3% 1% 1% 1%
Average Rough Diamond Price (US$/ct) 89 94 119 89 124 133 145 147 154 158 163 163 165 168 170Percentage Change (%) n/a 6% 26% -25% 39% 8% 9% 1% 5% 3% 3% 0% 1% 2% 1%
Rough Supply as Polished Equivalent (Mcts) 29.2 31.2 26.0 20.7 23.0 23.8 25.3 26.8 26.1 27.1 27.5 28.5 28.5 28.3 28.4
Polished Diamond Year End Inventory (Mcts) 13.8 11.2 16.2 14.5 11.3 8.0 7.0 7.0 7.0 7.0 7.0 8.0 9.0 10.0 11.0Polished Diamond Year End Inventory (US$M) 10,353 8,667 11,270 9,632 8,476 6,546 6,028 6,347 6,689 7,070 7,479 9,049 10,788 12,714 14,847Polished Diamond Inventory Movement (Mcts) 1.6 -2.6 5.0 -1.6 -3.3 -3.3 -1.0 0.0 0.0 0.0 0.0 1.0 1.0 1.0 1.0Polished Diamond Inventory Movement (US$M) 1,546 -1,686 2,603 -1,638 -1,156 -1,930 -519 320 341 381 409 1,571 1,739 1,926 2,133
Polished Diamond Demand/Availability (Mcts) 29.0 29.4 28.6 26.0 30.8 27.1 26.3 26.8 26.1 27.1 27.5 27.5 27.5 27.3 27.4Percentage Change (%) 0% 0% -3% -9% 18% -12% -3% 2% -3% 4% 2% 0% 0% -1% 0%
Polished Diamond Demand (US$M) 17,711 18,954 18,471 16,345 18,127 19,706 20,737 21,837 23,012 24,323 25,730 27,241 28,867 30,618 32,505Percentage Change (%) n/a 7% -3% -12% 11% 9% 5% 5% 5% 6% 6% 6% 6% 6% 6%
Average Polished Diamond Price (US$/ct) 611 645 645 628 589 728 787 814 883 898 936 991 1,051 1,120 1,187Percentage Change (%) n/a 6% 0% -3% -6% 23% 8% 3% 8% 2% 4% 6% 6% 7% 6%. .
ExclusivE REpORT
BM
O C
apit
al M
arke
ts D
iam
ond
Supp
ly/D
eman
d Su
mm
ary
Tabl
e (M
cts,
US$
M, %
)
-20%
-15%
-10%-5%0%5%10%
15%
20%
25%
30%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Percentage Change (%)
EU
- C
hang
e in
GD
PE
U -
Cha
nge
in D
iam
ond
Dem
and
USA
, U
S$6.
9B, 3
9%
Euro
pe,
US$
3.0B
, 16%
Japa
n,
US$
1.7B
, 10%
Res
t of A
sia,
U
S$1.
3B, 7
%
Indi
a,
US$
1.6B
, 9%
Oth
er,
US$
2.5B
, 14%
Chi
na,
US$
1.0B
, 5%
USA
, 15
.4M
cts,
50%
Japa
n,
4.4M
cts,
14%
Indi
a, 1
.7M
cts,
6%
Chi
na,
0.9M
cts,
3%
Res
t of A
sia,
1.
8Mct
s, 6
%
Oth
er, 3
.4M
cts,
11
%
Euro
pe,
3.1M
cts,
10%
0
5,00
0
10,0
00
15,0
00
20,0
00
25,0
00
30,0
00
35,0
00 2000
A20
02A
2004
A20
06A
2008
A20
10A
2012
E20
14E
2016
E20
18E
2020
E
Diamond Content in Diamond Jewellery (US$M)
Oth
erR
est o
f Asi
aC
hina
Indi
aJa
pan
Euro
peU
SA
Diav
ikOr
apa (
doub
les)
Argy
le Jwan
eng
Vene
tiaEk
atiCa
toca
020406080100
120
140
160
180
1945
1948
1951
1954
1957
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
2011
2014
2017
2020
Mcts
Diam
ond P
rodu
ction
(Mcts
, lhs)
Fore
cast
0
5,00
0
10,0
00
15,0
00
20,0
00
25,0
00
30,0
00
35,0
00
2006A
2007A
2008A
2009A
2010A
2011E
2012E
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
Rough and Polished Diamond Supply and Demand (US$M)
0.0
10.0
20.0
30.0
40.0
50.0
60.0
Diamond Inventory (Mcts)
Rou
gh D
iam
ond
Year
End
Inve
ntor
yPo
lishe
d D
iam
ond
Year
End
Inve
ntor
y R
ough
Dia
mon
d Su
pply
Polis
hed
Dia
mon
d D
eman
d
Inve
ntor
y R
esto
ckin
g
0
1000
2000
3000
4000
5000
6000
1948
A19
53A
1958
A19
63A
1968
A19
73A
1978
A19
83A
1988
A19
93A
1998
A20
03A
2008
A20
13E
2018
E
BMO
Rou
gh D
iam
ond
Inde
xG
old
Inde
x
2010
Reb
ased
to 1
948
= 10
0
2
00
6A
20
07
A2
00
8A
20
09
A2
01
0A
20
11
E2
01
2E
20
13
E2
01
4E
20
15
E2
01
6E
20
17
E2
01
8E
20
19
E2
02
0E
.
