Chinese Demand Driving Diamond Prices and Stocks

China's imports of diamonds rose more than threefold in the first half of 2007, according to the July issue of the diamond industry publication Rapaport TradeWire, fuelling a rise in diamond prices of 8.4%. De Beers concurrently stated that it expected "very strong" jewelry demand in China and India to boost prices; India's diamond imports rose 14% in Q2. Supply, however, is constrained. Stockpiles have declined 75% since 2000, according to Canada's National Bank, and RBC Capital Markets says no new diamond mines are scheduled to start production in the next three to five years. As a result, fund managers are warming to diamond mining stocks. Pure play diamond stocks Aber Diamond and (South African-traded) Trans Hex trade at forward P/E ratios of 20x, almost double those of diversified miners BHP Billiton and Anglo American, while BHP Billiton, Anglo American (which owns 45% of De Beers, the largest diamond mining company) and Russia's closely held ZAO Alrosa control 75% of diamond output. Some diamond industry insiders downplay the rise in prices: Alberto Calderon, who heads BHP Billiton’s diamond & specialist products division, says that the demand/supply imbalance “...will amount to higher prices – slowly, but it will,” while De Beers' financial director Stuart Brown views synthetic diamonds as a risk.

Sources: Bloomberg, MiningMx
Commentary: Seven Ways to Invest in Belgium • Precious Metals, Commodities and The Innovation Threat
Stocks/ETFs to watch: ABER, AAUK, BHP, RTP. ETFs: DBP

Seeking Alpha's news briefs are combined into a pre-market summary called Wall Street Breakfast. Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.