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THE DIAMOND INSIGHT REPORT 2016
FORWARD-LOOKING STATEMENTS This report includes forward-looking statements. All statements other than statements of historical facts included in this report, including, without limitation, those regarding De Beers’ future expectations and/or future expectations in respect of the diamond industry, are forward-looking statements. By their nature, such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of diamond markets, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions made by De Beers in respect of the present and future business strategies and the wider environment of the diamond industry. Important factors that could cause actual results, performance or achievements to differ materially from those in the forward-looking statements include, among others, levels of actual production during any period, levels of global demand and commodity market prices, mineral resource exploration and development capabilities, recovery rates and other operational capabilities, the availability of mining and processing equipment, the ability to produce and transport products profitably, the impact of foreign currency exchange rates on market prices and operating costs, the availability of sufficient credit, the effects of inflation, political uncertainty and economic conditions in relevant areas of the world, the actions of competitors, activities by governmental authorities such as changes in taxation or safety, health, environmental or other types of regulation in the countries relevant to the diamond industry, conflicts over land and resource ownership rights and other such risk factors. Forward-looking statements should, therefore, be construed in light of such risk factors and undue reliance should not be placed on forward-looking statements. These forward-looking statements speak only as of the date of this report. De Beers expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in De Beers’ expectations with regard thereto or any change in the events, conditions or circumstances on which any such statement is based. DISCLAIMER This report has been prepared by the De Beers Group of Companies (De Beers) and comprises the written materials concerning De Beers and the wider diamond industry. All references to ‘De Beers’ in this report refer to the De Beers Group of Companies, unless otherwise stated. This report has been compiled by De Beers and/or its affiliates from sources believed to be reliable, but no representation or warranty, express or implied, is made as to its accuracy, completeness or correctness. All opinions and estimates contained in this report are judgements as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. This report should not be construed as business advice and the insights are not to be used as the basis for investment or business decisions of any kind without your own research and validation. This report is for information purposes only. The information contained in this report may be based on internal data, or data sourced from, or provided by, third parties or publicly available sources. As such, it may include the disclosures and/or views of those third parties, which may not necessarily correspond to the views held by De Beers. De Beers does not offer any representation or warranty as to the accuracy or completeness of this report and no reliance should be placed on the information disclosed for any purpose. Nothing in this report should be interpreted to mean that De Beers or the diamond industry (as the case may be) will necessarily perform in accordance with the analysis or data contained in this report. All written or oral forward-looking statements attributable to De Beers or persons acting on its behalf are qualified in their entirety by these cautionary statements. To the full extent permitted by law, neither De Beers nor any of its affiliates, nor any other person, accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained herein.
T H E D E B E E R S G R O U P O F C O M PA N I E S THE DIAMOND INSIGHT REPORT 2016
1
CONTENTS
O V ERV IE W
FOREWORD 3
EXECUTIVE SUMMARY 4
T H E F U T U R E AT A G L A N C E 6
2 0 16 DI A MOND INDU S T RY OU T L OOK 8
DI A MOND INDUS T RY VA LUE CH A IN 14
DOWNSTREAM 15
MIDSTREAM 22
UPSTREAM 26
IN FOCU S :
MIL L ENNI A L S A ND T HE F U T URE OF DI A MOND S 30
INTRODUCING THE MILLENNIALS 31
MILLENNIALS’ CONNECTION WITH DIAMONDS 34
THREE MAIN MILLENNIAL TRENDS 37
END NO T ES 46T H E D E B E E R S G R O U P O F C O M PA N I E S THE DIAMOND INSIGHT REPORT 2016 OV ERV I EW
2
MILLENNIALS SPENT NEARLY
US$26 BILLION ON DIAMOND
JEWELLERY IN THE FOUR MAIN
MARKETS LAST YEAR, ACQUIRING
MORE THAN ANY OTHER GENERATION.
B R U C E C L E AV E RT H E D E B E E R S G R O U P O F C O M PA N I E S THE DIAMOND INSIGHT REPORT 2016 OVERVIEW
3
FORE WORD
2014 was a record year for consumer Indeed, they spent nearly
De Beers first published its diamond jewellery demand and US$26 billion on diamond
also a strong year for rough jewellery in the four main markets
Diamond Insight Report in diamond demand. last year, acquiring more than
2014. In the two years since, 2015, however, saw a more contrasting
any other generation.
much has changed, but the strong performance. While consumer And, perhaps most encouragingly,
diamond demand remained Millennials are still 10 years away
diamond industry fundamentals reasonably strong, rough diamond from their most affluent life stage,
remain the same. demand fell. presenting a significant opportunity
for the sector to capitalise fully on
With the first half of 2016 showing
a generation comprising more than
signs of more stable conditions
220 million potential diamond
returning, it is clear that volatility
consumers in the four main markets.
in the diamond sector is not a
short-term phenomenon, but the This year’s Diamond Insight Report
new normal. explores the diamond sector’s
fundamentals and the factors that
The sector has shown itself
are influencing them. I hope that
consistently to be resilient – in the
it will help to provide clarity,
face of financial crises, fluctuating
direction and, of course, insight,
demand and increased competition
in an ever-changing world.
from other luxury categories.
But the pace of change is
quickening and, as a sector, we
cannot look to the past for solutions
to tomorrow’s challenges.
As our research with Millennials
shows, tomorrow’s consumers are
not the same as yesterday’s. However,
they do share many of the same views
as older generations. It is perhaps
because of this that diamonds are B R U C E C L E AV E R
high on their wish list. CEO, DE BEERS GROUPT H E D E B E E R S G R O U P O F C O M PA N I E S THE DIAMOND INSIGHT REPORT 2016 OV ERV I EW
4
E X ECUTI V E
SUMMARY
2016 DIAMOND INDUSTRY
In the two years that have passed since OUTLOOK
the publication of De Beers’ inaugural The diamond industry has faced
Diamond Insight Report, the world recent challenges, particularly
in 2015.
has experienced continued economic
While global consumer demand
uncertainty and moderate levels of slowed down, the midstream faced
economic growth. Over this period, squeezed margins and working
diamond jewellery demand has remained capital challenges – both of which
impacted rough diamond purchases
strong. Indeed, it has been higher over and sales.
the past three years than any other Upstream, cost pressures increased
three-year period. as a larger share of production
came from ever deeper mines.
Some of these trends are likely to
continue over the next decade as
volatility becomes the new normal as
a result of fluctuating global growth.
