Middle East super-rich power diamond sales

Released last week, Merrill Lynch's World Wealth Report 2011 also suggests that rising numbers of the super-rich in the Middle East were behind the high growth seen in rough and polished diamond prices last year.

De Beers estimates rough prices rose by 27 percent in 2010, while other producers such as Gem Diamonds reported annual increases of up to 70 percent on certain classifications of stones during auctions last year.
Merrill Lynch research indicates that part of this growth was due to increased uptake by the wealthy or High Net Worth Individuals (HNWI) who chose to keep 22 percent of their "investments of passion" in jewellery, gems and watches.

In this sector, large diamond jewellery was particularly popular, offering the prospects of returns for wealthy individuals seeking safe havens from other risk-ridden investment avenues.

The report reads: "Jewellery, gems and watches accounted for 22 percent of all investments of passion in 2010.

The Middle East HNWIs had the highest share at 29 percent, but that was down from 35 percent in 2009."Record prices for diamonds at international auctions in 2010 exemplified the growing trend among the world's HNWIs to see large diamonds as a safe and high-growth investment alternative.

"Current demand at the highest end of the market appears to be largely from Russia and the Middle East, but demand from Chinese and other Asia-Pacific investors is also growing fast." The 2011 report indicates that while investments of passion or emotional and appeal related investments are usually lifestyle related, more HNWIs viewed these investments as ways of preserving and growing capital over time.

Diamond demand was also underpinned by the higher numbers of wealthy individuals in the Middle East and Asia-Pacific regions, who grew by 10.4 and 9.7 percent respectively. Middle East growth was the second highest globally for the period under review, while Asia Pacific's super-rich are now the second largest in population behind North America and ahead of Europe for the first time.

The Merrill Lynch report mirrors De Beers' projections of future market dynamics, which point to an eastern shift in diamond demand in the medium-term. De Beers expects that by 2010, China, Hong Kong, Taiwan, India and the Gulf region will account for nearly 40 percent of consumer demand for diamond jewellery.

According to its projections contained in the 2010 results announcement released in February, the diamond giant still expects the United States to play a major role in demand, although to a slightly lesser extent. De Beers' statistics also showed that China and India's demand for diamond jewellery grew by eight percent in 2010, compared to seven percent for the US.

Growing demand for diamond jewellery, rising numbers of HNWIs and more investment of passion are good news for local producers such as Debswana and Firestone as these point to stronger rough prices, higher production, higher plant utilisation and lower production costs per unit going forward.