Diamonds should continue to sparkle as the middle class grows in China and other emerging economies, according to Goldman Sachs.
The US broker is upbeat on diamond prices as it expects demand from the newly affluent combined with a US economic recovery to outweigh any additional production, despite good years so far for all of the major miners.
Alrosa, De Beers, Rio Tinto and Dominion Diamond, have seen combined production rise by 10% in the first nine months of the year.
But as the supply of rough diamonds is structurally constrained, Goldman does not expect a new mine to come onstream for at least eight years; the wants of the Chinese and a better US market will outpace supply over the medium to long term.
Goldman forecasts supply to grow by a compound 5.2% over the four years to 2017, substantially lagging the 11% demand growth predicted over the same period.
The US accounts 35% of annual world demand and is the largest consumer globally. China and the US account for half of global demand for polished stones.
Among the UK listed diamond miners, Goldman has ‘buy’ ratings on Petra Diamonds (LON:PDL) and Gem Diamonds (LON:GEMD) with 12-month price targets of 170p and 180p respectively.
Petra, it said, remains firmly on track to achieve material growth over the coming years (57% increase in group production FY13-17E) with a clear and credible growth plan in place centred around developments at both at both Finsch and Cullinan.
Gem, meanwhile, has recently focused more on reducing diamond damage at its flagship mine Letseng rather than growing production.
It is well positioned to benefit from stronger demand in high-end luxury diamonds, but a more immediate potential positive catalyst for the stock would be the delivery of a clear expansion plan for Letseng and a comprehensive mine plan for Ghaghoo (Botswana).