Rou
gh
Dia
mon
d S
up
ply
(Mct
s)1
62
.11
58
.61
49
.81
08
.51
23
.71
25
.01
33
.81
49
.11
49
.81
55
.51
57
.81
58
.31
58
.21
57
.41
57
.7R
oug
h D
iam
ond
Su
pp
ly(U
S$
M)
14
,54
11
5,9
12
16
,66
31
0,3
92
16
,02
71
7,2
33
19
,98
42
1,8
62
22
,77
62
4,3
47
25
,49
42
5,8
35
26
,13
62
6,5
07
26
,81
9
Rou
gh D
iam
ond
Year
End
Inv
ento
ry(M
cts)
54.4
39.7
45.0
38.5
34.3
27.0
20.0
20.0
25.0
30.0
35.0
35.0
35.0
35.0
35.0
Rou
gh D
iam
ond
Year
End
Inv
ento
ry(U
S$M
)3,
271
2,81
62,
286
2,40
22,
606
2,18
01,
750
1,71
82,
226
2,75
23,
313
3,34
63,
387
3,45
23,
486
Rou
gh D
iam
ond
Inve
ntor
y M
ovem
ent
(Mct
s)7.
5-1
4.7
5.3
-6.5
-4.2
-7.3
-7.0
0.0
5.0
5.0
5.0
0.0
0.0
0.0
0.0
Rou
gh D
iam
ond
Inve
ntor
y M
ovem
ent
(US$
M)
130
-455
-530
116
204
-426
-431
-032
508
526
561
033
041
065
034
Rou
gh
Dia
mon
d S
up
ply
to
Mar
ket
(Mct
s)1
62
.11
73
.31
44
.51
15
.01
27
.81
32
.31
40
.81
49
.11
44
.81
50
.51
52
.81
58
.31
58
.21
57
.41
57
.7Pe
rcen
tage
Cha
nge
(%)
n/a
7%-1
7%-2
0%11
%4%
6%6%
-3%
4%2%
4%0%
0%0%
Rou
gh
Dia
mon
d S
up
ply
to
Mar
ket
(US
$M
)1
4,4
11
16
,36
71
7,1
93
10
,27
61
5,8
23
17
,65
92
0,4
15
21
,89
42
2,2
68
23
,82
22
4,9
32
25
,80
22
6,0
94
26
,44
22
6,7
85
Perc
enta
ge C
hang
e(%
)n/
a13
%5%
-40%
54%
12%
16%
7%2%
7%5%
3%1%
1%1%
Ave
rag
e R
oug
h D
iam
ond
Pri
ce(U
S$
/ct)
89
94
11
98
91
24
13
31
45
14
71
54
15
81
63
16
31
65
16
81
70
Perc
enta
ge C
hang
e(%
)n/
a6%
26%
-25%
39%
8%9%
1%5%
3%3%
0%1%
2%1%
Rou
gh S
uppl
y as
Pol
ishe
d Eq
uiva
lent
(Mct
s)29
.231
.226
.020
.723
.023
.825
.326
.826
.127
.127
.528
.528
.528
.328
.4
Polis
hed
Dia
mon
d Ye
ar E
nd I
nven
tory
(M
cts)
13.8
11.2
16.2
14.5
11.3
8.0
7.0
7.0
7.0
7.0
7.0
8.0
9.0
10.0
11.0
Polis
hed
Dia
mon
d Ye
ar E
nd I
nven
tory
(U
S$M
)10
,353
8,66
711
,270
9,63
28,
476
6,54
66,
028
6,34
76,
689
7,07
07,
479
9,04
910
,788
12,7
1414
,847
Polis
hed
Dia
mon
d In
vent
ory
Mov
emen
t (M
cts)
1.6
-2.6
5.0
-1.6
-3.3
-3.3
-1.0
0.0
0.0
0.0
0.0
1.0
1.0
1.0
1.0
Polis
hed
Dia
mon
d In
vent
ory
Mov
emen
t(U
S$M
)1,
546
-1,6
862,
603
-1,6
38-1
,156
-1,9
30-5
1932
034
138
140
91,
571
1,73
91,
926
2,13
3
Pol
ish
ed D
iam
ond
Dem
and
/Ava
ilab
ility
(M
cts)
29
.02
9.4
28
.62
6.0
30
.82
7.1
26
.32
6.8
26
.12
7.1
27
.52
7.5
27
.52
7.3
27
.4Pe
rcen
tage
Cha
nge
(%)
0%0%
-3%
-9%
18%
-12%
-3%
2%-3
%4%
2%0%
0%-1
%0%
Pol
ish
ed D
iam
ond
Dem
and
(US
$M
)1
7,7
11
18
,95
41
8,4
71
16
,34
51
8,1
27
19
,70
62
0,7
37
21
,83
72
3,0
12
24
,32
32
5,7
30
27
,24
12
8,8
67
30
,61
83
2,5
05
Perc
enta
ge C
hang
e(%
)n/
a7%
-3%
-12%
11%
9%5%
5%5%
6%6%
6%6%
6%6%
Ave
rag
e P
olis
hed
Dia
mon
d P
rice
(US
$/c
t)6
11
64
56
45
62
85
89
72
87
87
81
48
83
89
89
36
99
11
,05
11
,12
01
,18
7Pe
rcen
tage
Cha
nge
(%)
n/a
6%0%
-3%
-6%
23%
8%3%
8%2%
4%6%
6%7%
6%.
