GLOBAL CONSUMER
DEMAND

Global Consumer Demand

DIAMOND JEWELLERY
RETAIL

Diamond Jewellery Retail

CUTTING and POLISHING
 

Cutting and polishing icon

ROUGH DIAMOND
SALES AND DISTRIBUTION

Rough diamond sales distibution icon

ROUGH DIAMOND
PRODUCTION

Rough Diamond Production icon

DIAMOND EXPLORATION
 

Exploration icon

GLOBAL CONSUMER DEMAND

Global Consumer Demand

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.


DIAMOND JEWELLERY RETAIL

Diamond Jewellery Retail

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.


CUTTING and POLISHING

Cutting and polishing

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 these activities.

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 to change.

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.


ROUGH DIAMOND SALES and DISTRIBUTION

Rough diamond sales distibution icon

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.


ROUGH DIAMOND PRODUCTION

Rough Diamond Production icon

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.


DIAMOND EXPLORATION

Exploration icon

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.