Bain & Company, together with the Antwerp World Diamond Centre (AWDC), has published their seventh annual report on the global diamond industry, "The enduring story in a changing world", covering industry developments in 2016 and the first half of 2017 as well as the challenges the industry faces and how it is turning them into opportunities. Their report looks at key issues along the value chain, from rough-diamond production and sales, to midstream performance and global diamond jewelry demand in major markets. "Diamond producers staged a strong comeback in 2016 with demand for rough diamonds spurring a 20 percent increase in revenues as mining companies sold down inventories accumulated in 2015," the consultancy writes in their press release. Polished prices continued their downward trend, but rough prices declined faster, restoring profitability to many players in the segment.
While the extraction industry performed better in general, they add, "The picture further up the value chain is less optimistic, due to waning consumer interest in diamond jewelry and intense competition from other luxury segments. In response, rough diamond producers are investing significantly to promote diamond sales." And indeed, Bain's finding in the report is that annual demand for rough diamonds might only grow by an average of just 1 percent through 2030, so the industry must make greater efforts to market its goods if it wishes to see consumption reach their more optimistic potential of 4 percent growth. Bain's report notes producers decided to invest an aggregate $150 million in marketing in 2017, an increase of about 50% from recent years, in addition to retailers’ own marketing spend. Further, the industry is renewing its approach to marketing to address evolving demand.
Global sales of diamond jewelry were roughly stable in 2016, the report concludes. The US remained the largest global diamond jewelry market, however, following several years of consistent growth, diamond jewelry sales in the US were almost flat in 2016. China’s performance faltered, as the yuan posted its largest decline in value in 10 years and consumer confidence softened. Sales in Japan were a bright spot, showing growth in US dollar terms. Overall, the slowdown in global diamond jewelry demand and the resulting downward trajectory of polished-diamond prices translated to a slight revenue drop in the cutting and polishing segment (midstream) in 2016. However, midstream players’ profitability improved in 2016, supported by declining rough-diamond prices. “The midstream segment’s future health will depend on the interplay of rough and polished prices as well as the segment’s ability to make continued operational improvements,” said Olya Linde, a Bain partner and one of the authors of the diamond report.
The report also identifies several challenges facing the industry as a whole: in addition to a slowdown in demand for diamond jewelry, as competition from other luxury goods and experiences intensifies, it also addresses the mounting risk that lab-grown diamonds will illegally infiltrate the natural diamond supply chain or legally erode natural diamonds’ market share. It also raises concerns about the financial stability of the midstream segment of the value chain. The most effective players have robust businesses, the report claims, but the segment at large is still in need to address chronic constraints. Chief among them are securing access to financing and continuously improving business models to sustain profitability amid price volatility. “Increasing demand for diamonds is a high stakes game for the entire diamond value chain,” said Linde. “Continued softening demand could have significant economic implications for entire nations that depend on the industry as one of their sole sources of revenue.”
Ari Epstein, CEO of the AWDC, which sporsored the Bain report, states, “AWDC is pleased to present our seventh annual report on the global diamond industry, prepared in collaboration with Bain & Co. AWDC initiates these reports because we believe an informed diamond community is a prepared diamond community, and the challenges we face in Antwerp are intertwined with those the industry faces globally, now and in the future. We view these reports as a small part of our commitment to play a leading role in safeguarding the health of the diamond industry as a whole, which starts with a clear understanding of where we stand and where we need to go. Our local initiatives, whether they entail developing strategies to reinforce compliance and confidence in financial transactions, democratizing the supply of rough diamonds through a robust system of tenders, or steadfast efforts to increase consumer demand, are embedded in the objective of achieving a sustainable, ethical and thereby profitable diamond industry. This report is just one way we endeavor to realize that objective.”
The full report is available in annex.