.
Sour
ces:
BM
O Ca
pita
l Mar
kets
, WW
W In
tern
atio
nal,
IMF,
Blo
ombe
rg
Rou
gh
Dia
mon
d S
up
ply
(Mct
s)1
62
.11
58
.61
49
.81
08
.51
23
.71
25
.01
33
.81
49
.11
49
.81
55
.51
57
.81
58
.31
58
.21
57
.41
57
.7(M
cts)
16
2.1
15
8.6
14
9.8
10
8.5
12
3.7
12
5.0
13
3.8
14
9.1
14
9.8
15
5.5
15
7.8
15
8.3
15
8.2
15
7.4
15
7.7
Rou
gh
Dia
mon
d S
up
ply
(US
$M
)1
4,5
41
15
,91
21
6,6
63
10
,39
21
6,0
27
17
,23
31
9,9
84
21
,86
22
2,7
76
24
,34
72
5,4
94
25
,83
52
6,1
36
26
,50
72
6,8
19
(US
$M
)1
4,5
41
15
,91
21
6,6
63
10
,39
21
6,0
27
17
,23
31
9,9
84
21
,86
22
2,7
76
24
,34
72
5,4
94
25
,83
52
6,1
36
26
,50
72
6,8
19
Rou
gh D
iam
ond
Year
End
Inv
ento
ry(M
cts)
54.4
39.7
45.0
38.5
34.3
27.0
20.0
20.0
25.0
30.0
35.0
35.0
35.0
35.0
(Mct
s)54
.439
.745
.038
.534
.327
.020
.020
.025
.030
.035
.035
.035
.035
.035
.0Rou
gh D
iam
ond
Year
End
Inv
ento
ry(U
S$M
)3,
271
2,81
62,
286
2,40
22,
606
2,18
01,
750
1,71
82,
226
2,75
23,
313
3,34
63,
387
3,45
2Rou
gh D
iam
ond
Year
End
Inv
ento
ry(U
S$M
)3,
271
2,81
62,
286
2,40
22,
606
2,18
01,
750
1,71
82,
226
2,75
23,
313
3,34
63,
387
3,45
2Rou
gh D
iam
ond
Year
End
Inv
ento
ry(U
S$M
)3,
271
2,81
62,
286
2,40
22,
606
2,18
01,
750
1,71
82,
226
2,75
23,
313
3,34
63,
387
3,45
23,
486
Rou
gh D
iam
ond
Inve
ntor
y M
ovem
ent
(Mct
s)7.
5-1
4.7
5.3
-6.5
-4.2
-7.3
-7.0
0.0
5.0
5.0
5.0
0.0
0.0
0.0
Rou
gh D
iam
ond
Inve
ntor
y M
ovem
ent
(Mct
s)7.
5-1
4.7
5.3
-6.5
-4.2
-7.3
-7.0
0.0
5.0
5.0
5.0
0.0
0.0
0.0
Rou
gh D
iam
ond
Inve
ntor
y M
ovem
ent
(Mct
s)7.
