Peak everything

Now diamonds
Diamonds aren't forever, the pipes are running dry

A CUT diamond is the ultimate in discretionary expenditure. So when the global financial crisis hit last September, it was no surprise global demand for sparklers collapsed.

But it isn't all gloom for diamonds. In fact, the world is short of new mine supplies. According to Rio and BHP Billiton analysis, most existing mine resources for rough stones will be gone within 15 years.

This is because new diamond discoveries are becoming increasingly rare. According to Rio, annual discoveries of kimberlite ''pipes'' - kimberlite is a host rock for diamonds - have fallen (on a five-year moving average basis) to little more than 100. And history shows that only one in 10 kimberlite pipes contain diamonds and only one in 100 of those are economic to mine.

The lack of new discoveries since the mid-1980s means the world's mine reserves of rough diamonds have fallen from 80 years' supply to the 15 years that Rio now forecasts.

The squeeze on new mine supplies comes as Rio forecasts 4 per cent compound annual growth rates in rough diamond demand out to 2020 - as supply contracts at a 1.6 per cent rate.

Unlike most things that have peaked and are now in decline, diamonds are, mostly, optional and discretionary.

It will be interesting to see whether the diminishing possibility of owning diamonds increases the desire for them or causes it to wane. For a while it will drive the desire even higher, along with prices, but I'd bet that, once they are all gone, like Tuna, we will discover that we didn't really need them after all and our desire for them will disappear.

Except, of course, for those things for which they are a commodity, like drill bits, and a black market will open up where drillers sneak around back alleys buying up stolen necklaces and bracelets for their bits and grinders.

Comments

[Fazal Majid]

Synthetic diamonds work just fine for industrial applications (and in fact for jewelry as well, much as the De Beers-led cartel would like you to think they are somehow unsuitable).

[Earl Mardle]

good point. But its one thing to "work" just fine and another thing to "be" just fine.

Given the proportion of mystique entailed in jewellery however, and the increasing costs of the energy needed to make them, will they make the transition to post-peak diamonds?

[twitter.com/nomad496]

Synthetic diamonds work well for industrial applications, although creating them requires a lot of energy and a lot of sophisticated support structure. You will not create the pressures required with simple sheet steel cases. What I wonder is whether some of those "uneconomical" kimberlite pipes will become a source for low grade diamonds as the supplies dry up.

[Earl Mardle]

The thing to think about is whether the energy cost of mining hitherto uneconomical pipes is sustainable.

We have been protected from genuine economic analysis by being able to dump waste at near zero cost and to have all the energy we need at a price we would like to pay.

Our polluting habits wont change and the costs will continue to be hidden from balance sheets, but energy is a different story. If we are right about PO then we will have to find ways of prioritising access to energy, especially oil.

Even war will become problematic because the military will have to pre-empt energy use in the domestic market and the question will become "so what, exactly, are we fighting for?"

The whole world will be in the same state as Japan in 1941, cut off from oil and having to go to war fast to capture some. Except that the prize pretty much isn't there any more.

Same with diamonds. What is the real economic return on them? Drilling and grinding/polishing will be the key uses.

But how much energy do you have to use to mine and process the diamonds to stick to a drill bit to drill for how much oil before the diamonds need replacing?

We haven't ever had to do those calculations, and we have no models for adapting the current economic structure to accommodate those calculations.