De Beers UK Limited (a member of the Anglo American plc group) 2014
Global diamond jewellery sales were an estimated
US$79 billion in 2013, growing at over three per cent in nominal value in 2013 in USD terms vs 2012, ahead of the compounded annual
rate of growth experienced between 2008 and 2012. China continues to be the main growth engine of diamond jewellery demand, but the US
also performed particularly well in 2013.
A detailed view of future consumer trends for the diamond industry’s most important markets, the US and China, is provided in the
‘In Focus’ section of this report.
Changing consumer preferences and the growth of brands in the United States and China.
In developed markets, retailers have faced pressures from a weak economic environment and strong competition from branded luxury goods
and experiential categories, as well as the low-price models of ecommerce companies. On the other hand, the growing middle classes and
increasing consumer appetite for diamonds have allowed retailers in developing markets, together with the less prevalent ecommerce
models, to enjoy higher margins and return on invested capital, although these too have started to come under pressure.
Increasing consumer preference for brands is evident in the US from the jump in claimed acquisition of branded engagement rings, from
just seven per cent of consumers in 2002 stating that their diamond engagement rings (DER) was branded to one-third of consumers in 2013
claiming that this was the case. Branded diamond jewellery can also be an attractive financial proposition for retailers.
The cutting and polishing
industry is global in nature. It remains fragmented, with thousands of companies operating with multiple business models, including
wholesalers, rough dealers, manufacturers and
polished dealers, as well as combinations of
Recent years have seen the midstream sector coming under
increasing pressure for a number of reasons. Rising inventory costs, and diamond banks’ drive to constrain the growth of their
lending to the midstream, will mean financing costs are unlikely to decrease, particularly if the trend of low interest rates begins
Additional financial scrutiny of the midstream sector can
therefore be expected. Leading banks in the diamond sector have come to realise that they have been taking equity-type risks in the
diamond midstream without getting the corresponding
returns. This is now changing and, as a result, borrowing costs are going up while banks are asking their borrowers to professionalise
their capital management.
Global rough diamond sales by producers increased
approximately five per cent from 2012 to 2013, to reach a total of just under US$18 billion.
De Beers remained the largest supplier with roughly 33 per cent of overall sales measured by value (the same share as in 2012), followed
by ALROSA with 25 per cent of sales (vs 23 per cent the year before).
Rough diamond sales channels will continue to evolve as
producers strive to maximise value creation for their production. De Beers is in the process of redesigning its distribution system. The
company remains committed to its model of term contract sales to
Sightholders, to which the company will continue to
allocate the majority of its supply. However, in May 2015, it will introduce a new category of rough diamond customer: the Accredited
Buyer. An Accredited Buyer will not be supplied by way of a term contract, but will be eligible to purchase
rough diamonds not already committed for sale by way
of term contracts. Over time, Accredited Buyers that demonstrate sufficient demand for De Beers’ goods will be eligible to apply
for Sightholder status.
De Beers estimates that the overall global
rough diamond production increased by three per cent
from 2012 to US$18 billion in 2013. Measured in carats,
the increase was seven per cent, to reach 146 million carats. This is still well below the production peak in 2005, when overall
production was above 176 million carats.
De Beers and ALROSA continue to be the two largest diamond producing groups by value. Overall diamond supply is expected to increase in
the next few years, driven by new projects coming on stream. By 2020, when many of the existing mines will begin to see declining
outputs, overall supply is expected to plateau.
By 2020, about 25 per cent of carat production will
come from projects currently under development, but much of this increase in output comes from projected expansion at current mines such
as Rio Tinto’s Argyle mine in Australia.
With growing demand for diamonds and dwindling supplies from existing mines, the search for the next diamond mines is expected to
continue. Since 2000, the diamond mining industry has spent almost US$7 billion on exploration.
While the appetite for exploration remains high (2013 spending was 2.5 times that of 2001), overall spending has still not yet
reached the record levels of 2007, when companies spent almost US$1 billion on diamond exploration. De Beers and ALROSA represented
almost 75 per cent of exploration spending in 2013.
The large diamond mining companies are expected to continue to invest in exploration, but the probability of a major profitable new
diamond discovery will remain relatively low. This is simply because finding economic
diamond deposits is difficult: even spending
billions of US dollars in exploration carries no guarantee of actually discovering economically viable deposits.