5-1
4.7
5.3
-6.5
-4.2
-7.3
-7.0
0.0
5.0
5.0
5.0
0.0
0.0
0.0
0.0
Rou
gh D
iam
ond
Inve
ntor
y M
ovem
ent
(US$
M)
130
-455
-530
116
204
-426
-431
-032
508
526
561
033
041
065
Rou
gh D
iam
ond
Inve
ntor
y M
ovem
ent
(US$
M)
130
-455
-530
116
204
-426
-431
-032
508
526
561
033
041
065
Rou
gh D
iam
ond
Inve
ntor
y M
ovem
ent
(US$
M)
130
-455
-530
116
204
-426
-431
-032
508
526
561
033
041
065
034
Rou
gh
Dia
mon
d S
up
ply
to
Mar
ket
(Mct
s)1
62
.11
73
.31
44
.51
15
.01
27
.81
32
.31
40
.81
49
.11
44
.81
50
.51
52
.81
58
.31
58
.21
57
.41
57
.7R
oug
h D
iam
ond
Su
pp
ly t
o M
arke
t (M
cts)
16
2.1
17
3.3
14
4.5
11
5.0
12
7.8
13
2.3
14
0.8
14
9.1
14
4.8
15
0.5
15
2.8
15
8.3
15
8.2
15
7.4
15
7.7
Rou
gh
Dia
mon
d S
up
ply
to
Mar
ket
(Mct
s)1
62
.11
73
.31
44
.51
15
.01
27
.81
32
.31
40
.81
49
.11
44
.81
50
.51
52
.81
58
.31
58
.21
57
.41
57
.7Pe
rcen
tage
Cha
nge
(%)
n/a
7%-1
7%-2
0%11
%4%
6%6%
-3%
4%2%
4%0%
0%0%
Rou
gh
Dia
mon
d S
up
ply
to
Mar
ket
(US
$M
)1
4,4
11
16
,36
71
7,1
93
10
,27
61
5,8
23
17
,65
92
0,4
15
21
,89
42
2,2
68
23
,82
22
4,9
32
25
,80
22
6,0
94
26
,44
22
6,7
85
Rou
gh
Dia
mon
d S
up
ply
to
Mar
ket
(US
$M
)1
4,4
11
16
,36
71
7,1
93
10
,27
61
5,8
23
17
,65
92
0,4
15
21
,89
42
2,2
68
23
,82
22
4,9
32
25
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22
6,0
94
26
,44
22
6,7
85
Rou
gh
Dia
mon
d S
up
ply
to
Mar
ket
(US
$M
)1
4,4
11
16
,36
71
7,1
93
10
,27
61
5,8
23
17
,65
92
0,4
15
21
,89
42
2,2
68
23
,82
22
4,9
32
25
,80
22
6,0
94
26
,44
22
6,7
85
Perc
enta
ge C
hang
e(%
)n/
a13
%5%
-40%
54%
12%
16%
7%2%
7%5%
3%1%
1%1%
(%)
n/a
13%
5%-4
0%54
%12
%16
%7%
2%7%
5%3%
1%1%
1%
Ave
rag
e R
oug
h D
iam
ond
Pri
ce(U
S$
/ct)
89
94
11
98
91
24
13
31
45
14
71
54
15
81
63
16
31
65
16
81
70
Perc
enta
ge C
hang
e(%
)n/
a6%
26%
-25%
39%
8%9%
1%5%
3%3%
0%1%
2%1%
(%)
n/a
6%26
%-2
5%39
%8%
9%1%
5%3%
3%0%
1%2%
1%
Rou
gh S
uppl
y as
Pol
ishe
d Eq
uiva
lent
(Mct
s)29
.231
.226
.020
.723
.023
.825
.326
.826
.127
.127
.528
.528
.528
.328
.4Rou
gh S
uppl
y as
Pol
ishe
d Eq
uiva
lent
(Mct
s)29
.231
.226
.020
.723
.023
.825
.326
.826
.127
.127
.528
.528
.528
.328
.4Rou
gh S
uppl
y as
Pol
ishe
d Eq
uiva
lent
(Mct
s)29
.231
.226
.020
.723
.023
.825
.326
.826
.127
.127
.528
.528
.528
.328
.4
Polis
hed
Dia
mon
d Ye
ar E
nd I
nven
tory
(M
cts)
13.8
11.2
16.2
14.5
11.3
8.0
7.0
7.0
7.0
7.0
7.0
8.0
9.0
10.0
11.0
Polis
hed
Dia
mon
d Ye
ar E
nd I
nven
tory
(M
cts)
13.8
11.2
16.2
14.5
11.3
8.0
7.0
7.0
7.0
7.0
7.0
8.0
9.0
10.0
11.0
Polis
hed
Dia
mon
d Ye
ar E
nd I
nven
tory
(M
cts)
13.8
11.2
16.2
14.5
11.3
8.0
7.0
7.0
7.0
7.0
7.0
8.0
9.0
10.0
11.0
Polis
hed
Dia
mon
d Ye
ar E
nd I
nven
tory
(U
S$M
)10
,353
8,66
711
,270
9,63
28,
476
6,54
66,
028
6,34
76,
689
7,07
07,
479
9,04
910
,788
12,7
1414
,847
Polis
hed
Dia
mon
d Ye
ar E
nd I
nven
tory
(U
S$M
)10
,353
8,66
711
,270
9,63
28,
476
6,54
66,
028
6,34
76,
689
7,07
07,
479
9,04
910
,788
12,7
1414
,847
Polis
hed
Dia
mon
d Ye
ar E
nd I
nven
tory
(U
S$M
)10
,353
8,66
711
,270
9,63
28,
476
6,54
66,
028
6,34
76,
689
7,07
07,
479
9,04
910
,788
12,7
1414
,847
Polis
hed
Dia
mon
d In
vent
ory
Mov
emen
t (M
cts)
1.6
-2.6
5.0
-1.6
-3.3
-3.3
-1.0
0.0
0.0
0.0
0.0
1.0
1.0
1.0
1.0
Polis
hed
Dia
mon
d In
vent
ory
Mov
emen
t (M
cts)
1.6
-2.6
5.0
-1.6
-3.3
-3.3
-1.0
0.0
0.0
0.0
0.0
1.0
1.0