Nine fundamental trends are likely
to shape the industry over this
period and these are explored
in section one.T H E D E B E E R S G R O U P O F C O M PA N I E S THE DIAMOND INSIGHT REPORT 2016 OVERVIEW
5
DIAMOND INDUSTRY IN FOCUS: MILLENNIALS AND In the top four diamond jewellery
markets of the US, China, India and
VALUE CHAIN THE FUTURE OF DIAMONDS Japan, which account for 73 per cent
After five years of uninterrupted value Despite experiencing less favourable of global demand, the potential
growth of global diamond jewellery economic conditions than preceding diamond buying Millennial market
demand – and following a record level generations and progressing more is more than 220 million people,
in 2014 – demand (in US dollars) fell slowly along the traditional life 39 per cent of the diamond buying
slightly in 2015 to US$79 billion. This path, Millennials do express strong population in these four countries
was due primarily to the stronger desire for diamonds when they reach in 2015.
US dollar and slower growth in China financial and demographic maturity.
As such a large cohort, Millennials
and other emerging markets.
In 2015, Millennials spent nearly are already driving global consumer
While consumer demand for diamond US$26 billion on diamond jewellery demand, yet they also represent
jewellery remained relatively robust in the largest four markets combined, a source of considerable future
in 2015, the trading environment for representing 45 per cent of the total potential for the sector.
rough diamonds was tougher, with retail value of new diamond jewellery
In order to unlock this potential the
midstream businesses experiencing acquired in these markets.
industry needs to find appropriate
a range of interconnected issues that
Demand for diamond jewellery ways to engage Millennials’ inherent
led to severe ‘inventory indigestion’.
from Millennials in the US alone need for self-expression and
However, a number of actions were rose from US$10 billion in 1999 interconnectivity.
taken by the industry to address to US$16 billion in 2015.
issues related to supply, demand
and profitability, and this has seen
a return to more normal trading
conditions in 2016.
2016 sees three new diamond mines
begin production, which are expected
between them to add around seven
million carats annually to global
production once fully operational.T H E D E B E E R S G R O U P O F C O M PA N I E S THE DIAMOND INSIGHT REPORT 2016 OV ERV I EW
6
THE FUTURE
AT A GL ANCE
The diamond industry is likely to continue to
experience increased sales and price volatility.
Organisations across the value chain will need
to improve the way they forecast and plan to
navigate this trend successfully.
Consumer demand growth will continue to be
generated from Asia, particularly China and
India, driven by higher household income over
the next 10 years, and the US, the world’s
largest market.
Millennials in all main markets are set to
become the most important cohort for diamond
jewellery purchases.
Continued innovation by retail in general,
and competitive sectors in particular, will
generate strong competition from other luxury
and experiential categories; investment will be
needed to safeguard and nurture the diamond
dream and capture the opportunity presented
by the growth potential in Asia, the US, and
globally, by Millennials.
The midstream will continue to come under
pressure periodically; financially robust
and transparent diamantaires with scale,
differentiated business models, and/or strong
collaborations with downstream players are
most likely to thrive.T H E D E B E E R S G R O U P O F C O M PA N I E S THE DIAMOND INSIGHT REPORT 2016 OVERVIEW
7
Beneficiation will continue to be a key driver
in the geographic shift of the midstream
to countries and regions where diamonds
are mined.
The upstream will need continued focus on
cost reduction and productivity improvements;
innovation as well as strong, collaborative
relationships with governments and other
stakeholders will be increasingly important.
Diamond production will likely increase
slightly in the short term and decline slowly
after 2020, with large, economically viable
new discoveries unlikely.
While consumer demand is currently negligible,
the capacity to produce synthetics for gem
applications will continue to expand and, over
time, the cost and value of synthetic production
will fall.
Across the value chain, innovation will remain
critical – to strengthen the diamond dream and
motivate sales, to develop new business models
in the midstream, and to counter cost pressures
in the upstream.T H E D E B E E R S G R O U P O F C O M PA N I E S THE DIAMOND INSIGHT REPORT 2016 1 2016 DIAMOND INDUSTRY OUTLOOK
8
2016 DIAMOND
INDUSTRY
OUTLOOK
The fundamental supply and demand trends of the
diamond industry continue to be positive and, by acting
to strengthen its competitive position, the diamond
industry can anticipate a positive future.T H E D E B E E R S G R O U P O F C O M PA N I E S THE DIAMOND INSIGHT REPORT 2016 1 2016 DIAMOND INDUSTRY OUTLOOK
9
In the two years that have passed A MORE VOLATILE FUTURE Volatility is here to stay as global
since the publication of De Beers’ markets are likely to continue to
2014 Diamond Insight Report, new Since 2014, the world has experienced fluctuate, potentially increasing
global and regional trends have moderate annual global growth at the diamond industry’s inherent
been identified. The main changes 2.5 per cent,1 although this has been volatility. Consumer preferences
relate to macro-economic trends in uneven across markets and is, in some will continue to evolve, and
emerging economies, especially in regions, characterised by political innovation by global luxury brands
China and India, as well as volatility uncertainty. Ultimately, consumer and new online propositions will
in world economic growth forecasts. demand for diamond jewellery has generate strong competition for
remained strong; indeed, it has been the industry. The midstream will
These developments will demand higher over the past three years than be required to continue its process
that diamond industry participants in any other three-year period. of professionalisation, and the
strengthen their competitive
But there have also been industry upstream will continue to face cost
capabilities even more through better
planning and more investment in challenges. While consumer demand challenges. Fig. 1 sets out nine of
for diamonds is still growing in the the fundamental trends De Beers
innovation and marketing.
US, growth has slowed in China believes will shape the industry
and declined in India. Midstream in the next 10 years.
players faced fresh pressure in 2015,
when inventory indigestion led
diamantaires to destock, impacting
rough diamond sales. Furthermore,
diamond producers face increasing
cost pressures as production comes
from ever deeper mines.T H E D E B E E R S G R O U P O F C O M PA N I E S THE DIAMOND INSIGHT REPORT 2016 1 2016 DIAMOND INDUSTRY OUTLOOK
10
FIG. 1: NINE FUNDAMENTAL INDUSTRY TRENDS
TREND
1
ECONOMIC
2 3 4
CONTINUED NEW CONSUMER RETAIL
VOLATILITY GROWTH IN PREFERENCES INNOVATION
DEMAND FROM
EMERGING
MARKETS
DESCRIPTION
Global economic growth Positive consumer Consumer Continued innovation
will continue to be demand growth demographics will by global luxury
volatile, as businesses is likely to continue evolve, with retiring players – especially
become more highly to come from Asian and elderly consumers in retail,
leveraged, markets consumers, expected to generate omnichannel,
become more particularly Chinese the majority of global attraction of
interconnected, current and Indian, driven urban consumption international
account imbalances by increasing growth by 2030, and travellers, increased
widen, foreign household wealth with Millennials product offering
exchange fluctuates over the next 10 years becoming the largest (eg customisation)
and geopolitical but at lower levels than age cohort in the US. and more
instability increases. previously assumed. Consumer preferences sophisticated
The diamond industry Due to increasing can be expected to consumer
is likely to experience international change, with an segmentation –
increased volatility travel, national increased focus on will generate
under any macro- demand may self-expression; as a strong competition
economic scenario, not necessarily result, design and from other
relative to recent years. be domestic. branded jewellery will luxury categories.
continue to increase Retailers focused on
in relevance. branded diamond
Economic jewellery will be able
empowerment will to differentiate
drive self-purchases themselves from
especially among generic propositions.
women, and demand
for lower entry-point
diamonds will rise.
