As it has done for the past seven years, business consultant giant Bain & Co. closed out 2018 with its eighth annual report on the global diamond industry, which the company’s Moscow office prepared together with the Antwerp World Diamond Centre (AWDC). The latest edition covers industry developments in 2017 and the first half of 2018, and in particular looks at the fundamental trends that will influence the sector’s development over the coming two decades.
Specifically, the report states, there are three elements that are shaping the future of the diamond industry. The first is the increasing influence of digital technologies. Affecting all parts of the value chain, they enable diamond producers, midstream players and retailers to increase efficiencies within their operations. Marketing efforts that use digital technology can also deliver superior customer experiences, the report states.
The second element is the growing presence of lab-grown diamonds. Taking into consideration the pace of declining production costs and wholesale and retail prices, the report’s authors expect lab-grown stones to become accessible to a wider consumer audience, potentially increasing demand for diamonds in general.
The third element is the shifting preferences of younger consumers, forcing the industry to rethink its sales and marketing strategies.
ROUGH SUPPLY TO STAGNATE, WHILE DEMAND RISES
The long-term outlook for the diamond market remains positive, Bain notes. While rough diamond supply is projected to hover about 1 percent real growth and 1 percent negative growth annually in volume terms, demand for natural rough diamonds could grow up to 2 percent annually through 2030 in real terms, or 2 percent to 4 percent in nominal terms.
While rough diamond supply will be reasonably predictable over the coming five to ten years, the Bain report states, financial challenges, production mix updates and overall uncertainty over future market conditions could force or delay production.
The report’s authors say that they based their rough diamond supply forecast on an analysis of existing mines and anticipated production at planned new mines. Their projections also include potential supply from new sources, such as tailings from older mines, reopening of distressed mines, activation of options in resource development plans and recycling of secondhand diamonds.
According to the report, already announced new projects could add up to 21 million carats per annum in rough diamond production. However, even in the most optimistic of scenarios, rough diamond production is expected to decrease in the short term, led by the depletion of existing mines.
U.S. AND CHINA DRIVING GROWTH, BUT TRADE WAR WORRYING
The growth of the diamond market growth over the coming years will be backed by strong fundamentals in the United States and the continued growth of the middle class in China and India, the report noted. Europe and Japan are expected to remain relatively stable, with only modest long-term growth prospects.
However, the report added, expected growth in the diamond market could be impacted by a trade war between the United States and China. Economic growth prospects in both countries could be negatively affected, the authors note, and consumer confidence could dwindle. “While nothing detrimental has materialized, the potential outcomes of an ongoing trade war should be considered,” they write.
The report predicts the possible substitution of lab-grown diamonds to meet demand, which it estimates could be 5 percent to 10 percent.