1.0
1.0
Polis
hed
Dia
mon
d In
vent
ory
Mov
emen
t (M
cts)
1.6
-2.6
5.0
-1.6
-3.3
-3.3
-1.0
0.0
0.0
0.0
0.0
1.0
1.0
1.0
1.0
Polis
hed
Dia
mon
d In
vent
ory
Mov
emen
t(U
S$M
)1,
546
-1,6
862,
603
-1,6
38-1
,156
-1,9
30-5
1932
034
138
140
91,
571
1,73
91,
926
2,13
3Po
lishe
d D
iam
ond
Inve
ntor
y M
ovem
ent
(US$
M)
1,54
6-1
,686
2,60
3-1
,638
-1,1
56-1
,930
-519
320
341
381
409
1,57
11,
739
1,92
62,
133
Polis
hed
Dia
mon
d In
vent
ory
Mov
emen
t(U
S$M
)1,
546
-1,6
862,
603
-1,6
38-1
,156
-1,9
30-5
1932
034
138
140
91,
571
1,73
91,
926
2,13
3
Pol
ish
ed D
iam
ond
Dem
and
/Ava
ilab
ility
(M
cts)
29
.02
9.4
28
.62
6.0
30
.82
7.1
26
.32
6.8
26
.12
7.1
27
.52
7.5
27
.52
7.3
27
.4(M
cts)
29
.02
9.4
28
.62
6.0
30
.82
7.1
26
.32
6.8
26
.12
7.1
27
.52
7.5
27
.52
7.3
27
.4Pe
rcen
tage
Cha
nge
(%)
0%0%
-3%
-9%
18%
-12%
-3%
2%-3
%4%
2%0%
0%-1
%0%
(%)
0%0%
-3%
-9%
18%
-12%
-3%
2%-3
%4%
2%0%
0%-1
%0%
Pol
ish
ed D
iam
ond
Dem
and
(US
$M
)1
7,7
11
18
,95
41
8,4
71
16
,34
51
8,1
27
19
,70
62
0,7
37
21
,83
72
3,0
12
24
,32
32
5,7
30
27
,24
12
8,8
67
30
,61
83
2,5
05
(US
$M
)1
7,7
11
18
,95
41
8,4
71
16
,34
51
8,1
27
19
,70
62
0,7
37
21
,83
72
3,0
12
24
,32
32
5,7
30
27
,24
12
8,8
67
30
,61
83
2,5
05
Perc
enta
ge C
hang
e(%
)n/
a7%
-3%
-12%
11%
9%5%
5%5%
6%6%
6%6%
6%6%
(%)
n/a
7%-3
%-1
2%11
%9%
5%5%
5%6%
6%6%
6%6%
6%
Ave
rag
e P
olis
hed
Dia
mon
d P
rice
(US
$/c
t)6
11
64
56
45
62
85
89
72
87
87
81
48
83
89
89
36
99
11
,05
11
,12
01
,18
7Pe
rcen
tage
Cha
nge
(%)
n/a
6%0%
-3%
-6%
23%
8%3%
8%2%
4%6%
6%7%
6%(%
)n/
a6%
0%-3
%-6
%23
%8%
3%8%
2%4%
6%6%
7%6%
..
Sour
ces:
BM
O Ca
pita
l Mar
kets
, WW
W In
tern
atio
nal,
IMF,
Blo
ombe
rg
INTERNATIONAL AUGUST 201174
-20%-15%-10%
-5%0%5%
10%15%20%25%30%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Per
cent
age
Cha
nge
(%)
EU - Change in GDP EU - Change in Diamond Demand
USA, US$6.9B, 39%
Europe, US$3.0B, 16%
Japan, US$1.7B, 10%
Rest of Asia, US$1.3B, 7%
India, US$1.6B, 9%
Other, US$2.5B, 14%
China, US$1.0B, 5%
USA, 15.4Mcts, 50%
Japan, 4.4Mcts, 14%
India, 1.7Mcts, 6%
China, 0.9Mcts, 3%
Rest of Asia, 1.8Mcts, 6%
Other, 3.4Mcts, 11%
Europe, 3.1Mcts, 10%
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2000A 2002A 2004A 2006A 2008A 2010A 2012E 2014E 2016E 2018E 2020E
Dia
mon
d C
onte
nt in
Dia
mon
d Je
wel
lery
(US
$M)
OtherRest of AsiaChinaIndiaJapanEuropeUSA
DiavikOrapa (doubles)
Argyle
Jwaneng
Venetia Ekati Catoca
0
20
40
60
80
100
120
140
160
180
1945
1948
1951
1954
1957
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
2011
2014
2017
2020
Mcts
Diamond Production (Mcts, lhs)
Forecast
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2006
A
2007
A
2008
A
2009
A
2010
A
2011
E
2012
E
2013
E
2014
E
2015
E
2016
E
2017
E
2018
E
2019
E
2020
E
Rou
gh a
nd P
olis
hed
Dia
mon
d S
uppl
y an
d D
eman
d (U
S$M
)
0.0
10.0
20.0
30.0
40.0
50.0
60.0
Diam
ond Inventory (Mcts)
Rough Diamond Year End Inventory Polished Diamond Year End Inventory Rough Diamond Supply Polished Diamond Demand
Inventory Restocking
0
1000
2000
3000
4000
5000
6000
1948A 1953A 1958A 1963A 1968A 1973A 1978A 1983A 1988A 1993A 1998A 2003A 2008A 2013E 2018E
BMO Rough Diamond Index Gold Index
2010Rebased to 1948 = 100
2006A 2007A 2008A 2009A 2010A 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E .