Consumers will
continue to become
more knowledgeable
and push for ethical
products with
known provenance.T H E D E B E E R S G R O U P O F C O M PA N I E S THE DIAMOND INSIGHT REPORT 2016 1 2016 DIAMOND INDUSTRY OUTLOOK
11
5 6 7 8 9
INCREASING HIGHER MINING PREDICTABILITY PRESSURE FROM INCREASING
PRESSURE ON THE COSTS OF ROUGH DIAMOND PRODUCING CAPACITY
MIDSTREAM PRODUCTION FOR COUNTRIES TO TO PRODUCE
THE NEXT 10 YEARS MAXIMISE VALUE SYNTHETIC
DIAMONDS AT
A LOWER COST
Financing challenges A larger share of Rough diamond Diamond producing While consumer
are expected to persist, production is expected production is expected countries, in particular demand is currently
driven by tighter lending to come from ever to remain predictable in southern Africa, negligible, the
standards and less deeper mines, which are and relatively stable over will continue capacity to produce
availability, placing complex and costly to the next 10 years with a to look to maximise synthetics for gem
additional pressures operate; additional relatively sparse new the value of the applications is likely
particularly on investment is required project pipeline. diamond assets. to continue to expand.
midstream players by producers to drive It is expected there will An expected rise in Over time, the
with outdated productivity. be increases in the short local beneficiation will production cost and
and unprofitable Unit capital cost is term, given investments likely put increasing value of synthetics are
business models. expected to continue in the last 10 years. pressure on midstream expected to reduce.
Diamantaires will to rise. Large economically margins.
need to operate under In addition, unit costs viable finds will
increasingly rigorous of energy, labour and remain unlikely.
professional standards, consumables are
such as compliance expected to increase.
with IFRS.
Fluctuations in foreign
There is expected to be exchange and energy
increasing transparency prices will cause higher
of the supply chain cost volatility.
through digitalisation,
leading to potential
disintermediation
of players without
value-added services.
Retailers/jewellers are
likely to demand more
value added from their
midstream suppliers.
Source: De BeersT H E D E B E E R S G R O U P O F C O M PA N I E S THE DIAMOND INSIGHT REPORT 2016 1 2016 DIAMOND INDUSTRY OUTLOOK
12
The diamond industry also faces a ——Consumer attitudes to diamonds: ——Supply of diamonds: Though
number of uncertainties. First among Over the next decade, consumer rough diamond production
them is the overall macro-economic demand could continue to levels are likely to vary marginally
environment. The outlook for the broaden as diamond jewellery around a known trend in the
industry and consumer demand is retailers innovate and invest to next decade, overall diamond
intrinsically linked to the strength keep diamond jewellery relevant supply may continue to expand
of the global economy. Fig. 2 refers for new consumer demographics; slightly due to technological
to the macro-economic scenarios alternatively, new consumers breakthroughs in diamond
published by McKinsey Global could move away from diamonds mining and in cutting and
Institute2 in 2015. if the industry fails to invest polishing as well as a greater
and innovate to keep diamonds supply of recycled diamonds.
There are three additional
relevant to them, and other
uncertainties across the value chain
experiential or luxury categories
that are likely to have significant
therefore become more relevant.
implications for the industry:
——Evolution of the distribution
channel: The next decade could
bring increased corporatisation
and consolidation to the
midstream; alternatively,
continued fragmentation and
relative opacity could characterise
the midstream.
FIG. 2: MACRO OUTLOOK: Uneven, volatile, but
GROWTH
Rapid globally distributed
high global growth: growth underpinned by
MCKINSEY’S uncoordinated efforts
(ABOVE 30-YEAR TREND)
broadening productivity
GLOBAL ECONOMIC to resolve structural and increases: technology and
SCENARIOS 2015–25 near-term demand information flows increase,
challenges lead to uneven near-term demand
success and difficulties challenges are overcome,
in international and major economies
economic policies. tackle structural challenges
to growth.
POCKETS OF GROWTH SCENARIO SCENARIO GLOBAL SYNCHRONICITY
2 1
DIVERGENCE CONVERGENCE
ROLLING REGIONAL CRISES SCENARIO SCENARIO GLOBAL DECELERATION
Near-term demand issues 4 3 Low but more stable
prove too challenging, global growth: countries
and long-term structural navigate near-term demand
issues are left unresolved. challenges, but structural
Financial flows become challenges linger.
more volatile, with International linkages are
more frequent and somewhat strengthened,
powerful shocks. GROWTH leading to new
(BELOW 30-YEAR TREND) opportunities for growth.
Source: “Shifting tides: Global economic scenarios for 2015–25.”
McKinsey Global Institute. January 2016 update.T H E D E B E E R S G R O U P O F C O M PA N I E S THE DIAMOND INSIGHT REPORT 2016 1 2016 DIAMOND INDUSTRY OUTLOOK
13
Overall, most sector observers THE IMPERATIVE OF and enhance the diamond dream
remain positive on the fundamentals in established, developing and
of the industry – recent analyst
PARTNERSHIPS emerging markets and across all
reports state that demand growth The diamond sector is used to consumer segments.
for diamonds will continue to tackling challenges. In the past, the
This will require investment and
outstrip growth in carat production, industry has thrived due to its ability
innovation across the value chain –
predicting low single-digit nominal to create strong partnerships – today
in new retail formats, value-adding
demand growth in the medium term this characteristic remains more
strategies in the midstream,
(Fig. 3).3 At the same time, it is clear important than ever.
technological innovation to ensure
that the macro and competitive
De Beers believes that consumer continuous supply and creative
environment will continue to be
demand will continue to be the partnership with producing countries
challenging and volatile.
key source of value – and retailers, and communities to ensure the
manufacturers and producers benefits of diamonds reach everyone.
