At the start of November, members of the Kimberley Process (KP) met in Brussels for its fifth annual meeting.

The KP was set up for just one thing, to try and eradicate the trade in blood diamonds, which had funded so much warfare and atrocities in places such as Angola at the end of the last century. But has it been a success?

Well it appears so...

The KP say that the share of conflict diamonds in world diamond output, which only ten years ago was as high as 10%, was now less than 1%. This is good news.

In the seven years since the initiative was founded, 47 countries and the European Union have joined. They represent the main world centres of diamond production, finishing and sales. Indeed, it is important that Europeans are involved, because it looks like the powers of the KP may be about to be extended.

The KP has done well, but the real cause of falls in the number of blood diamonds on sale has more to do with the spread of peace across once war-torn nations of Southern Africa.

Indeed, the only country currently on the KP black list is Ivory Coast, but even this country could be accepted soon. The country is slowly sorting out its civil strife and talks have been held between President Laurent Gbagbo and rebel leader (and current prime minister) Guillaume Soro. Hopes are high that this country can be reunited.

Scheme to be expanded

The KP introduced the certification of diamonds. Each and every precious stone must have a certificate guaranteeing it is not from a conflict zone. However, at the latest meeting, the prospect of expanding the KP was raised.

The process has been primarily concerned with diamond production. However, the trading and cutting of diamonds may be brought under its wing – and even smuggling of other gems such as emeralds.

The industry has got its act together at a very good time. The diamond market is experiencing a shortage of diamonds – a shortage that will continue for many years. Analysts believe that demand for diamonds will grow by 5% a year for the next 10 years – and output is not keeping up with demand.

The International Diamond Exchange (IDEX), which tracks polished diamond prices, said that solid demand for polished diamonds in virtually all global markets in October continued to push prices higher.

However, despite a year-over-year price increase of 3.2% and a month-over-month price gain of 0.1% most two-carat and smaller diamonds posted flat or lower prices.

Exceptionally large price increases among four- and five-carat diamonds were responsible for virtually all of the increase in the IDEX Online Global Polished Diamond Price Index in October.

IDEX said its outlook for the balance of 2007 remains bullish for both the jewellery and diamond markets. It forecast that diamond prices would continue to rise, though there could be some month-to-month fluctuation. Its forecast for jewellery and diamond sales growth remained unchanged at about 4.5% percent for 2007.

All this means that you need to have diamond exposure in your portfolio to play the fundamentals of the diamond industry. It’s a simple case of supply and demand. P.S. If you enjoyed this article then sign up for Smart Commodities UK. It’s dedicated to searching out the investment trends that could provide our biggest profit opportunities for the next decade…

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