by Tony Daltorio
, Investment U
Thursday, June 10, 2010
A diamond is the hardest natural material known to exist.
It also might become one of the hardest materials to find in the future. So says DeBeers, the world's biggest diamond producer, at least.
The company has a particularly gloomy outlook on the sparkly gems. Saying that world sources are depleting too quickly to meet long-term demand. Unfortunately, many others in the industry agree with the assessment.
That means ladies may have to settle for smaller "bling" under the Christmas tree. And gents should expect to shell out a bit more cash when buying gifts for their female friends.
But as for investors… well, they can do quite well if they know how to play it right.
Diamonds Are Becoming Even More Rare
During the cold war era, the United States and the old DeBeers cartel hoarded large amounts of diamonds. But those stockpiles have long since disappeared.
New supplies doubled between 1980 and 1999 around the world. Huge new mines such as Argyle in Australia and Diavik in Canada came on-stream. And the twenty-first century can claim Zimbabwe's impressive Marange field.
But otherwise, not much has happened in the last ten years. And Zimbabwe's political turmoil has industry insiders worried anyway.
Knowing all that, DeBeers sees diamond supply tracing an "elephant curve" over the next two decades. That means that production will resemble an elephant's back, tailing off gradually.
Over the next few years, it expects global production to come in at the 110-130 million carat range and its own between 30 and 40 million.
Ice, Ice Baby
With diamond mines already depleted, demand from emerging markets might make the shortage even worse.
The Financial Times reported on a Chinese woman who recently walked into a Harry Winston (NYSE: HWD) boutique in China. She then proceeded to ring up $30 million worth of diamond jewelry.
DeBeers CEO Gareth Penny doesn't think she'll be the last one to do so:
"If you look back 20 years, there was no diamond acquisition culture in China. But today in Beijing, Shanghai and Guangzhou, there is an obvious launch pad: 40% of brides in those cities are getting diamond engagement rings. It was zero 15 years ago."
Of course, the U.S. still consumes the most diamonds in the world. But China and India keep increasing their appetite for the shiny things.