Global Diamond Demand; Why Its Going Up

Global diamond demand at a record $79 billion in 2013, according

to the inaugural Diamond Insight Report, published by De Beers.

Demand is expected to continue to grow over the long term, driven by the ongoing economic recovery in the US (the world’s largest diamond jewellery market) and the growth of the middle classes in developing markets such as China and India.

Sales of polished diamonds in the US increased by seven per cent in 2013, while both India and China have seen their domestic diamond jewellery markets grow by a compound annual growth rate of 12 per cent in local currency terms between 2008 and 2013.

The report cautions that while diamonds retain their special allure with consumers around the world, future demand levels cannot be taken for granted.

The overall category is facing increasingly strong and sophisticated competition from other luxury categories, with diamonds’ share of the advertising voice in the US market having reduced within its competitive set.

Global rough diamond production in 2013 increased by seven per cent in carat terms over 2012 levels to a total of around 145 million carats.

However, this remains well below the 2005 peak of around 175 million carats. This could be due to falling production caused by weak consumer uptake.

The report further highlights that a forecast reduction in supply from existing sources will likely not be matched by new production coming on stream in the years ahead and diamond supply is expected to plateau in the second half of the decade before declining from 2020 on-wards.

Meanwhile, as mining moves deeper into the earth and towards more remote locations, the extraction process is becoming increasingly complex and costly.

The three principal input costs, labour, electricity and diesel have all seen increases well above local inflation levels in the main diamond-producing countries over the last decade and this trend is set to continue.

The ripple effect is that price per carat will tend to increase so as to adjust for inflation. This could in turn affect the market by pushing prices higher for the dealers, wholesalers and retailers. The end-user the buyer will also feel the price hike.

Substantial investment will be required in diamond production, technology and branding, marketing and retail standards if the industry is to sustain its recent levels of success into the future, the report says.

Global Diamond Demand At Record High

The report also reveals that:

• China is the world’s fastest-growing market for diamond jewellery sales, with the number of diamond jewellery retail doors in the country increasing by almost 30 per cent between 2010 and 2013.

• Online has become an increasingly important channel for the diamond industry. Over one in six diamond jewellery purchases in the US were made online in 2013 and in China, the internet is already used by a quarter of acquirers for research purposes before purchase.

• Diamonds were a major contributor to the economic performance of producing nations in 2013. In Botswana, diamonds represented more than 25 per cent of GDP and over 75 per cent of overall exports, whereas in Namibia they represented eight per cent of GDP and almost 20 per cent of all exports.

De Beers CEO Philippe Mellier said consumer demand remains the one true source of value for the diamond industry. With demand forecast to increase further from 2013’s record levels, the opportunity for growth is clear.

This must not be seen as a cause for complacency. The industry will continue to lose ground to other categories if it does not invest significantly in production, marketing and technology.

Contributed by: BLOG