Retail sales of diamond jewellery grew last year and in the first half of 2015 by 4 to 8 percent with solid performance from the U.S., an industry report said, but added that diamond producers and mid-segment companies should anticipate a 10-20 percent decrease in revenue with diamond jewellery sales to remain near flat due to a slowing China.
The mild decline in consumer demand for diamond jewellery 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, said the fifth annual report, The Global Diamond Industry 2015: Growth perspectives amid short-term challenges, from by Bain & Company and the Antwerp World Diamond Centre (AWDC).
As a result, the report said, 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 1 to 2 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,” she said.
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. I
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 1 carat with quality standards comparable to those of developed markets.
“This report confirms just how challenging the past year has been for the global diamond industry, but we must not lose sight of the fact that steps are already being taken to bring the system back into balance,” said Ari Epstein, CEO of the Antwerp World Diamond Centre.
“While we have witnessed slow economic growth in the Far East impacting consumer demand, we have also seen continued robust U.S. market performance. The U.S. has always been the main driver of diamond consumption and is still going strong. And while the industry as a whole responded too ambitiously to exponential growth in Chinese and Indian demand in recent years, the current slowdown in those countries in no way implies long-term stagnation. The entire pipeline is now recalibrating its output and prices to adjust to somewhat lower growth forecasts,” he added.
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.