New York--Diamond prices will rise by an average of 6 percent annually through to 2020 due to constrained supply not being able to meet rising demand from China and India, according to BMO Capital Markets analyst Edward Sterck.

“The primary constraint on supply growth is the lack of new discoveries that match the scale of existing operations in Botswana and Russia,” Sterck wrote. “Given expanding demand and constrained supply, diamond prices are likely to increase as consumers compete for an increasingly scarce commodity.”

Rough diamond prices have increased by close to 10 percent this year and will remain at those levels this year before starting to climb again next year, according to the report.

China overtook Japan in 2011 as the world's second-largest diamond buyer, and together with India the countries account for around 20 percent of global demand, which is seen rising to 28 percent in 2016, according to estimates from Anglo American Plc, which owns 85 percent of De Beers.

The last major mine to come on-stream was the Diavik mine in Canada's NorthWest Territories in 2003, which is 60 percent owned by Rio Tinto, and 40 percent by Dominion Diamond Corp.

Sterck added that although output is steadily climbing, he does not forecast it will pass the record annual production of 160 million carats seen before the global financial crisis of 2008.

This article was first published on IDEX Online on May 19.

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