Diamonds are a “great investment”

The bulls are running rampant in the diamond market. Overall, demand grew by 8% in 2004, and De Beers, which controls 60% of the global market, has pushed through two price increases this year.

Andrew Van Sickle
By
published
in Features

The bulls are running rampant in the diamond market. Overall, demand grew by 8% in 2004, and De Beers, which controls 60% of the global market, has pushed through two price increases this year which have had no impact on demand.

No wonder: the status-conscious middle classes in China and India are becoming increasingly wealthy and buying more sparklers, while supply is "falling further and further behind demand", says Wolfgang Drechsler in Handelsblatt. In the 1990s, supply outstripped demand by up to 140% and De Beers built up huge stockpiles, but these have been largely depleted. And miners, deterred from investing in new capacity by the long bear market, will have trouble catching up it takes up to ten years for a new mine to start producing.

To rectify the supply shortfall, "we would quickly need to discover a couple of diamond-rich countries", according to James Picton of brokers WH Ireland. As things stand, "we could be looking at a 40% diamond deficit by the end of the decade", says Cris Heaton in Shares. That makes for "a great investment".

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One diamond stock deemed a "buy" by the Investors Chronicle is Petra Diamonds (PDL, 60p), which has yet to turn a profit, but thanks to a series of acquisitions has been "creating long-term value". Also of interest is Firestone Diamonds (FDI, 145p), a "high-quality" producer whose venture in South Africa may turn out to be "a company-transforming monster", says Heaton.

Andrew Van Sickle
Andrew Van Sickle
Editor, MoneyWeek

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.

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