Subdued Global Diamond Demand A Cause For Concern

It was well known that 2015 was a difficult year for the global diamond industry. That fact has now been confirmed and quantified by De Beers, the world's largest producer of rough diamonds by value. During the last year, demand for the precious gemstones at actual exchange rates was down by $2 billion - from the $ 81 billion recorded in 2014 to $79 billion this year, the miner said in its latest Insight Report.

The situation would probably have been much worse, but for the fact that the world's largest market for diamond jewellery, the US saw demand soar to a record level of $39 billion. According to De Beers this all-time high was achieved on the back of the sustained economic recovery, higher levels of job creation and wage growth.

While the US grew by 5% in 2015, most of the other top consuming countries exhibited flat to negative growth in dollar terms, with many of them also registering declines in local currencies too.

Thus, sales in China were up 1% to $10 billion; while India saw a decline of 9% to $3 billion; Japan at $5 billion was down by 13% and the Middle East dipped by 3% to just under $4 billion. The rest of the global market taken together, where sales were $18 billion, was down 13%.

Due to the strengthening dollar, and other localised factors, in most cases, the markets performed even worse in local currency terms.

In this scenario, the US actually increased market share from 42% to 45%, a rare occurence in an industry that was sustained by strong growth in the emerging markets when US demand collapsed during the 2008-09 crisis.

China, the second largest diamond consumer also increased market share (16% in 2014 to 17% in 2015), and while the Gulf retained its 8% share, India dropped from 8% to 7%, Japan from 5% to 4% and the Rest of the World from 22% to 19%.

The weakness in consumer demand, which began in end 2014, had its impact across the pipeline. Inventory build up early in the year led to a significant drop in demand for rough at the midstream in the second half of 2015.

This, along with reasonably strong US holiday season sales in 2015, and a reduction in rough prices, led to some improvement in midstream demand and sentiment in the first three months of 2016.

But, no one is willing to wager bets on 2016 being a better year for the industry. De Beers says that the outlook for 2016 is driven by expectations of steady but subdued global economic growth, with weakening growth in emerging markets and a fragile recovery in the advanced economies. In such a situation, the miner expects that the US will be the main driver of growth.

De Beers Chief Executive Philippe Mellier said that the outlook remains positive in the medium to long-term, driven by the US and the growth of the middle classes in emerging markets. About the short run he was more circumspect, stating that De Beers will "continue to take a cautious approach in light of the fragile macroeconomic environment."

In the first few years of this millennium, a boom in emerging markets like China, India and to an extent the Gulf, compensated for the slowdown in the US market, and for stagnation in Japan, another large consumer. But with the upswing in demand from emerging middle classes across markets like China, India and the Middle East now plateauing out, the industry faces a more challenging situation.

Diamonds, after all, are far from a necessity. And with other segments (electronics, luxury holidays to name just two) now also satisfying the aspirational demand that long drove the diamond industry, the going has got far more difficult.

The good thing about 2015, is that the industry realised that with the macro-economic challenges being a given in the short to medium term, any boost in demand has to be driven by industry intervention.

Mining companies have come together to pool resources for a common marketing push under the banner of the Diamond Producers Association. The DPA is expected to roll out is first campaign in the US within the next couple of months.

De Beers, which was already spending an amount of about $100 million to promote its Forevermark brand, has now allotted separate budgets for generic marketing campaigns, including reviving its own iconic 'A Diamond is Forever' slogan.

And just this week, Forevermark unveiled its first ever India specific advertising campaign to drive demand for its Capricci collection, comprising the uniquely Indian nose-pin ornament, after a consumer study revealed it was the second most popular product in the diamond jewellery segment, only behind rings.

It remains to be seen to what extent this will revive the diamond dream.