Late last month, the diamond market digested a fairly significant piece of news when Anglo American (
AAL.L), one of the world’s largest diamond producers and owner of
De Beers, announced they were
cutting their annual diamond production forecast due to softening diamond demand and supply gut.
As a spokesperson for Anglo American explained, “[Diamond] demand has been a bit off and you don’t want to overproduce.”
Certainly, when one of the largest diamond mining companies announces they are cutting their production expectations due to demand and supply concerns, that’s something that stirs attention. But, to say that Anglo American’s revision forecast is in any way a foreshadowing of the future of the diamond market would be entirely inaccurate.
The Anglo American spokesperson admitted just as much, explaining based on
The Guardian write-up that demand was “a little weaker than normal”, which led Anglo to “tweak” its production estimate from 32m-34m carats to 30m-32m carats.
Language like that does not signal a long-term reversal in market expectations.
The fact of the matter is that, putting Anglo American’s latest announcement aside, macro expectations regarding future diamond demand look very healthy.
At the end of last year, the global management consulting firm,
Bain & Company, and the Antwerp World Diamond Centre released their
fourth annual diamond industry report. Entitled ‘Diamonds: Timeless Gems in a Changing World”, the report admitted to several changes in the global diamond market that could prove challenging for miners, dealers and others who work in the industry. The
report highlighted the lack of large undeveloped diamond sites and pressure on operating costs as two of these challenges.
This month,
The New York Times published a lengthy article,
“Changes Are Reshaping the World’s Diamond Market”, detailing the current tightening of lending standards affecting the diamond market. Due to regulatory changes, many banks have become more cautious and conservative about lending to diamond businesses, a fact that will play into the industry’s future.
However, with all that said, the big picture for diamonds, and the industry as a whole, still looks highly positive. De Beers forecasts that global diamond demand will
grow as much as 4.5 per cent, and the Bain & Company report offered similar positive expectations.
In an interview last year with
The Economic Times, Paul Rowley, EVP of De Beers Global Sightholder Sales, had this to say about future diamond demand:
“Global consumer demand is forecast to grow at an average of 4-5% in US dollar nominal terms between 2013 and 2018, driven by the effect of the US economic recovery and the continued growth of emerging markets, especially China and India.”
The United States boasts the world’s largest diamond retail market, and, as Paul Rowley mentions, the United States’ continued economic recovery is a very positive factor influencing diamond demand.
But, the economic growth and maturity of China and India will also prove to be a boon for diamond business. Yes, China has recently experienced a stuttering in their unprecedented economic expansion. However,
90% of well-off homes in China own at least one diamond. Even more importantly, China’s middle class, i.e. the amount of people who will be able to afford diamonds, is set to grow even more. As reported this month by economists Li-Gang Liu and Louis Lam in the
Business Insider, “Our projections show that by 2030, China’s middle class by broad definition will reach about 93% of the urban population … 326m new middle class will emerge in China’s urban areas from 2014 to 2030.”
Similar forecasts of growth in India’s middle class are also projected.
“As a diamond dealer, I really do feel confident in the industry’s future, and China and India play into that.” This is a comment coming from Geoff Black of
Griffin and Highbury Inc., a Toronto-based
natural-colored diamond and precious gemstone dealer. Griffin and Highbury acquires,
educates and remarkets diamonds and precious gemstones for a wide range of clients in Toronto and Canada, and as such, the firm has a close feeling for the pulse of the industry.
Griffin and Highbury’s Geoff Black adds, “Griffin and Highbury has enjoyed terrific sales over the past two years, and there’s no doubt that the continued economic recovery has played into that … Between 2006 and 2014, fancy colored diamonds enjoyed almost a 155% average appreciation at the wholesale level. We’ll be very excited to see this kind of appreciation continue over the next several years.”
In 1953, Marilyn Monroe performed “Diamonds Are a Girl’s Best Friend” in the film
Gentlemen Prefer Blondes, a notable performance for sure. Diamonds have been a girl’s best friend
and an investor’s best friend for many years now – with current global trends, it looks like that’ll continue to be the case for the foreseeable future.