An increasingly prosperous middle class in emerging markets, and their growing propensity to purchase luxury goods and invest in precious gemstones, has sparked an explosion of demand in countries such as China, India and the Gulf states. But, of equal importance has been the strong economic recovery underway in the United States, which accounts for approximately 35 percent of the global demand for diamonds.
The natural depletion of existing operations, such as Rio Tinto’s Argyle which is expected to produce 16 million carats in 2014 – but will shutdown operations in 2018, leaves the market in position that will see future production fall short of existing expectations; and significantly below future demand.
To give you some indication of where the market has come from and where it is going: in 2005, global diamond production was 168 million carats, in 2012 production was 127 million carats; and in 2013 production is expected to be approximately 130 million carats. Despite the introduction of new producers, Bain & Co. has concluded that only an additional 18 million carats per annum will be added to the global production profile within the next decade, which barely replaces the loss of Argyle’s 16 million carats contribution in 2018. This is cause for concern when we consider that, on its own, the UK jewellery sector grew 3.3% in 2013 and showed no sign of slowing down in 2014.
Demand for rough diamonds have recovered to levels that were last seen prior to the global financial crisis.
Trading fundamentals within the traditional jewellery and industrial applications explain why sentiment towards gemstone producers has turned much more favourable in recent months. Demand for rough diamonds have recovered to levels that were last seen prior to the global financial crisis. To provide further incentive to producers, an industry study performed by Bain & Co. shows that rough diamond miners can expect an average profit margin of between 16 and 20 per cent.