Diamond demand to grow 7%, supply 3%

The rising consumer demand for diamonds in India and China coupled with a recovery in developed countries will result in demand outstripping supply within the next decade, a new report from consulting firm Bain & Co. shows.

Bain & Company released the report, titled “The Global Diamond Industry, Lifting the Veil of Mystery,” on Dec. 2. It was commissioned by the Antwerp World Diamond Centre, the organization that supports the industry in the diamond-trading hub of Antwerp.

In the report, Bain & Company outlines three scenarios for diamond supply-demand between now and 2020.

In the “base” scenario, demand is projected to grow at 7 percent during that time period, while supply increases only 3 percent.

The “higher” scenario pushes those figures to 11 percent and 4 percent, respectively, while in the “lower” scenario, demand is forecasted to grow 5 percent, while supply is flat.

The report lists five possibly disruptive factors that could impact the supply-demand balance over the next decade.

The first is the uncertain macroeconomic outlook, which could place downward pressure on demand. “A severe double-dip recession...could potentially cause a significant slowdown of demand growth for diamonds beyond what is projected in the lower-demand scenario,” the report states. “Particularly troubling and difficult to predict is the potential fallout from the European debt crisis and the continued unclear economic outlook in the United States at the time of the writing of this report.”

Conversely, the development of a significant investment market for diamonds could cause a surge in demand. This is particularly feasible in markets where consumers are concerned with the inflation of local currency and lack of access to financial instruments that act as a hedge against inflation, such as China.

Also potentially impacting the supply-demand balance are growing consumer acceptance of lab-grown diamonds, the discovery and rapid development of a new source of diamonds as well as political instability, the lack of generic marketing and protectionist policies in diamond-producing countries. The report notes that the risk of these developments, however, remains low.

Overall, the report concludes that the outlook for the diamond industry is overwhelmingly positive.

“In the next decade, demand for rough diamonds is set to outpace supply under all considered scenarios, indicating a strong positive outlook for the industry. Several disruptive factors could negatively impact the diamond supply-demand balance, but all of these factors are unlikely to manifest,” it states.

-National Jeweler