Diamond Consumption in 2016!
December 10, 09Long-term forecasts of diamond jewelry consumption are difficult to make, even under normal circumstances, and they are surely far more challenging today. We used to rely on regression analysis to identify indicative variables, which historically have shown a correlation with observed diamond consumption.
In the past, we have found in most major consumer markets a high correlation between GDP per capita growth and changes in diamond jewelry consumption (except for Japan, where we found a high correlation with the Nikkei index). We also took into account the so-called “black economies” in these countries, as unreported income also has a tendency to be used for luxury consumption.
In the last decade, however, the correlation with GDP has been found wanting. The absolute measurement of the diamond market is basically a combination of anecdotal evidence, trading data and surveys among retailers and consumers.
Recognizing the constraints in predicting the future, we were fascinated by an eight-year forecast made by De Beers on future diamond consumption (the diamond content in jewelry measured in polished wholesale prices).
De Beers made a comparison between 2008 and 2016. Though the company’s 2008 figures should be pretty accurate, they are not fully consistent with our own data. De Beers put diamond consumption in the United States at 40 percent, followed by Japan at 11 percent, China and the Gulf each at 8 percent, then India at 7 percent, with the remainder divided among the rest of the world.
We have reasons to believe that India is already the second largest consumer of diamond jewelry, but admittedly, this may be problematic to validate. In countries where large parts of the economies are in the informal sector and where many transactions are taking place in parallel markets, surveys will often give only partially accurate results.
China and India: The Next Diamond Consumption Giants?
When looking at the future, common sense may tell more than all kinds of sophisticated measurement techniques. De Beers says that “China and India promise to be the next engine of growth for the diamond industry.” It predicts that by 2016, the United States’ part of the global diamond industry will decline from 40 percent to 35 percent. De Beers also expects that in the next eight years, China’s part of the global diamond industry will double from 8 to 16 percent and India from 7 to 11 percent. In contrast, De Beers predicts relative consumption declines in Japan (from 11 percent in 2008 to 9 percent in 2016) and in the Gulf (from 8 percent in 2008 to 3 percent in 2016).
The bottom line of these forecasts have it that within eight years China, India and Japan together will be a larger diamond consumer market than the United States. This will profoundly impact the strategic planning of virtually every diamond company in the market. The predictions seem to be based largely on economic indicators and maybe on anecdotal evidence that in the present year alone, the Chinese will buy more new cars than the Americans will. That doesn’t say much, however, about diamond jewelry.
While the high growth rate in these Asian markets may make a positive outlook quite reasonable, the absolute number of wealthy individuals remains relatively small. These numbers may not grow that much. The American population is predicted to increase from 311 million in 2008 to 345 million by 2016. This is a 10 percent population increase in a continent where bridal and anniversary jewelry are quite ingrained in the culture.
In Asia, the growth is impressive because they come from a very low base. But not all is well in those countries, and there may be other priorities for the rising middle classes. America remains a sure bet.
So, with all the fascination we have for the 2016 predictions, at this point we would like to monitor the trends and wouldn’t write off the United States yet, both as a potential growth market in absolute figures and in its relative share of the rest of the world. What the graphs don’t give us, however, is the total expected dollar value. For this, we will have to sit and wait.
Have a nice weekend.