must work together to preserve
FIG. 3: PERSPECTIVES FROM TWO INDUSTRY ANALYSTS ON THE VALUE CHAIN
BANK OF AMERICA MERRILL LYNCH AND MORGAN STANLEY COMMENT ON VARIOUS ISSUES ACROSS
THE DIAMOND INDUSTRY VALUE CHAIN
BANK OF DEMAND MIDSTREAM SUPPLY
AMERICA
MERRILL Polished diamond value (in nominal Small margins, liquidity, and Global supply of rough diamonds
LYNCH US dollars) is expected to expand fragmented structure have put (in carats) is expected to expand at
at a Compound Annual Growth Rate huge pressure on the industry: a CAGR of three per cent between
(CAGR) of four per cent between 2016 and 2022, peaking in 2021:
2016 and 2022, driven by:
——Credit will be increasingly
constrained in the industry, ——New exploration and finds can
——Positive US consumer confidence leading to liquidity issues. be expected to take place in
indicators; however, high end ——Liquidity hole will remain, but ‘tougher’ postcodes, which involve
retail under pressure. will lead to bankruptcies and political and physical difficulties.
——Five per cent per annum growth consolidation, benefiting the ——Improving technology however is
in China due to campaign against industry long term. optimising cutting and polishing
corruption and conspicuous so that greater yields are being
consumption. realised year on year.
——Slow European recovery.
MORGAN DEMAND MIDSTREAM SUPPLY
STANLEY
Diamond jewellery sales are expected Pressure on midstream margins Global supply of rough diamonds
to grow at a four per cent CAGR (in will be exacerbated by tightening (in carats) is expected to expand
nominal US dollars) between 2016 financing and liquidation of polished at a CAGR of one per cent between
and 2021, driven by: diamonds, as cutters and polishers try 2016 and 2021:
to obtain any possible cash flow:
——US providing a solid core, ——Diamond supply growth will
contributing 42 per cent of ——Recognition (of corporate loan reach a post-financial crisis high
polished demand. defaults by jewellers) may further of 143 million carats, or only
——Weakening Chinese consumer curtail liquidity available to the 13 per cent below the pre 2009
sentiment on luxury goods midstream and reduce appetite crisis peak of 168 million carats.
due to the economic slowdown for rough diamonds. ——This is driven by growth mainly in
and recent volatility in the Canada (Gahcho Kué, Stornoway)
stock market. and Russia (ALROSA and Grib
reaching full capacity).
Source: “Global Diamonds Metals & Mining,” Bank of America Merrill Lynch, June 2016; “The PIPE – diamond
intel,” Morgan Stanley, March 2016; “Why we’re less bullish than the street,” Morgan Stanley, April 2016.T H E D E B E E R S G R O U P O F C O M PA N I E S THE DIAMOND INSIGHT REPORT 2016 2 D I A M O N D I N D U S T R Y VA L U E C H A I N 14 DIAMOND INDUSTRY VALUE CHAIN There was a slowdown in global consumer demand in 2015, but a positive outlook remains, with clear growth opportunities in all main diamond jewellery geographic markets.
T H E D E B E E R S G R O U P O F C O M PA N I E S THE DIAMOND INSIGHT REPORT 2016 2 D I A M O N D I N D U S T R Y VA L U E C H A I N
15
DOWNSTRE AM
2015 SNAPSHOT positive growth of three per cent in contributor to the slower growth in
2014. At constant exchange rates, diamond jewellery sales, but a change
After five years of uninterrupted global demand for diamond jewellery in patterns of travel by Chinese
growth in the value of diamond grew by some two per cent in 2015. consumers also played a role in the
jewellery sales to consumers, and market’s performance. In India,
following a record 2014, demand The US – the world’s largest market
the market decline was driven by
for diamond jewellery measured for diamonds – was the main driver of
a more restricted consumer credit
in US dollars declined marginally in global diamond jewellery sales growth
environment and overall weakness
2015 (Fig. 4). This was principally due in 2015. That was mostly due to the
in consumer spending.
to unfavourable currency movements economy’s sustained recovery and the
and economic slowdown in China strength of the US labour market. Other markets saw declines in the
and other emerging markets. value of their diamond jewellery
At the same time, and after years of
sales, driven by unfavourable
The value of diamond jewellery sold buoyant growth, 2015 saw consumer
macro-economics and large
to consumers in 2015 reached an demand for diamond jewellery slow
devaluations of their currencies
estimated US$79 billion – down from in China and decline in India. In
against the US dollar.
US$81 billion in 2014, or a two per China, the widely reported Chinese
cent decline. This contrasted with economic slowdown was the main
FIG. 4: DIAMOND JEWELLERY VALUE: GLOBAL GROWTH BY MAIN GEOGRAPHY
U S $ B IL L ION (NOMINAL ) AND G ROW TH I N %
4%
2009–2015 CAGR
US$ LC
REST OF WORLD -1%
INDIA 3% 8%
GLOBAL TOTAL CHINA 14% 12%
2009–2015 CAGR GULF 5% 5%
JAPAN -2% 1%
79 81 79
76 US 5%
74
71
64
Gulf includes Saudi
Note:
Arabia, UAE, Qatar,
Kuwait, Oman and
Bahrain
Source: D
e Beers analysis
based on proprietary
retail and consumer
research and on
publicly available
statistics
2009 2010 2011 2012 2013 2014 2015T H E D E B E E R S G R O U P O F C O M PA N I E S THE DIAMOND INSIGHT REPORT 2016 2 D I A M O N D I N D U S T R Y VA L U E C H A I N
16
FIG. 5: POLISHED DIAMOND VALUE (POLISHED WHOLESALE PRICE):
GLOBAL GROWTH BY MAIN GEOGRAPHY
U S $ B IL L ION (NOMINAL ) AND G ROW TH I N %
5%
2009–2015 CAGR
US$ LC
REST OF WORLD 0%
INDIA 3% 8%
GLOBAL TOTAL CHINA 15% 13%
2009–2015 CAGR GULF 4% 4%
25.2 JAPAN -2% 1%
24.5 24.7 US 7%
23.0 23.6
20.9
18.5
Gulf includes Saudi
Note:
Arabia, UAE, Qatar,
Kuwait, Oman and
Bahrain
Source: De Beers analysis based
on proprietary retail
and consumer research
and on publicly available
statistics
2009 2010 2011 2012 2013 2014 2015
In terms of polished diamond content The last five years saw the gradual As approximately 45 per cent of
in jewellery sold to consumers,4 global recovery of the US economy following global diamond jewellery sales take
value fell by two per cent in 2015 to the 2008–09 global financial crisis, place in countries whose currencies
US$24.7 billion. That compares with and this market returned to the are neither the US dollar, nor pegged
growth of three per cent in 2014, at same share of the world’s polished to the US dollar, their share of
US$25.2 billion (Fig. 5). The global demand that the country had last demand in US dollars varies year-on-
figure masks some divergent trends seen in 2004. In 2015, sales of year depending on currency market
within the main consumer polished diamonds to US consumers trends. The sharp appreciation of
geographies: accounted for 45 per cent of global the US dollar against almost all other
demand for polished diamonds, up currencies in 2015 helped countries
——In the US, polished diamond from 39 per cent in 2010 (Fig. 6). with US dollar-linked sales gain
demand increased by five per
relative market share.
