Between Crystal Balls and Research: Diamond Demand Forecast for 2016
March 25, 10How will the diamond world look in 2016? This may be the least of our worries today, but it is nevertheless a vital “piece of information” for the future planning of one’s business. According to research published by De Beers, which compares what was in 2008 to what is expected in 2016, the U.S. share in global diamond demand will go down from 40 percent to 35 percent.
China’s share of global diamond demand will double from eight percent to 16 percent, while India’s is expected to grow from 7 percent to 11 percent. Somehow, in London, they believe that Italy is about to become history, declining from four percent of global diamond demand to two percent, a forecast that may be currency-related. The Gulf region’s diamond demand will grow ever so slightly from eight percent to nine percent. However, Japan’s market share will continue its relative decline from 11 percent in 2008 to 9 percent in 2016.
But market share is of less relevance than market growth. At the end of the day, this is what really counts. There have been ample predictions about future rough diamond supply shortages and possible declines in mining production. However, whether long-term prices will actually go up will depend on market growth. Indeed, forecasting future global polished diamond demand represents one of the more challenging exercises an analyst can undertake.
Measured in Polished Wholesale Prices (PWP), we know that global consumption totaled $18.9 billion in 2008, plunging to $16.8 billion in the 2009 crisis year. In 2010, this may rise slightly to $17 billion. What will this global figure be in 2016?
Predicting Rates of Demand Growth
In the last issue of Diamond Intelligence Briefs, economist Pranay Narvekar and I provide a number of growth rates in the various key markets. The analysis is based on the premise that the De Beers market share forecast is based on solid research to which we are not privy.
If one would assume a zero percent growth in the U.S. for the 2008-2016 period, global polished demand (in PWP) would grow 14.7 percent from $18.9 billion in 2008 to $21.7 billion in 2016. If, however, the U.S. growth would be, let’s say, 15 percent then the global market would grow 31.4 percent to $25.0 billion.
Based on the market share forecast of De Beers, our research shows that if there is a 10 percent U.S. growth of in eight years, the Chinese polished consumption will increase 2.5 times the 2008 figure (i.e. a 162.9 percent growth) and India’s consumption would almost double (a 97.6 percent growth). For reasons best known to De Beers, the consumption change in the “rest of the world,” namely Europe and all other Asian countries, would be five percent less.
Shift in Consumer Preferences
The shift in markets and in the various absolute value growth rates only tells part of the story. In some markets, we see a distinct shift in consumer preferences. Take, for example, the Japanese consumer. According to the latest McKinsey research, “After decades of behaving differently, Japanese consumers suddenly look a lot like their counterparts in Europe and the United States. Celebrated for their willingness to pay for quality and convenience and usually uninterested in cheaper products, Japanese consumers are now flocking to discount and online retailers...”
McKinsey’s research continues to state “This fundamental shift in the attitudes and behavior of Japanese consumers seems likely to persist, irrespective of any economic recovery. That’s because the change stems not just from the recent down-turn but also from deep-seated factors ranging from the digital revolution to the emergence of a less materialistic younger generation.”
Forecasts depend on the quality and validity of the variables used in the methodology. The research published in Diamond Intelligence Briefs present eight different growth scenarios with the resultant implied consumption in ten markets worldwide.
It seems that the DTC is operating on an expected annual polished diamond consumption growth of 2.5 to 4.5 percent, as measured in PWP. Much more work is needed to be able to comment on that. However, it is comforting to know that the world’s major rough diamond supplier holds very positive views on the growth in diamond demand in the years ahead.