Rough Diamond Supply (Mcts) 162.1 158.6 149.8 108.5 123.7 125.0 133.8 149.1 149.8 155.5 157.8 158.3 158.2 157.4 157.7Rough Diamond Supply (US$M) 14,541 15,912 16,663 10,392 16,027 17,233 19,984 21,862 22,776 24,347 25,494 25,835 26,136 26,507 26,819
Rough Diamond Year End Inventory (Mcts) 54.4 39.7 45.0 38.5 34.3 27.0 20.0 20.0 25.0 30.0 35.0 35.0 35.0 35.0 35.0Rough Diamond Year End Inventory (US$M) 3,271 2,816 2,286 2,402 2,606 2,180 1,750 1,718 2,226 2,752 3,313 3,346 3,387 3,452 3,486Rough Diamond Inventory Movement (Mcts) 7.5 -14.7 5.3 -6.5 -4.2 -7.3 -7.0 0.0 5.0 5.0 5.0 0.0 0.0 0.0 0.0Rough Diamond Inventory Movement (US$M) 130 -455 -530 116 204 -426 -431 -032 508 526 561 033 041 065 034
Rough Diamond Supply to Market (Mcts) 162.1 173.3 144.5 115.0 127.8 132.3 140.8 149.1 144.8 150.5 152.8 158.3 158.2 157.4 157.7Percentage Change (%) n/a 7% -17% -20% 11% 4% 6% 6% -3% 4% 2% 4% 0% 0% 0%
Rough Diamond Supply to Market (US$M) 14,411 16,367 17,193 10,276 15,823 17,659 20,415 21,894 22,268 23,822 24,932 25,802 26,094 26,442 26,785Percentage Change (%) n/a 13% 5% -40% 54% 12% 16% 7% 2% 7% 5% 3% 1% 1% 1%
Average Rough Diamond Price (US$/ct) 89 94 119 89 124 133 145 147 154 158 163 163 165 168 170Percentage Change (%) n/a 6% 26% -25% 39% 8% 9% 1% 5% 3% 3% 0% 1% 2% 1%
Rough Supply as Polished Equivalent (Mcts) 29.2 31.2 26.0 20.7 23.0 23.8 25.3 26.8 26.1 27.1 27.5 28.5 28.5 28.3 28.4
Polished Diamond Year End Inventory (Mcts) 13.8 11.2 16.2 14.5 11.3 8.0 7.0 7.0 7.0 7.0 7.0 8.0 9.0 10.0 11.0Polished Diamond Year End Inventory (US$M) 10,353 8,667 11,270 9,632 8,476 6,546 6,028 6,347 6,689 7,070 7,479 9,049 10,788 12,714 14,847Polished Diamond Inventory Movement (Mcts) 1.6 -2.6 5.0 -1.6 -3.3 -3.3 -1.0 0.0 0.0 0.0 0.0 1.0 1.0 1.0 1.0Polished Diamond Inventory Movement (US$M) 1,546 -1,686 2,603 -1,638 -1,156 -1,930 -519 320 341 381 409 1,571 1,739 1,926 2,133
Polished Diamond Demand/Availability (Mcts) 29.0 29.4 28.6 26.0 30.8 27.1 26.3 26.8 26.1 27.1 27.5 27.5 27.5 27.3 27.4Percentage Change (%) 0% 0% -3% -9% 18% -12% -3% 2% -3% 4% 2% 0% 0% -1% 0%
Polished Diamond Demand (US$M) 17,711 18,954 18,471 16,345 18,127 19,706 20,737 21,837 23,012 24,323 25,730 27,241 28,867 30,618 32,505Percentage Change (%) n/a 7% -3% -12% 11% 9% 5% 5% 5% 6% 6% 6% 6% 6% 6%
Average Polished Diamond Price (US$/ct) 611 645 645 628 589 728 787 814 883 898 936 991 1,051 1,120 1,187Percentage Change (%) n/a 6% 0% -3% -6% 23% 8% 3% 8% 2% 4% 6% 6% 7% 6%. .
Inventory Movements Support Diamond Prices (US$M, Mcts)
Sources: BMO Capital Markets, WWW International, IMF, Bloomberg
Sources: BMO Capital Markets, Bloomberg
BMO Capital Markets assesses the diamond market from the perspective of forecasting rough diamond prices in order to evaluate the prospects of listed diamond mining companies. As such, rough diamond prices are of greater concern than polished diamond prices. BMO Capital Markets publishes a Rough Diamond Index which is intended to be indicative of our expectation for the direction in which rough diamond prices will move going forward.
