These are the findings from the fifth annual report, The Global Diamond Industry 2015: Growth perspectives amid short-term challenges, released by Bain & Company and the Antwerp World Diamond Centre (AWDC).
The mild decline in consumer demand for diamond jewelry began in 2014 in Greater China and led to a notable drop in demand for polished and rough diamonds in 2015. This, in turn, forced retailers there to trim orders for polished diamonds, creating an inventory backlog in the cutting and polishing segment. As a result, prices for polished and rough diamonds plunged 12 percent and 23 percent, respectively, since May 2014 and 8 percent and 15 percent, respectively, for the first nine months of 2015. The long-term outlook remains robust as Bain expects macroeconomic fundamentals to remain positive, with prices likely to rebound similar to previous downturns.
“Following the economic turmoil of 2001 and 2009, prices took 18 to 24 months to recover,” said Olya Linde, lead author of the global diamond industry report and a Bain partner. “This time, we anticipate the market has the potential to recover much quicker – within just one to two years – assuming rough-diamond producers and polished-diamond manufacturers closely monitor and manage their supply levels. This will go a long way toward helping accumulated stocks work their way through the system efficiently.”
Additional findings in the report reveal a somewhat turbulent year for the rough-diamond market in 2014 and 2015. Rough-diamond revenues grew 8 percent last year on the strength of increased sales by the top five producers and despite a decline in the overall volume of carats mined. During that same time, rough-diamond production volume fell by 4 percent globally to slightly less than 125 million carats, with the largest drops occurring in Australia and Africa.
On the other hand, cutting and polishing revenue continued its positive trajectory last year with growth in the mid-single digits, due in large part to India and China. Together, they now represent about 80 percent of the market. In contrast, Africa’s cutting and polishing market declined dramatically, despite efforts to turn the tide by the governments of Botswana, Namibia and South Africa – countries that have not yet become competitive in terms of manufacturing efficiency and skilled labor. Elsewhere, Belgium, Israel and the U.S., which focus on high-end stones, recorded declines in polished revenue as volumes of large stones migrated to India. The country now cuts and polishes more than 40 percent of the world’s diamonds larger than one carat with quality standards comparable to those of developed markets.
As in past years, the industry continues to face challenges – most notably that mid-market companies are being forced to reevaluate their business models amid industry turbulence and continuing pressure on the market.
“At the moment, the mid-market segment is just too weak to cushion against short-term fluctuations in the diamond jewelry retail market,” said Linde. “Though it has little bargaining power over rough producers and limited access to financing, mid-market players still bear the brunt of price volatility, but this is not a life sentence. We expect their continued development will allow the industry to implement more sustainable business models over time.”
Source: Bain & Co.
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