China has also gained relative share
cent (seven per cent in 2014) and
of sales since 2008–09. Mainland
surpassed US$11 billion in value.
——Chinese consumers’ polished Chinese demand doubled its share
demand increased one per cent in from seven per cent share in 2008
US dollar terms (five per cent in to 14 per cent in 2015.
2014) to reach US$3.4 billion. Changes in the share of polished
——All other markets posted diamond sales in 2015 were also
declines in the value of polished affected by currency movements.
diamonds.T H E D E B E E R S G R O U P O F C O M PA N I E S THE DIAMOND INSIGHT REPORT 2016 2 D I A M O N D I N D U S T R Y VA L U E C H A I N
17
FIG. 6: SHARE OF POLISHED DIAMOND DEMAND BY VALUE (POLISHED WHOLESALE
PRICES IN US$ TERMS): TOP FIVE GEOGRAPHIES AND REST OF WORLD
%
2015
US
2 01 0
22 US
REST OF 28
WORLD
39
R ES T O F 45
7 WO RLD
INDIA 10
10 6
I NDIA
8
14 JA PA N
CH INA G ULF
8 4
CHINA
JAPAN
GULF
Note Gulf includes Saudi Arabia, UAE, Qatar, Kuwait, Oman and Bahrain
Source: De Beers analysis based on proprietary retail and consumer research and on publicly available statistics
LOOKING AHEAD
Macro-economic volatility has European countries are With geopolitical risks perceived
contributed to subdued global expected to continue to see to be on the increase,5 in the
growth in consumer demand for subdued consumer demand short term industry participants
diamond jewellery in the first growth, given the weakness in will need to invest in resilience
half of 2016. The gradual their macro trends. and potential growth areas
adjustment of China’s economy to succeed.
By contrast, the US economy has
away from investment-led growth
continued to post strong growth In the medium to long term,
to consumer-driven growth
in consumer spending and solid demand for diamonds is
is still under way and volatility
employment numbers. If the expected to grow in real terms,
in Chinese demand can be
strength of the US economy provided the industry as a whole
expected in the short term.
leads the US Federal Reserve continues to invest to strengthen
India’s path to more sustainable
Bank to increase interest rates, its competitiveness.
public finances will also involve
more volatility in the currency
initial adjustments to consumer
markets could be the result.
spending. Japan and mostT H E D E B E E R S G R O U P O F C O M PA N I E S THE DIAMOND INSIGHT REPORT 2016 2 D I A M O N D I N D U S T R Y VA L U E C H A I N
18
FOCUS ON THE US As the largest (and consistently
growing) diamond consumer market
in the world, the importance of the
CONSUMER – US to the diamond industry cannot
be overstated. A new, De Beers-
A DYNAMIC MARKET
commissioned survey of 18,000
US women aged 18–746 shows how
dynamic this market has been in
WITH NEW SOURCES
the last two years.
A number of clear trends point to
OF OPPORTUNITY
areas of opportunity for retailers,
brands and other participants
looking to capitalise on the strength
of the American woman’s love of
diamonds. The top five trends and
areas of opportunity are:
THE SINGLE WOMAN
01
While single women’s acquisition
levels increased slightly in 2015,
their average spend soared by some
20 per cent compared with 2013
as they acquired more diamond-
only earrings and necklaces and
larger diamonds.
With the US marriage rate at
historic lows7 and younger women
delaying marriage,8 the rise in
The bridal and married women gifting unmarried households9 has been
categories remain the backbone of the US well documented. The singles’
demographic is thus expected
diamond jewellery business, with 28 per cent to grow. The diamond jewellery
and 37 per cent, respectively, of total demand industry must continue to engage
with this segment, using a
value in 2015. But there are new growth combination of relevant ideas for
opportunities as more women are buying each age and income group to
capitalise on its potential.
diamond jewellery for themselves and younger
consumers continue to show an increasing THE MARRIED WOMAN
preference for brands. ‘HEAVY OWNER’
02
Married women’s diamond
acquisition increased strongly in 2015
even though average prices remained
flat. The married 35–54 age bracket
increased its share of acquisition, as
did those owning more than eight
pieces of jewellery containing
diamonds (‘heavy owners’).
The married woman ‘heavy owner’
continues to be the pillar of the
non-bridal segment – she is happy
to receive diamonds as a gift and to
self-purchase. New ideas and designs
will inspire her to return to diamonds
again and again.T H E D E B E E R S G R O U P O F C O M PA N I E S THE DIAMOND INSIGHT REPORT 2016 2 D I A M O N D I N D U S T R Y VA L U E C H A I N
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WOMEN’S SELF-PURCHASE Younger consumers’ preference In summary, the bridal and married
03
for brands offers retailers the women gifting categories remain
More women are buying diamond opportunity to create a virtuous the backbone of the US diamond
jewellery for themselves and, in circle of higher margins and future jewellery business, accounting for
particular, women in households growth. The right branded offer 65 per cent of all sales (by value) of
with incomes above US$75,000 helps retailers strengthen their women’s diamond jewellery in 2015
per annum and 25–39 year olds. proposition to the women who have (this was 70 per cent in 2013). New
Diamond-only earrings and neckwear clear preferences when dreaming areas of growth are clearly emerging:
were more popular for those buying about their diamond. The higher self-purchase and singles looking for
for themselves. margins generated by brands then diamond-only, more design-driven
As women in the US continue to help support investment in and responsibly sourced pieces, and
make gains in the labour force10 innovation and marketing, which discovering brands and new channels
the self-purchase trend offers one in turn will strengthen retailers’ in search of a more experiential
of the clearest opportunities for proposition to consumers. acquisition process and an
future growth. Having a selection opportunity for self-expression.
