BAIN The Global Diamond Industry 2016: The Enduring Allure of Timeless Gems

The Global Diamond Industry 2016: The Enduring Allure of Timeless Gems

December 05, 2016 Bain report

By Olya Linde, Aleksey Martynov, Ari Epstein and Stephane Fischler



Welcome to the sixth annual report on the global diamond jewelry prepared by the Antwerp World Diamond Centre (AWDC) and Bain & Company. This year’s edition covers industry developments in 2015 and early 2016 and takes a close look at the millennial generation (roughly speaking, people born between 1980 and the early 2000s) as a new category of diamond buyers. We begin with key developments along the value chain. In subsequent sections, we review factors that influenced rough-diamond production and sales, midstream performance and global diamond jewelry demand in major markets.

We then share diamond jewelry consumer insights from our proprietary research across China, India and the US, highlighting the attitudes and behaviors of millennials. We also provide an update on the long-term outlook for the diamond industry through 2030. The 2030 supply-demand forecast considers recent changes in mining operations and expected global macroeconomic effects.:

  • Following a period of growth from 2012 through 2014, diamond jewelry consumption has entered a moderation phase.In 2015, retail sales of diamond jewelry grew 3% at constant exchange rates but declined about 2% in US dollar terms. The US remained the sales growth engine of the global diamond jewelry market, as the same-store revenues of mainstream US jewelry retailers improved, reflecting strong middle-class consumption. Greater China is still rebalancing as slowing tourist flows to Hong Kong and Macao offset otherwise positive dynamics in mainland China. Europe and Japan in 2015 benefited from the shift of spending by Chinese consumers from Hong Kong and Macao. This shift was reflected in positive consumption growth in euro and yen terms. Strong macro-demographic trends powered positive consumption dynamics in India. The strong US dollar nonetheless pushed growth in those markets into negative territory in dollar terms.
  • Midstream US dollar revenues tracked the retail sector’s performance in 2015, declining 2%.Slowing demand and a drop in polished prices resulted in some of the lowest profit margins in years, as well as high inventory levels, accumulated since 2013. As the year came to a close, cutters and polishers significantly reduced rough-diamond purchases and off-loaded about $5 billion of inventories to improve cash flows.
  • Major rough-diamond producers in 2015 reacted to the challenging circumstances of their customersby reducing output, increasing their own inventory levels and providing more flexible purchasing terms while cutting rough-diamond prices. As a result, rough-diamond sales fell 24% in 2015.
  • The industry is rebounding in 2016.Restocking by midstream players, following their inventory sell-off in late 2015, produced growth of around 20% in rough-diamond sales during the first half of 2016. However, strong rough-diamond sales in 2016 may again lead to swollen midstream inventories if retail demand does not strengthen proportionately. Declining sales at major jewelry retailers in the first half of 2016 indicate a possible demand slowdown in the US and China. The final growth trajectory for 2016 and the strength of midstream and rough-diamond sales in the beginning of 2017 will be determined by the performance of the diamond jewelry retail segment during the year-end holiday season.
  • A new generation of consumers—the millennials—represents a compelling opportunity for the diamond industry.The population of millennials in China, India and the US totaled roughly 900 million in 2015, and their combined gross income amounted to approximately $8 trillion. Millennials appear to resemble other age groups in their preferences for diamond jewelry but not in their shopping behaviors. To fully capture millennials’ demand over the longer term, industry players need to invest in both category marketing and brand-building efforts and redefine the customer experience in the retail environment.
  • The key challenges facing the diamond industry remain the same as in previous years.The midstream sector still needs to secure access to financing and continue to improve its business model to sustain profitability amid potential price volatility. Over the longer term, consumption may continue to slow in China, and there is a risk of a cyclical recession in the US. Synthetic diamonds as an emerging competing category to diamonds remain a risk, but diamond industry participants are determined to reduce the threat from synthetics by marketing the emotional attributes of natural stones. The recently formed Diamond Producers Association (DPA) is reviving industry-wide generic marketing efforts.
  • The long-term outlook for the diamond market remains positive.For the next three years, the supply of rough diamonds is expected to maintain a tight balance with demand. We expect demand for rough diamonds to recover from the recent downturn and return to a long-term growth trajectory of about 2% to 5% per year on average, relying on strong fundamentals in the US and the continued growth of the middle class in China and India. The supply of rough diamonds is expected to decline annually by 1% to 2% in value terms through 2030.


About prosperitysaskatchewan

Consultant on Saskatchewan's natural resources.

Posted on December 8, 2016, in diamonds, economic impact. Bookmark the permalink. Leave a comment.

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