Natural diamonds are, writes Bain, one of the world’s most precious natural resources: “In 2011 [last available figures], diamond miners such as ALROSA, BHP Billiton, De Beers, Rio Tinto and smaller companies produced 124 million carats of rough diamonds, valued at USD 15 billion. Once out of the ground, the rough stones moved through the so-called diamond pipeline – a value chain that runs from dealers to diamond cutters and polishers to jewelry manufacturers to retail stores and finally to consumers. The value-added along the way is impressive, as USD 15 billion in rough diamonds becomes USD 24 billion in polished diamonds, which in turn goes into diamond jewelry with a resulting retail value of USD 71 billion.”
According to Bain & Company, like the luxury industry in general, diamond jewellery has been particularly resilient to the global economic recession. Sales have “defied economic headwinds” to surpass their pre-crisis peak in 2011. The USD 71 million of retail sales represent growth of 18% on 2010. At 33%, the value of the diamond content alone increased even faster. These results come two years earlier than Bain had anticipated. All the indicators point to equally “sparkling” results for 2012, to be confirmed once figures are published.
Who else but China and India
Unsurprisingly, China and India account for a large part of this soaring demand. The diamond jewelry category in China amounted to USD 9 billion in 2011, taking it to the number-two spot in the global diamond market and making China the fastest-growing country for diamond jewelry purchases, with a compound annual growth rate of 32% since 2005. Long-standing preferences for gold and jade, both associated with good fortune, are being supplanted by a fascination with Western culture, with an extra boost from lower taxes and tariffs on diamonds. As Bain & Company notes, this trend will only accelerate as the middle class expands in mid-sized and smaller cities.
India, meanwhile, has seen compound annual growth of 22% since 2005. With annual sales of USD 8.5 million, it now surpasses Japan, the European Union and the Gulf region. In comparison, the American market corners 40% of global demand with diamond jewellery sales totalling USD 27 billion in 2011. However, these revenues have grown little over the past decade, suggesting that the two Asian giants together will “outclass” the United States in diamond purchases. The outlook is rosy for diamond producers as demand for rough diamonds is forecast to outpace supply by more than 3 percentage points, supporting potential for a long-term price increase.