While the appeal of diamonds
of diamond jewellery which appeals remains strong across all segments This applies in particular to the
to the woman looking to celebrate of the US female population, in next generation of diamond jewellery
a personal milestone, or to buy particular as gifts, the 2015 research consumers, aka the Millennials.
something special to reward herself, shows the desirability of a diamond In the midst of profound socio-
should become as much a focus for self-purchase has slipped slightly economic changes in the US and
for jewellers as bridal and other overall from seventh to eighth most worldwide, this edition of the
relationship milestone-related desired purchase. Diamond Insight Report offers an
jewellery. This may require a degree in-depth analysis of this consumer
of customisation, or a fresh focus Another important way of keeping
segment and suggests ways in which
on design. diamonds aligned to evolving
the industry can secure its future by
consumer values is by providing
understanding the aspirations of
DESIGN INNOVATION responsibly sourced products.
this new generation (see In Focus
04
Responsible sourcing of diamonds
Love and commitment continue to section: Millennials and the Future
is of high importance to more than
be the most important motivations of Diamonds).
a fifth (21 per cent) of US diamond
for acquisition, but there has been a engagement ring acquirers in 2015.
small increase in the proportion of The relevance of responsible sourcing
people acquiring diamonds simply is higher among the US Millennial
because they like a particular design. generation (aged 18–34), compared
Combined with trends of single with older age cohorts – while only
women acquisition, self-purchase two per cent of consumers over the
and the younger woman’s desire age of 35 stay away from diamonds
for self-expression, design appeal is because they do not trust that they
expected to become more important have been responsibly sourced, that
in attracting new and repeat proportion rises to seven per cent
customers to the category. among Millennials.
BRANDS
05
While branded acquisition did not
increase its share overall, this was not
the case for the younger age groups.
Amongst 18–34 year olds, there was
another rise in preference for
branded diamond jewellery; within
that age range, 25–34 year olds
showed a particularly strong affinity
for brands.T H E D E B E E R S G R O U P O F C O M PA N I E S THE DIAMOND INSIGHT REPORT 2016 2 D I A M O N D I N D U S T R Y VA L U E C H A I N
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DIAMOND JEWELLERY A wave of consumer trends –
many enabled by new smartphone
applications – is continuing to alter
RETAIL the retail landscape:
01
Online sales of luxury goods are
still a small proportion of total sales
A revolution is sweeping the world of retail and (six per cent in 2014) but ‘research
online, purchase offline’ was
diamond jewellery retailers will need to evolve estimated at 60 per cent of sales for
and adapt to compete effectively. international luxury brands. As such,
the expectation is that this industry
will fully integrate its online/offline
experience by 2020, increasing its
ability to reach consumer and achieve
higher sales.11
02
The rise of social media has made
consumers’ engagement with
retail brands a two-way interaction.
Internet commentators vie for the
attention of consumers with fast and
interactive content in blogs or vlogs,
at the expense of traditional media
(eg The Sartorialist®, The Blonde
Salad®) and many brands now use
Instagram® accounts as shop windows
(eg Barney’s® New York).
03
The growth of mobile commerce is
expected to drive exponential sales
growth from mobile devices in the
coming years. This is the next phase
of development in the multi-channel
sales trend.12
04
Consumers are increasingly valuing
experiences over products alone.
As a result, vendors have started
2015 SNAPSHOT to incorporate ways to tell ‘brand
stories’ and offer shoppers new
The global retail sector is undergoing experiences from in-store cafés and
fundamental change, driven by a bars to more personalisation and
confluence of digital trends, changes customisation options.
in consumer behaviour and new
05
operating models. Traditional
retailers are having to adapt and As with all retail, there is evidence
evolve in the way they engage with in the diamond industry that US
consumers, and jewellery retailers consumers are increasingly turning
are not immune to the effects of to non-traditional retail channels
this revolution. (eg Net-A-Porter®).13
06
E-commerce – and Amazon® in
particular (Fig. 7) – has reshaped Consumer demand for branded
many retail sectors by reinventing all diamond jewellery has been on
aspects of the retail value proposition. the increase for a number of
The use of data to identify individual years, as consumers’ needs for
consumer preferences, and predict individualisation and self-expression
consumer behaviour, looks set to are better met by brands than
continue to fuel the growth of generic products. For retailers,
Amazon® and other e-retailers. brands provide an opportunity for
differentiating their propositions.T H E D E B E E R S G R O U P O F C O M PA N I E S THE DIAMOND INSIGHT REPORT 2016 2 D I A M O N D I N D U S T R Y VA L U E C H A I N
21
One example of a fast-growing, FIG. 7: AMAZON® RETAIL MODEL
non-traditional channel is Net-A-
Porter®, the online fashion retailer
which launched its fine jewellery
category14 in 2012. The company sells
in 188 countries and caters to women
purchasing jewellery for themselves.15 EXPERIENCE PR IC E
“It used to be that people only wore
jewels to the opera or a gala dinner,”
says Sophie Quy, fine jewellery buyer
at Net-A-Porter. “It was taboo to buy
for yourself, but today women are
self-purchasing and wearing their
spoils all day, every day.”
C U STO MER
SERVICE RANG E
Net-A-Porter stocks 44 different
jewellery brands with price tags
ranging from US$100 to upwards
of US$50,000; it uses its shoppers’ C ONVENIENCE
data to provide its (mostly niche)
brands with insights into customer
preferences so they can strengthen
their offering. From its launch Source: Eden McCallum
in February 2012 to March 2016,
Net-A-Porter’s fine jewellery category
has grown by “some 350 per cent”.16 FIG.8: NUMBER OF US JEWELLERY STORES
In summary, traditional jewellery
30,000
retailers are having to face not only
the challenges posed by fundamental
changes to the retail and consumer DECLINE
landscape but also weaker growth FROM 2004
TO 2015
and changing habits in China, 25,000
India and other emerging markets.
Alongside those changes, they -21%
have also had to deal with the
effects of volatile foreign currency
20,000
markets. For independent
jewellers in developed markets,
slow consolidation has continued
(Fig. 8). The growth in new jewellery
store openings in China and India 15,000
has slowed in line with weaker 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
demand growth, as reported in
2015’s Diamond Insight Report. Source: US Bureau of Labor Statistics (BLS)
LOOKING AHEAD
Overall, jewellery retailers can take ——By interacting with customers minimise inventory imbalances
full advantage of the latest directly or through social and improve profitability.
consumer trends: media.
The country-specific reports of
——By defining their consumer ——By informing would-be buyers the 2014 and 2015 Diamond Insight
targets and de-commoditising about the positive impact of Reports (US, China, India), and
their offer through more diamonds on communities and the review of the US market and
branded and designed jewellery. countries where diamonds are the global Millennial consumer in
mined and polished.