Diamond industry insiders report that prices have increased by around 25% through the first quarter of 2011 and continued to strengthen through the second quarter. After such a strong increase, BMO Capital Markets expects an element of price consolidation through the balance of the year with a pull back
BMO Capital Markets Rough Diamond Index vs. Gold (1948 = 100)
in prices a possibility. However, given the forecast of continued draw-down of diamond inventories, prices could return to current levels by the end of 2011, especially if the holiday season shows strong sales early on.
Looking into 2012 and beyond, the combined supply/demand analysis suggests that rough diamond prices should increase at an annual average of 5% until 2020 although as a conservative measure, this growth is flattened from 2016 onwards. On this basis, BMO Capital Markets expects rough diamond prices to overtake the gold price index in 2013. Diamond prices have relatively underperformed gold since 2008. This would therefore represent a return to a more normal relative position when compared to prices since 1948. n
-20%-15%-10%-5%0%5%
10%15%20%25%30%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Per
cent
age
Cha
nge
(%)
EU - Change in GDP EU - Change in Diamond Demand
USA, US$6.9B, 39%
Europe, US$3.0B, 16%
Japan, US$1.7B, 10%
Rest of Asia, US$1.3B, 7%
India, US$1.6B, 9%
Other, US$2.5B, 14%
China, US$1.0B, 5%
USA, 15.4Mcts, 50%
Japan, 4.4Mcts, 14%
India, 1.7Mcts, 6%
China, 0.9Mcts, 3%
Rest of Asia, 1.8Mcts, 6%
Other, 3.4Mcts, 11%
Europe, 3.1Mcts, 10%
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2000A 2002A 2004A 2006A 2008A 2010A 2012E 2014E 2016E 2018E 2020E
Dia
mon
d C
onte
nt in
Dia
mon
d Je
wel
lery
(US
$M)
OtherRest of AsiaChinaIndiaJapanEuropeUSA
DiavikOrapa (doubles)
Argyle
Jwaneng
Venetia Ekati Catoca
0
20
40
60
80
100
120
140
160
180
19
45
19
48
19
51
19
54
19
57
19
60
19
63
19
66
19
69
19
72
19
75
19
78
19
81
19
84
19
87
19
90
19
93
19
96
19
99
20
02
20
05
20
08
20
11
20
14
20
17
20
20
Mcts
Diamond Production (Mcts, lhs)
Forecast
0
5,000
10,000
15,000
20,000
25,000
30,000
35,00020
06A
2007
A
2008
A
2009
A
2010
A
2011
E
2012
E
2013
E
2014
E
2015
E
2016
E
2017
E
2018
E
2019
E
2020
E
Rou
gh a
nd P
olis
hed
Dia
mon
d S
uppl
y an
d D
eman
d (U
S$M
)
0.0
10.0
20.0
30.0
40.0
50.0
60.0
Diam
ond Inventory (Mcts)
Rough Diamond Year End Inventory Polished Diamond Year End Inventory Rough Diamond Supply Polished Diamond Demand
Inventory Restocking
0
1000
2000
3000
4000
5000
6000
1948A 1953A 1958A 1963A 1968A 1973A 1978A 1983A 1988A 1993A 1998A 2003A 2008A 2013E 2018E
BMO Rough Diamond Index Gold Index
2010Rebased to 1948 = 100
2006A 2007A 2008A 2009A 2010A 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E .
