Investment bank sees small rise in rough diamond prices this year

Bank of America Merrill Lynch is forecasting a small rise in the price of rough diamonds this year, a company analyst wrote in a note to clients.

It predicts that diamond prices will increase by approximately 2.1 percent this year compared with a 14 percent drop in 2012 after a "correction" in the market.

"We view diamonds as an interesting, secular, late development commodity," says analyst Jason Fairclough in a note to clients.

"We forecast a deficit in the medium to long term. Chinese per capital consumption of diamonds is increasing but lags well behind developed markets.

"We expect rising demand from the emerging markets to drive global demand growth. Supply is very limited; no new large mines have come on stream in the past five years and few greenfield mines are planned," Fairclough says.

He also recommended Petra Diamonds for investors due to its "low risk, low capex growth" policy.

"We like Petra's strategy of focusing on recapitalising existing mines rather than pursuing higher cost (and risk) greenfield projects," he writes.