——By giving consumers access to this edition of the Diamond Insight
a range of channels and brands, Retailers would also benefit from Report provide retailers and their
and allowing them to tell their working more closely with their suppliers with a wealth of insights
own unique story through their supply chain partners to improve to help them plan and focus on the
diamond, via customisation and the way they forecast demand, and most promising areas of growth for
personalisation. to plan together sales programmes the industry.
that will maximise returns,T H E D E B E E R S G R O U P O F C O M PA N I E S THE DIAMOND INSIGHT REPORT 2016 2 D I A M O N D I N D U S T R Y VA L U E C H A I N
22
MIDSTRE AM
Sustained success is likely They also provided customers with
to require ongoing efforts from greater supply flexibility, enabling
midstream businesses to reduce them to defer purchases that had
their risk profiles, to enhance been set out in buying plans without
their use of technology, to any impact on future supply levels.
strengthen their B2B brands Cutting centres also played a key
and to develop their interactions role in rebalancing midstream
with downstream customers. inventories by sharply reducing
Following a challenging year their manufacturing output during
in 2015, more normal trading 2015 SNAPSHOT this period.
conditions have returned to the While consumer demand for Meanwhile, downward adjustments
diamond industry’s midstream diamond jewellery remained to rough diamond prices, coupled
relatively robust in 2015, the rough with reduced rough diamond
in the first half of 2016 as a result diamond trading environment was production, helped with midstream
of the actions taken to address tougher, making it a much more participants’ profitability issues.
inventory indigestion. difficult year for the diamond
industry’s midstream businesses.
On the demand side, De Beers
invested heavily in additional
These traders, cutters, wholesalers, category marketing activities in
polishers and jewellery manufacturers the US and China. It also launched
saw a number of interconnected a new Forevermark campaign.
issues lead to severe inventory Combined with the investments
indigestion in the industry in diamond marketing from other
pipeline (Fig. 9). major brands and retailers, these
actions stimulated consumer
In light of the challenges relating demand for diamond jewellery
to supply, demand and profitability, strongly enough to trigger
a number of responses helped to a significant increase in footfall
normalise trading conditions. and sales over the all-important
Upstream, the major diamond holiday selling season.
producers responded to the reduced As a result of these actions, the first
demand for new rough diamond half of 2016 has seen rough diamond
supply by either reducing production demand improve, with midstream
or selling less production. businesses replenishing inventories
that were depleted by holiday
season sales.
F IG . 9 : 2 0 15 MID S T R E A M CH A L L ENGE S
LOWER CONSUMER DEMAND GRADING LABS OVERCOME EXCESS POLISHED STOCK AT
IN Q4 2014 LEADS TO SLOWER BACKLOG, RELEASING RETAIL, ESPECIALLY
RETAILER RESTOCKING MORE POLISHED IN CHINA
WORKING CAPITAL AND
LESS (AND MORE EXPENSIVE) HIGH MIDSTREAM POLISHED
PROFITABILITY CHALLENGES
BANK FINANCING AND ROUGH INVENTORIES,
AMONG CUTTERS
OF ROUGH SALES AND LESS MANUFACTURING
AND POLISHERS
LEADS TO DISTRESSED FALLING POLISHED PRICES BANKRUPTCIES OF ROUGH
SELLING IN MIDSTREAM, LEAD TO SLOWER AND POLISHED TRADERS
RESULTING IN POLISHED RETAILER BUYING LEAD TO LACK
PRICE DECLINE (AND VICE VERSA) OF CONFIDENCET H E D E B E E R S G R O U P O F C O M PA N I E S THE DIAMOND INSIGHT REPORT 2016 2 D I A M O N D I N D U S T R Y VA L U E C H A I N
23
F IG . 10 : K E Y DE V EL OPMEN T S IN MID S T R E A M F IN A NCING
ASSET SECURITISATIONS NOTES ISSUES TO THE BOND ISSUES
In addition to some existing CAPITAL MARKETS A recently reissued bond placed by a
programmes, new securitisation A notes issue to finance inventory financial institution for a midstream
vehicles have been launched by has proven to be successful in raising business was fully subscribed.
midstream businesses in 2016 with significant funding. Meanwhile, Increasingly, midstream players are
receivables acting as the underlying working capital assets have also likely to draw their funding from
assets for the securitisation. been successfully packaged into hybrid models, including elements
commercial paper. of traditional bank finance as well
PACKAGED FINANCE as participation in other more
PROGRAMMES SYNDICATION DEALS progressive options.
A leading insurance firm is A leading lender to the industry
brokering its own packaged finance co-ordinated the issuing of LOAN GUARANTEES
solutions for midstream players, a syndicated loan in 2015 for a The Overseas Private Investment
placing an insurance ‘wrapper’ major midstream business, which Corporation (OPIC), the US
around conventional midstream in turn attracted several new Government’s development finance
assets (ie stock, receivables) and lenders into diamond financing. institution, signed a loan guarantee
offering these as commercial paper that will help Botswana develop its
to capital market investors. Another diamond manufacturing sector by
financing entity is exploring a similar making further financing available to
solution for rough purchase finance. businesses with cutting and polishing
factories in the country.
LOOKING AHEAD
The events of 2015 crystallised with it a need for greater financial the way the midstream operates
many of the risks and pressures robustness, as banks and suppliers (Fig. 10). If bank lending remains
that midstream diamond businesses generally seek commercial restricted, then businesses that can
can face. The issues of finance, relationships with the businesses that find alternative and competitively
technology, reputation and present them with the lowest risk. priced sources of funding will gain
differentiation look set to continue a strong competitive advantage.
Improved financial robustness
being of paramount importance
would also position midstream A sharper focus on financial
in shaping the future of midstream
operators more strongly in an efficiency could also play a significant
participants.
environment where volatility is the role in shaping the future of the
CHANGES IN THE FINANCING new normal. Those with stronger cutting centres. Over-generous credit
balance sheets will be better able terms have often been the norm in
LANDSCAPE to ride out periods of depressed the middle of the diamond value
A host of new compliance pressures
demand without the need to liquidate chain, but, in an environment where
(from banks, regulators and
inventories cheaply, and will have funding is under pressure and ‘cash
rough diamond suppliers) require
greater ability to capture is king’, businesses may see that the
midstream diamond businesses to
opportunities in a rising market. benefit of a more efficient cash
adopt international standards of
cycle can outweigh the perceived
financial transparency to maintain The adoption of new forms of
advantage of competing for custom
their business activities. This brings financing also appears set to change
on the basis of extended credit terms.T H E D E B E E R S G R O U P O F C O M PA N I E S THE DIAMOND INSIGHT REPORT 2016 2 D I A M O N D I N D U S T R Y VA L U E C H A I N
24
F IG . 11: HO W T E CHNOL OGY DE V EL OPMEN T S M AY BENEF I T MID S T R E A M BU S INE S S E S
AUTOMATED CUTTING AND This could become increasingly SYSTEMS THAT ENABLE BETTER
important as the momentum for
SHAPING TECHNOLOGY cutting and polishing operations
INTEGRATION BETWEEN
This has the potential to boost moving to producer countries SUPPLIERS’ AND RETAILERS’
efficiency and consistency in the appears set to continue in the INVENTORIES
manufacturing process. coming years. De Beers’ recent
These have the potential to deliver
Sales Agreement with the
It also provides an opportunity to significant benefits to midstream
Government of the Republic of
reduce the lag between the purchase players’ ability to forecast demand.
