News Bureau

December 14, 2018

AWDC publishes 8th diamond report

The eighth annual report on the global diamond industry is prepared by the Antwerp World Diamond Centre (AWDC) and Bain & Company. This year’s edition covers industry developments in 2017 and the first half of 2018 and takes a close look at key industry trends.

The report begin with important developments along the value chain. In subsequent sections, we review factors that influenced rough diamond production and sales, midstream performance and global diamond jewelry demand in major markets.

It also provides an update on the long-term outlook for the diamond industry through 2030. The 2030 supply-demand forecast considers announced production plans, recent changes in mining operations, potential additional sources of supply, expected changes in global and regional macroeconomic parameters, and potential effects of lab-grown diamonds.

Readers looking for a brief overview of this report can find key points below:

Following a period of high volatility, 2017 was strong for the diamond industry, with approximately 2% growth across all segments of the value chain. In 2018, revenues are expected to grow again, even accelerating in the mining and jewelry retail segments. Volatility persisted in 2018; the final outcome for the year will be determined by sales performance during the holiday season.

Rough diamond mining companies delivered unprecedented production growth of nearly 20% in volume in 2017. The production increase came mostly from mines with lower-quality assortments. Mining company revenues grew by 2% overall, indicating a positive trajectory for the second year in a row.

In 2017, some major producers reported decreases in their EBIT margins, mostly due to currency appreciation in production countries. However, mining companies’ profitability bounced back in the first half of 2018.

Midstream profitability remained positive with margins of about 1% to 3%. Assuming the demand for diamond jewelry continues to rise through the end of 2018, overall profitability of the cutting and polishing segment is expected to improve. Midstream inventories increased in 2017–18, particularly in lower-quality and small-size assortments, as midstream players prepared to ride another demand surge for those categories in 2018.

India continued to grow its leadership position in the cutting and polishing segment due to lower labor costs, a favorable regulatory environment and relatively better access to financing. Even though financing availability remains an issue in the midstream segment, transparent and financially healthy companies report little impact on their ability to secure funding.

In line with positive luxury market trends, global diamond jewelry sales grew 2% in US dollar terms in 2017, fueled by strong macroeconomic fundamentals in the US, resurging demand from Chinese millennials, and increasing sales in the self-purchasing category in China.

The demand for diamond jewelry is expected to accelerate in 2018. However, if the trade war between the US and China continues, it may have a negative effect on the growth prospects for global demand in the short to medium term.

Three key industry trends are shaping the future of the diamond industry.

One of the most important opportunities is the increasing influence of digital technologies. Emerging and maturing digital technologies are affecting all parts of the value chain, enabling 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 second trend is the growing presence of lab-grown diamonds. Lab-grown diamonds are clearly here to stay. De Beers Groups’ launch of a lab-grown fashion jewelry retailer called Lightbox Jewelery, and the US Federal Trade Commission ruling on diamond terminology were major news in 2018.

Lightbox does not provide grading reports for its products, as it states that grading reports exist as a record of a diamond’s rarity and, therefore, its value — with products that can be mass-produced to a particular recipe, Lightbox notes that grading reports could confuse consumers about the value of their lab-grown stones. The effects on natural diamond demand and price will depend on consumers’ perceptions and preferences.

If the natural diamond industry can differentiate its stones from lab-grown diamonds (perhaps positioning lab-grown diamonds as fashion jewelry rather than luxury items), the effect on natural diamond demand by 2030 will be limited up to 5% to 10% in value terms. Given the pace of declining production costs and wholesale and retail prices, we expect lab-grown stones to become accessible to a wider consumer audience, potentially increasing demand for diamonds in general.

In the short to medium term, growth of lab-grown diamonds will be limited by manufacturing capacity, access to technology and intellectual property, and availability of funding.

The third key trend is the shifting preferences of younger generations of consumers. Younger generations of consumers are causing industry players to rethink their sales and marketing strategies. The self-purchase product category continues to grow as millennial and Generation Z’s female spending power increases.

Younger generations are also more inclined to consider the opinions of social influencers, customer reviews and “likes” when making purchasing decisions. Social media shopping is expected to increase significantly as the spending power of Gen Z rises. Many retailers are already strategizing how the shifts in preferences will change their approaches to marketing and operations.

The long-term outlook for the diamond market remains positive. Rough diamond supply is projected to be negative 1% to 1% annually in volume terms. We expect demand for natural rough diamonds to stay flat or grow up to 2% annually through 2030 in real terms (2% to 4% in nominal), backed by strong fundamentals in the US and the continued growth of the middle class in China and India. Our outlook incorporates possible demand substitution from lab-grown diamonds, which is estimated to be 5% to 10%. It also reflects fundamental long-term supply and demand factors rather than short-term fluctuations.