Developments and Impacts in the Diamond Industry

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The year 2015 was very tough and challenging one for the diamond industry. A decline in consumer demand for diamond jewelry that started in 2014 in Greater China had a ripple effect throughout the diamond industry that lasted into 2015. Weaker-than-expected customer demand hurt polished-diamond sales as retailers reduced procurements of the polished diamonds. The slowdown extended to midstream companies as they built up inventories and reduced purchases of rough diamonds.

Rough-diamond profits dropped by 24% in 2015 as the midstream segment sold down amassed inventories. Manufacturers reacted to declining demand by reducing production, increasing inventories and cutting rough-diamond prices. ALROSA, increased production in 2015 by 6%, saw its inventory levels go up when rough-diamond sales fell down in the second half of 2015. De Beers reduced production by 12% throughout 2015. Rough-diamond prices fell by 15% in the later part of 2015 and remained largely static in 2016’s first half.

The polishing and diamond cutting revenues also dropped by nearly 2% in 2015. Slowing rise in demand forced midstream players to reduce rough-diamond buying and discharge inventory accumulated in 2013 and 2014. Polished-diamond prices declined by 10% in 2015, and the operating margins of many cutting and polishing manufacturers were at or below the breakeven. Midsize players report margin improvements in 2016 due to highly desired reduced rough and polished diamond prices.

The international diamond jewelry demand grew up nearly 3% in local currencies in 2015 but yet again saw a sharp decline of 2% in US dollar terms. Lethargic demand in China offset positive trends in the US. Currency depreciation also drove the revenue decline in Europe, India and Japan despite high sales growth in local currency terms. The diamond industry is striding up its marketing energies in universal and beleaguered packages to lift the customer demand for diamond jewelry.

The diamond industry in 2016 is on the road to a recovery. Rough-diamond suppliers posted strong sales in the first half of 2016, mostly due to restocking by cutters and polishers following their inventory sell-off at the end of 2015. Despite the positive indicators, the 2016 outlook for global diamond jewelry demand remains uncertain, with retailers reporting minimal sales growth in key markets.

The medium-term outlook remains challenging, as new supply is expected to come online and uncertainties cloud the social, political and economic environments in key markets. In the long run, the positive macroeconomic outlook is expected to work in the industry’s favor—as long as diamond producers behave responsibly and industry players sustain marketing efforts to support diamond jewelry demand, especially among millennials.

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