Bain & Co. Study Shows 23% Drop in Rough Prices in H2 2015

(IDEX Online News) – The latest report on the global diamond industry released by Bain & Company and the Antwerp World Diamond Centre (AWDC) estimates that polished and rough diamond prices have plunged 12 percent and 23 percent, respectively, since May 2014 and 8 percent and 15 percent, respectively, for the first nine months of 2015.

The Global Diamond Industry 2015: Growth perspectives amid short-term challenges predicts that the market has the potential to rebound in one-two years, but the current situation will likely force the mid-market to re-evaluate its business models, leading to more change.

“At the moment, the mid-market segment is just too weak to cushion against short-term fluctuations in the diamond jewelry retail market,” said Olya Linde, lead author of the global diamond industry report and a Bain partner.

“Though it has little bargaining power over rough producers and limited access to financing, mid-market players still bear the brunt of price volatility, but this is not a life sentence. We expect their continued development will allow the industry to implement more sustainable business models over time.”

The report says that retail sales of diamond jewelry grew last year and in the first half of 2015 by 4 to 8 percent with solid performance from the US. However, the Chinese market continues to slow, which affected the entire value chain. As such, producers and mid-segment companies should anticipate a 10-20 percent decrease in revenue with diamond jewelry sales to remain near flat this year.

“The entire pipeline is now recalibrating its output and prices to adjust to somewhat lower growth forecasts,” said Ari Epstein, CEO of AWDC. “Furthermore, the measures the major miners have taken in response to the needs of the midstream, together with initiatives to stimulate demand for polished diamonds, should bring the pipeline back into balance. Every indicator points to a recovery starting mid-2016. We remain confident in the long-term prospects for the diamond industry,” he said.

Additional findings in the report reveal a somewhat turbulent year for the rough-diamond market in 2014 and 2015. Rough diamond revenue grew 8 percent last year on the strength of increased sales by the top five producers and despite a decline in the overall volume of carats mined.

At the same time, rough-diamond production volume fell by 4 percent globally to slightly less than 125 million carats, with the largest drops occurring in Australia and Africa.

Looking ahead, Bain anticipates that rough demand will grow at an annual rate of about 3-4 percent over the next 15 years. However, the aging and depletion of existing mines and relatively little new supply coming online, will eat into supply by 1-2 percent per year from 2015 to 2030, causing the gap between supply and demand to widen starting in 2019.

Despite an anticipated slow-down due to weaker economic growth and slowing expansion of the middle and upper classes, the Chinese market will likely stay flat in 2016 before an anticipated recovery in 2017 that is expected to lead to 4-5.5 percent annual growth through 2030. This projection is down from about 7 percent in previous forecasts.

Click here to see more information from the report.