Liberum's central forecast is for the global composite price to rise to US$182/ct in 2021, rising 2% per year thereafter.
The bank said it expected post-lockdown mined supply to fall 5% year-on-year in 2021, "reflecting ongoing constraints on production capacity in Canada, together with mine closures".
The build-up in rough diamond inventory by major producers Alrosa and De Beers in 2020 had cleared by the end of the March quarter, Liberum said, while healthy restocking demand coupled with a weak production growth rate from the majors.
Liberum has been cautious on diamonds for a number of years, having previously highlighted weak demand, midstream issues and a supply surplus over the second half of the last decade.
However, the bank said Thursday "all these factors that have weighed on the sector now look to have alleviated, if not possibly reversed".
"Our new diamond model expects deficits in the years ahead," Liberum said.
"We forecast subdued mine production growth over the medium- to long-term, underperforming global sales. This results in a persistent draw on producers' inventories, underpinning a sustained recovery in prices across all grades," said the bank.
