CSO in firm control Bull market in diamonds?

A case for a bull market in diamonds is made by Shearson Lehman Brothers in a recent release.

From its global perspective, the firm says current stocks of uncut stones outside of the control of the Central Selling Organization (CSO) and De Beers are low, CSO being the group which controls sale and distribution of 80-to-85% of all uncut gem diamonds coming onto the western world’s markets and De Beers being the world’s largest producer of gem diamonds.

Dealers’ and cutters’ inventories are also low, a situation the firm says is unlikely to change for some time.

The demand for “investment” diamonds is almost non-existent and Shearson Lehman says the situation can only get better.

On the decline is the newly mined supply of large diamonds, and the firm says the trend is not likely to change.

Consumers seem to have more money, credit is widely available and tax reform seems to be a popular idea. “The cutting of the maximum rate of income tax in the U.S. to 28% this year may be a major factor in the future price of diamonds, especially at the top end of the market,” says the firm. “The U.S. is already the world’s largest consumer of diamond jewelry.”

Except for possibly in the Soviet Union, no major new diamond mines seem to be ready to start up. “The market has just proven its ability to absorb the huge increases in diamond supplies from Argyle in Australia and Jwaneng in Botswana,” says Shearson Lehman. “In addition, the demand for uncut gem diamonds currently appears to exceed the newly mined supply by about 2 to 4 carats per year.”

Finally, according to Shearson Lehman, the CSO now has the market under firm control, and is in a position to keep it “in balance and is thereby restoring confidence to a market battered by six long years of recession.”

The firm points out that the threat of further economic sanctions against South Africa and the response of the South African government and CSO-De Beers to new sanctions, make it difficult to accurately forecast the outlook for diamonds and diamond shares.