The Global Diamond Industry report published
AWDC
publishes 8th diamond report
LGD
to shrink diamond
Demand
over 5% by 2030
The
eighth annual report on the global diamond industry is prepared by the Antwerp
World Diamond Centre (AWDC) and Bain & Company. This year’s edition covers
industry developments in 2017 and the first half of 2018 and takes a close look
at key industry trends.
The
report begin with important 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.
It
also provides an update on the long-term outlook for the diamond industry
through 2030. The 2030 supply-demand forecast considers announced production
plans, recent changes in mining operations, potential additional sources of
supply, expected changes in global and regional macroeconomic parameters, and
potential effects of lab-grown diamonds.
Readers
looking for a brief overview of this report can find key points below:
Following
a period of high volatility, 2017 was strong for the diamond industry, with
approximately 2% growth across all segments of the value chain. In 2018,
revenues are expected to grow again, even accelerating in the mining and
jewelry retail segments. Volatility persisted in 2018; the final outcome for
the year will be determined by sales performance during the holiday season.
Rough
diamond mining companies delivered unprecedented production growth of nearly 20%
in volume in 2017. The production increase came mostly from mines with
lower-quality assortments. Mining company revenues grew by 2% overall,
indicating a positive trajectory for the second year in a row.
In
2017, some major producers reported decreases in their EBIT margins, mostly due
to currency appreciation in production countries. However, mining companies’
profitability bounced back in the first half of 2018.
Midstream
profitability remained positive with margins of about 1% to 3%. Assuming the
demand for diamond jewelry continues to rise through the end of 2018, overall
profitability of the cutting and polishing segment is expected to improve.
Midstream inventories increased in 2017–18, particularly in lower-quality and
small-size assortments, as midstream players prepared to ride another demand
surge for those categories in 2018.
India
continued to grow its leadership position in the cutting and polishing segment
due to lower labor costs, a favorable regulatory environment and relatively
better access to financing. Even though financing availability remains an issue
in the midstream segment, transparent and financially healthy companies report
little impact on their ability to secure funding.
In
line with positive luxury market trends, global diamond jewelry sales grew 2%
in US dollar terms in 2017, fueled by strong macroeconomic fundamentals in the
US, resurging demand from Chinese millennials, and increasing sales in the
self-purchasing category in China.
The
demand for diamond jewelry is expected to accelerate in 2018. However, if the
trade war between the US and China continues, it may have a negative effect on
the growth prospects for global demand in the short to medium term.
Three
key industry trends are shaping the future of the diamond industry.
One
of the most important opportunities is the increasing influence of digital
technologies. Emerging and maturing digital technologies are affecting all
parts of the value chain, enabling diamond producers, midstream players and
retailers to increase efficiencies within their operations. Marketing efforts
that use digital technology can also deliver superior customer experiences.
The
second trend is the growing presence of lab-grown diamonds. Lab-grown diamonds
are clearly here to stay. De Beers Groups’ launch of a lab-grown fashion
jewelry retailer called Lightbox Jewelery, and the US Federal Trade Commission
ruling on diamond terminology were major news in 2018.
Lightbox
does not provide grading reports for its products, as it states that grading
reports exist as a record of a diamond’s rarity and, therefore, its value —
with products that can be mass-produced to a particular recipe, Lightbox notes
that grading reports could confuse consumers about the value of their lab-grown
stones. The effects on natural diamond demand and price will depend on
consumers’ perceptions and preferences.
If
the natural diamond industry can differentiate its stones from lab-grown
diamonds (perhaps positioning lab-grown diamonds as fashion jewelry rather than
luxury items), the effect on natural diamond demand by 2030 will be limited up
to 5% to 10% in value terms. Given the pace of declining production costs and
wholesale and retail prices, we expect lab-grown stones to become accessible to
a wider consumer audience, potentially increasing demand for diamonds in
general.
In
the short to medium term, growth of lab-grown diamonds will be limited by
manufacturing capacity, access to technology and intellectual property, and availability
of funding.
The
third key trend is the shifting preferences of younger generations of
consumers. Younger generations of consumers are causing industry players to
rethink their sales and marketing strategies. The self-purchase product category
continues to grow as millennial and Generation Z’s female spending power
increases.
Younger
generations are also more inclined to consider the opinions of social
influencers, customer reviews and “likes” when making purchasing decisions.
Social media shopping is expected to increase significantly as the spending
power of Gen Z rises. Many retailers are already strategizing how the shifts in
preferences will change their approaches to marketing and operations.
The long-term outlook
for the diamond market remains positive. Rough diamond supply is projected to
be negative 1% to 1% annually in volume terms. We expect demand for natural
rough diamonds to stay flat or grow up to 2% annually through 2030 in real
terms (2% to 4% in nominal), backed by strong fundamentals in the US and the
continued growth of the middle class in China and India. Our outlook
incorporates possible demand substitution from lab-grown diamonds, which is
estimated to be 5% to 10%. It also reflects fundamental long-term supply and demand
factors rather than short-term fluctuations.
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