Bain & Company forecasts a solid outlook for diamond demand

Bain & Company has issued its fourth annual report, in which it mentions its forecast of a solid outlook for diamond demand, but cautions of the uncertain developments in the backdrop, as well. It mentioned that though the industry has been moving along an up and down path in the recent past, there came a moderating pace in 2013 with 2-4 percent growth at every point along the value chain. Looking ahead to the next decade, Bain & Company foresees a strong outlook provided there be a constant focus on driving demand and sustaining a positive image for the market, although this may not be easy considering the backdrop of macroeconomic uncertainties, industry challenges, and difficulty in the industry access to financing – one of the biggest hurdles facing the diamond value chain’s middle market, as per the report Diamonds: Timeless Gems in a Changing World, developed by Bain & Company and the Antwerp World Diamond Centre (AWDC).

Bain’s research noted the growth in the diamond industry last year was centered primarily in the U.S., China and India – with the U.S. establishing itself as the world’s leading diamond retail market powered by economic growth of approximately 2 percent – a big improvement from the 1.6 percent decline posted during and immediately after the global financial crisis. India and China continued to dominate the cutting and polishing and jewelry manufacturing sectors, respectively. But as Olya Linde, lead author of the global diamond industry report and a Bain partner noted, “The economic peaks and valleys that the global diamond market experienced over the last few years are steady, at least for the time being, but the industry cannot afford to get too comfortable. Macroeconomics, along with other factors – financing, marketing challenges, undisclosed synthetic diamonds, environmental concerns, social awareness, and even country-specific preferences – stand in the way of an easy, straight path to sustained diamond industry growth over the long-term.”

The report also notes Bain’s predictions that beginning in 2019 the global diamond market would experience a widening gap of up to 5-6 percentage points, due to dwindling diamond supply and increased demand led by expanding wealth and a growing middle class in developed and developing countries alike.

The fading of diamond financing is a pertinent issue the industry is dealing with, particularly the middle market, which includes traders, cutters and polishers, and, to a certain extent, jewelry manufacturers. The current situation of caution by bankers has led to tighter bank regulations, and many traditional diamond banks having reduced their exposure to the industry, including reducing the percentage of stones financed from 100 percent to 70-75 percent. As a result, a period of deleveraging could strike with available levels of financing plummeting by as much as $3 billion in the medium term, the report adds. Bain urges that for everyone in the supply chain to benefit with the promising prospects, ‘banks and diamantaires must change the way they do business. In the short- to medium-term, this includes increasing transparency of the reporting and inventory for the middle market segment, introducing new and more secure products, and enhancing cooperation between traditional commercial banks and diamond banks,” said Ms. Linde.

The report also identifies three additional key challenges that are important in defining the long-term outlook for the industry’s development - sustaining the emotional appeal, and therefore, the demand for diamonds; securing long-term access to diamonds – particularly for diamond jewelry players – as long-term supply tapers off; and defining the role that synthetic diamonds should play in the industry.

Stephane Fischler, AWDC President added, “Despite a well-developed consumer culture when it comes to diamonds, our industry must make sure we understand and establish a relationship with the new generation of consumers and address their needs and expectations. We are also seeing the rise of technological advancements, which have a considerable impact on the dynamics of the diamond pipeline and are a tremendous opportunity for those eager and able to embrace them.”