Namibia, as well as its Enterprise
of rough diamonds and the sale of
Development Project for Diamond They could also enable more efficient
the resultant polished stones.
Beneficiators (in partnership with inventory management, thereby
It will likely be especially useful for the South African government and reducing the risk of a repeat of the
businesses with factories in diamond the South African diamond cutting indigestion seen in 2015.
producing countries where there is industry), also highlights this trend.
a focus on improving productivity.
F IG . 12 : HO W MID S T RE A M BU S INE S S E S M AY ENH A NCE T HEIR BR A ND
T O DO W N S T RE A M PA R T ICIPA N T S
Strong brand propositions will be by a narrative that makes them retailers value their midstream
especially important for midstream stand out for something other than suppliers’ support with store design,
players when working with price (such as design innovation, explaining product stories and
downstream operators to prevent traceability of product through industry insights.
the commoditisation of diamonds the pipeline, or extraordinary
These kinds of collaborative
at retail. This has been a growing craftsmanship) will have a substantial
approaches also offer midstream
problem due to increased online advantage over those providing
businesses the opportunity to
price transparency, more focus on undifferentiated offerings.
establish more sustainable supplier-
grading reports and a dearth of
Offering retailers support on customer relationships, which can
compelling brand stories.
co-brand building and global be challenging to achieve due to
Midstream businesses that can offer category trends may also make midstream fragmentation and the
retailers the opportunity to purchase midstream players more valuable to highly competitive landscape.
products that are accompanied downstream partners. Many smaller
THE GROWING IMPORTANCE and analyse relevant data to gain risk of undisclosed synthetics is also
insight on customer needs, consumer likely to continue, so businesses that
OF TECHNOLOGY trends and business performance can demonstrate their brand’s focus
The wide range of technological
will be strongly placed. on product integrity stand to benefit.
developments in the diamond
sector means there is a great degree REPUTATION AND The development of strong B2B
of potential for midstream firms brand equity is also likely to be
in this area: there could be increased
DIFFERENTIATION: THE ROLE important in other ways: a firm’s
commercial opportunity, for OF THE B2B BRAND ability to differentiate its offering
example, for businesses that focus With growing pressure from industry will be increasingly important in
on new technology in areas such as stakeholders (including consumers, a fragmented, competitive part of
automated cutting and shaping and banks, rough diamond suppliers and the value chain. Some midstream
online inventory systems (Fig. 11). retailers), midstream participants will businesses are likely to have continued
increasingly need to consider their success by selling to other midstream
Technologies focusing on the reputations as a vital element of their players, and differentiating themselves
detection of synthetic diamond B2B brand. on the basis of a technical offering
material, and on 3D printing in the
Higher ethical and professional (such as product specialisation or
diamond jewellery manufacturing
standards (and the ability to provide tailored assortment). Others will see
process, are also likely to be
evidence of them) are becoming more more success by supporting the ability
significant areas of interest.
of an expectation than a ‘nice-to-have’ of their retailer customers to tell
Additionally, businesses that can
extra. The increased attention on the compelling brand stories (Fig. 12).
effectively use technology to gatherT H E D E B E E R S G R O U P O F C O M PA N I E S THE DIAMOND INSIGHT REPORT 2016 2 D I A M O N D I N D U S T R Y VA L U E C H A I N
25
F IG 13 : INDU S T RY A N A LYS T IN T ER V IE W
Kieron Hodgson, Commodity
and Mining Analyst
Q WHAT IS YOUR VIEW ON THE Q WHAT IS YOUR VIEW ON THE
ACTIONS THE INDUSTRY TOOK FUTURE OF INDUSTRY
IN 2015 TO ADDRESS THE FINANCING?
INVENTORY ISSUE? While ADB and Standard Chartered
Our view on the actions taken by reducing their exposure to the
the major producers last year was a diamond industry is undeniably
rare example of industry participants concerning for many, it does clearly
realising that something had to be point to one conclusion: returns
done. At the time, inventory levels are not high enough for the risks
were too high, with fear and taken. For lenders to increase their
despondency dictating sentiment willingness to provide capital, at least
and transactions. Looking back, the one of two outcomes will be required:
actions were successful to a point; higher returns or lower risk. We
however, as inventory levels creep therefore believe the industry will
up again, should they reach the levels need to reduce its risk profile and,
as before, would similar actions be while this can be done through a
taken? We hope so. myriad of processes, most likely this
would be delivered by increasing
WHAT SHOULD MIDSTREAM financial transparency, reducing
Q BUSINESSES FOCUS ON IN THE long term average inventory levels,
continuing to close non-economic
NEAR FUTURE?
enterprises and decreasing overall
Without wanting to dictate to those debt ratios, most probably through
who are perfectly able to manage lower leverage ratios and higher
their own businesses, we feel the equity contributions.
risk to the availability of reasonable
commercial lending facilities remains DO YOU THINK THERE HAS
a major risk to growth. However, Q BEEN A FUNDAMENTAL
within this argument, manageable CHANGE IN HOW INVENTORY
leverage ratios and higher equity
IS MANAGED ACROSS THE
investments tend to reduce the risks
inherent to cyclical businesses. We
VALUE CHAIN?
also feel that increased consolidation Inventory (and how it is managed)
throughout the midstream may in is likely to be a key determinant
turn strengthen the negotiating of the prosperity of the industry for
hand when considering the relative the next generation. And, put simply,
margins at the midstream level, the midstream cannot be relied
versus those at the industry’s book- upon to warehouse the output from
ends, producers and retail. producers and be there to satisfy the
needs and wants of the retailers who
are in turn ensuring their balance
sheets are as efficient as possible. The
possible outcome of a lower, more
just-in-time approach to inventory
is a significant increase in price
volatility and possibly speculation
on future category shortages.You can also read