Rough Diamond Supply (Mcts) 162.1 158.6 149.8 108.5 123.7 125.0 133.8 149.1 149.8 155.5 157.8 158.3 158.2 157.4 157.7Rough Diamond Supply (US$M) 14,541 15,912 16,663 10,392 16,027 17,233 19,984 21,862 22,776 24,347 25,494 25,835 26,136 26,507 26,819
Rough Diamond Year End Inventory (Mcts) 54.4 39.7 45.0 38.5 34.3 27.0 20.0 20.0 25.0 30.0 35.0 35.0 35.0 35.0 35.0Rough Diamond Year End Inventory (US$M) 3,271 2,816 2,286 2,402 2,606 2,180 1,750 1,718 2,226 2,752 3,313 3,346 3,387 3,452 3,486Rough Diamond Inventory Movement (Mcts) 7.5 -14.7 5.3 -6.5 -4.2 -7.3 -7.0 0.0 5.0 5.0 5.0 0.0 0.0 0.0 0.0Rough Diamond Inventory Movement (US$M) 130 -455 -530 116 204 -426 -431 -032 508 526 561 033 041 065 034
Rough Diamond Supply to Market (Mcts) 162.1 173.3 144.5 115.0 127.8 132.3 140.8 149.1 144.8 150.5 152.8 158.3 158.2 157.4 157.7Percentage Change (%) n/a 7% -17% -20% 11% 4% 6% 6% -3% 4% 2% 4% 0% 0% 0%
Rough Diamond Supply to Market (US$M) 14,411 16,367 17,193 10,276 15,823 17,659 20,415 21,894 22,268 23,822 24,932 25,802 26,094 26,442 26,785Percentage Change (%) n/a 13% 5% -40% 54% 12% 16% 7% 2% 7% 5% 3% 1% 1% 1%
Average Rough Diamond Price (US$/ct) 89 94 119 89 124 133 145 147 154 158 163 163 165 168 170Percentage Change (%) n/a 6% 26% -25% 39% 8% 9% 1% 5% 3% 3% 0% 1% 2% 1%
Rough Supply as Polished Equivalent (Mcts) 29.2 31.2 26.0 20.7 23.0 23.8 25.3 26.8 26.1 27.1 27.5 28.5 28.5 28.3 28.4
Polished Diamond Year End Inventory (Mcts) 13.8 11.2 16.2 14.5 11.3 8.0 7.0 7.0 7.0 7.0 7.0 8.0 9.0 10.0 11.0Polished Diamond Year End Inventory (US$M) 10,353 8,667 11,270 9,632 8,476 6,546 6,028 6,347 6,689 7,070 7,479 9,049 10,788 12,714 14,847Polished Diamond Inventory Movement (Mcts) 1.6 -2.6 5.0 -1.6 -3.3 -3.3 -1.0 0.0 0.0 0.0 0.0 1.0 1.0 1.0 1.0Polished Diamond Inventory Movement (US$M) 1,546 -1,686 2,603 -1,638 -1,156 -1,930 -519 320 341 381 409 1,571 1,739 1,926 2,133
Polished Diamond Demand/Availability (Mcts) 29.0 29.4 28.6 26.0 30.8 27.1 26.3 26.8 26.1 27.1 27.5 27.5 27.5 27.3 27.4Percentage Change (%) 0% 0% -3% -9% 18% -12% -3% 2% -3% 4% 2% 0% 0% -1% 0%
Polished Diamond Demand (US$M) 17,711 18,954 18,471 16,345 18,127 19,706 20,737 21,837 23,012 24,323 25,730 27,241 28,867 30,618 32,505Percentage Change (%) n/a 7% -3% -12% 11% 9% 5% 5% 5% 6% 6% 6% 6% 6% 6%
Average Polished Diamond Price (US$/ct) 611 645 645 628 589 728 787 814 883 898 936 991 1,051 1,120 1,187Percentage Change (%) n/a 6% 0% -3% -6% 23% 8% 3% 8% 2% 4% 6% 6% 7% 6%. .
0
1000
2000
3000
4000
5000
6000
1948A 1953A 1958A 1963A 1968A 1973A 1978A 1983A 1988A 1993A 1998A 2003A 2008A 2013E 2018E
BMO Rough Diamond Index Gold Index
2010Rebased to 1948 = 100
Inventory Movements Support Diamond Prices (US$M, Mcts)
Sources: BMO Capital Markets, WWW International, IMF, Bloomberg
Sources: BMO Capital Markets, Bloomberg
BMO Capital Markets assesses the diamond market from the perspective of forecasting rough diamond prices in order to evaluate the prospects of listed diamond mining companies. As such, rough diamond prices are of greater concern than polished diamond prices. BMO Capital Markets publishes a Rough Diamond Index which is intended to be indicative of our expectation for the direction in which rough diamond prices will move going forward.
Diamond industry insiders report that prices have increased by around 25% through the first quarter of 2011 and continued to strengthen through the second quarter. After such a strong increase, BMO Capital Markets expects an element of price consolidation through the balance of the year with a pull back
BMO Capital Markets Rough Diamond Index vs. Gold (1948 = 100)
in prices a possibility. However, given the forecast of continued draw-down of diamond inventories, prices could return to current levels by the end of 2011, especially if the holiday season shows strong sales early on.
Looking into 2012 and beyond, the combined supply/demand analysis suggests that rough diamond prices should increase at an annual average of 5% until 2020 although as a conservative measure, this growth is flattened from 2016 onwards. On this basis, BMO Capital Markets expects rough diamond prices to overtake the gold price index in 2013. Diamond prices have relatively underperformed gold since 2008. This would therefore represent a return to a more normal relative position when compared to prices since 1948. n
0
5,000
10,000
15,000
20,000
25,000
30,000
35,00020
06A
2007
A
2008
A
2009
A
2010
A
2011
E
2012
E
2013
E
2014
E
2015
E
2016
E
2017
E
2018
E
2019
E
2020
E
Rou
gh a
nd P
olis
hed
Dia
mon
d S
uppl
y an
d D
eman
d (U
S$M
)
0.0
10.0
20.0
30.0
40.0
50.0
60.0
Diam
ond Inventory (Mcts)
Rough Diamond Year End Inventory Polished Diamond Year End Inventory Rough Diamond Supply Polished Diamond Demand
Inventory Restocking
INTERNATIONAL AUGUST 2011 75
ExclusivE REpORT