Diamond Insights 2015 – Long-term Industry Fundamentals Are Strong
Diamond Insights 2015, a report recently released by De Beers one of the biggest players in the industry, says that the current crisis facing the manufacturing sector is temporary and the projections for long-term growth are bright.
In August this year, cut & polished diamond exports were down 8.43 per cent year-on-year to $ 1.76 billion as compared to $ 1.92 billion in August 2014, while for the first five months of this financial year, India’s diamond exports have dropped by 9.83 per cent to $ 8.50 billion However, the assertion that the present situation is a result of short-term factors would certainly be music to the ears of the captains of an industry that has emerged as one of the top earners of foreign exchange through commodity exports, as well as for the policy makers who are trying to evolve a road map for the sector to regain some of its recently lost momentum.
The report, released early recently, says “Global diamond jewellery demand rose three per cent in 2014 to exceed $ 80 billion for the first time – representing the fifth year of consecutive growth since the global recession – while global rough diamond production rose six per cent to $19 billion.” It goes on to add that signs across the globe were encouraging. “Consumer demand in 2014 grew in each of the top five diamond consuming markets – the US, China, Japan, India and the Gulf – which together account for 75 per cent of global demand.” while noting, “The strength of the US dollar suppressed further global growth, which at constant exchange rates amounted to almost five per cent.”
The US which is the largest and most mature diamond jewellery market, with a share of over 40 per cent saw the strongest growth of any of the main regions at 7 per cent, while China reported 6 per cent and India 3 per cent increases over the previous year. The industry’s current crisis, says the report, is due to “seasonal demand patterns and industry cycles”. It notes that after a strong 2013 season, consumer demand for diamond jewellery at the end of 2014 was “a little softer than anticipated owing to unfavourable currency movements and a slowdown in emerging market growth”. With higher than planned inventory levels, there has been limited demand for rough and cut backs in production, leading in some cases to closures and layoffs.
The imbalance is likely to see 2015 demand remaining at 2014 levels, De Beers says, while predicting that things will improve over the next year. While demand is strong fundamentally, though it has plateaued over the last 12 months, the supply side of the industry presents a slightly different picture. Diamond Insights says that rough diamond sales grew by a solid 12 per cent last year topping $20 billion in value. The mining sector reported a 3 per cent decrease in output to an estimated 142 million carats in 2014.
The decline is likely to get worse over the next few years, says De Beers there has been limited development of Greenfield projects in the mining sector in the recent past. Three new mines that started production in 2014 “do not contribute significantly to global production’, it says. There are two large-scale projects on the anvil that are expected to begin production in 2016, adding a moderate increase in diamond supply in the next few years. But, “towards the end of the decade, when many existing mines will begin to see declining outputs, overall supply is likely to plateau”, the report states.
In contrast to the supply side constraints, projections on the demand side are more positive. De Beers CEO Phillipe Mellier said, “However, the challenges faced by the sector in 2015 are expected to be short-term and the industry has excellent prospects. The long-term trend for demand has been positive, with consistent growth in demand for diamond jewellery since the 2008-9 financial crisis. There are also further exciting growth opportunities in the main consumer markets and India is a great example of this. Already one of the world’s largest markets for diamond jewellery, the growth of the middle class in India over the next decade is set to make a major contribution to growing diamond demand.”