ABN AMRO’s Insights Report says diamond industry should gear up for change

ABN AMRO’s latest Insights Report entitled ‘Nothing is Forever’, notes that the diamond industry is at a cross-road and there are strong forces that could lead to change in the industry.

It said that the industry could witness structural changes in the near future, in which there could be a move towards a shorter supply chain. Two important factors which would greatly impact the industry in the coming years, it pointed out would be price competition and the wider acceptance of lab-grown or synthetic diamonds.

The report attributed the current crisis to rough prices remaining relatively high compared to polished prices and end demand being low. Also, the report said that the prices of both rough and polished diamonds need to be further lowered before they may be able to recover. It forecast that with the middle segment faced with a stock pileup, the rough buying would be low, coupled with tough liquidity and tighter credit, this segment would see consolidation. This segment would see the survival of only stronger companies who develop a clear niche for themselves.

Diamond mine production, as per the report is expected to be 1 percent lower annually over the next few years, owing to depletion of existing mines and failure to find new deposits. The report also mentions the growth of synthetic diamonds at a high pace, although there are no clear forecasts outlined for the same. This would lower the entry cost of the industry, raise total supply of diamonds and pressurize (downward) the natural diamonds.

The report suggests the industry embraces change and be open to making bold adjustments instead of resisting change and going against them.