hope for diamonds

Some news I found for diamonds, could be beneficial for KIM, you decide...

Fox-Davies CAPITAL: Diamond Sector - My thanks to a subscriber for this informative report by Julian Emery and Brock Salier of FDC, which includes detailed comments on a number of shares. It is posted in the Subscriber's Area but here is a brief sample:

The diamond mining industry now effectively operates as an open market, following decades under a cartel situation with De Beers. This transformation has had a positive effect and not caused the price volatility or collapse that was feared by some. We have in fact witnessed a strong market based on perceived consumption-growth outstripping demand-growth, with little recycling because of the structure of the diamond retail system. Established diamond markets in the USA and the rest of the developed world are expected to remain steady, although they could be vulnerable to any economic downturn, but demand growth from developing areas is expected to continue to cause tight markets, something that should be reflected in an uptrend in diamond prices. Estimates show a volume growth in demand of around 6% per year (WWW International) which assumes continued growth in China, and relatively steady off-take in the US and other leading western economies.

Around 40% of natural diamonds are classified as industrial quality and are mainly used in facing cutters and abrasives as the size, colour and clarity is sub-standard.

Despite the high value of diamonds, only limited substitution has occurred in the gemstone market. Commercial production of synthetic diamonds uses graphite subjected to intense heat and pressure, emulating conditions found within the diamond stability field. Synthetic diamonds, claimed to be indistinguishable natural diamonds, may prove acceptable from some consumers on the grounds of lower cost, but appear unlikely to make a significant impact on the natural diamond market.

The influence of conflict diamonds concerns has been largely offset by Kimberley Process Certification Scheme (KPCS) which appears to be close to attaining participation from all producers.

Importantly, given the long time frame to bring a new discovery into production, it is possible to forecast maximum global supply for the next 5-7 years reasonably reliably. The net effect of the supply / demand is shown in Exhibit 8, where, if demand growth continues at current rates, it can be seen that a clear imbalance is likely to occur, which would force prices up and lower demand as a result.

My view - Diamonds certainly fall within Fullermoney's "Supply Inelasticity Meets Rising Demand" theme but I would not want to underestimate risks associated with synthetic diamonds. Their quality is already high and we can be certain that their size and particularly quantity will increase.

Meanwhile, what about diamond shares and the gems themselves?

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