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- 26 Jan 2016
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Luxury Insight: The Dark Side Of The Diamond Industry


Earlier this month, Luxury Society looked at the rising demand for synthetic diamonds. Now, we investigate the state of the global diamond market and the real effect of synthetics on the sector and luxury appetite, in this summary of Bain & Co’s latest Global Diamond Report.

Diamonds, like gold, have always served somewhat as an indicator of the health of both the economy and luxury appetite, particularly in terms of the former.

That being said, the fifth annual report on the global diamond industry prepared by the Antwerp World Diamond Center (AWDC) and Bain & Company has revealed that the diamond industry suffered a similar struggle to the wider luxury industry last year.

 The first half of 2015 was characterised by a degree of uncertainty in the diamond industry 

A recent drop in rough and polished prices against the background of continued but slowing growth in the macro economy, in addition to the China slowdown and the weaker-than-expected growth in customer demand, have slightly battered the industry – although a brighter future in 2016 is not off the cards.

More specifically, in 2014 and the first half of 2015, revenue across the diamond industry value chain grew by 4 % to 8 % as demand has slowed in China while continuing to grow in the US.

Despite a generally solid performance in 2014, the second half of that year and the first half of 2015 was characterised by a degree of uncertainty in the diamond industry.

 The diamond industry has suffered the ripple effect from the mild decline in consumer demand for diamond jewellery 

The primary source of this uncertainty is China’s slowing GDP growth, with Greater China’s diamond jewellery retail dynamics having caused a decrease in demand for polished diamonds and, in turn, rough diamonds.

In 2015, the diamond industry suffered the ripple effect from the mild decline in consumer demand for diamond jewelry that started in 2014 in Greater China. That slowdown led to a notable drop in demand for polished and rough diamonds, which in turn led to price decreases for polished and rough diamonds of 12 % and 23 %, respectively, since May 2014 and of 8 % and 15 %, respectively, since the beginning of 2015.

The weaker-than-expected growth in customer demand initially affected demand for polished diamonds as retailers built up inventories and reduced purchases of polished diamonds. The slowdown then extended to rough-diamond producers as mid-market companies built up their inventories and reduced their purchases of rough diamonds despite declining prices.


In addition, the jewellery consumption spike in the Chinese market in 2013 led to inflated expectations of further growth in demand for diamond jewellery that were not realised. These expectations led to stock accumulation throughout the diamond pipeline, causing price declines for both polished and rough diamonds.

The increase in penetration of undisclosed synthetic diamonds is also a cause for concern, as this could eventually erode consumer confidence in the diamond industry as a whole.

Future Challenges & Outlook

The Greater China diamond jewellery market appears to be in turbulence in the short term. By now, the three largest retailers have posted significant year-over-year drops in diamond jewellery sales driven by the stock market crash and continued consumer uncertainty.

 Amid industry turbulence & continuing pressure on the market, companies are being forced to reevaluate their business models 

According to Bain & co, regular circulation of diamonds through the pipeline should be restored as soon as the midmarket and retail segments clear their excess inventories. This time, however, the market should return to its long-term growth trajectory more quickly than is the historical norm because of positive macroeconomic fundamentals.

Conscious management of supply levels by rough-diamond producers and polished-diamond manufacturers, however, is necessary for a sustained recovery.

Amid industry turbulence and continuing pressure on the market, mid-market companies are being forced to reevaluate their business models. At the moment, the segment is not robust enough to cushion against short-term fluctuations in the diamond jewellery retail market.

 The long-term outlook for the diamond market remains positive, with demand expected to outpace supply starting in 2019 

The mid-market has little bargaining power over rough producers and retailers and limited access to financing, yet mid-market players unconsciously or deliberately bear risks and benefits of price volatility that their business models cannot support. We observe that the continuing development of the mid-market segment should enable the industry to implement more sustainable business models.

As in past years, the industry faces key challenges: sustaining long-term demand for diamonds in developed markets and among a new generation of consumers, and boosting demand from other sources than jewellery and aesthetic use.

The risk of penetration of undisclosed synthetic diamonds persists, as this serves to undermine consumer confidence in the entire diamond category. This problem is more acute for smaller stones, and industry participants are actively addressing these concerns by tightening certification requirements; diffusing and adopting synthetic-diamond detection technologies, even for smaller diamonds; and tightening the legal and regulatory framework definitions of synthetic diamonds.


Amid persistent concerns, the industry is taking measures to prevent undisclosed synthetics
from entering the market

There is, however, no reason to believe that it will have any considerable impact on the market in the near future.

One of the key industry priorities in 2016 for restoring a sustainable, healthy diamond pipeline will be to restore the midmarket segment’s profitability, which declined in 2014 and 2015 because of deteriorating demand for polished diamonds and excess inventories in the middle segment.


Despite the challenges, all key regions for diamond jewellery showed good momentum in the past year, and the outlook remains positive

Overall, the long-term outlook for the diamond market remains positive, with demand expected to outpace supply starting in 2019. Until then, the rough-diamond supply-demand balance will be tight.

Bain & Co expect demand for rough diamonds to recover from the recent downturn and return to a long-term growth trajectory of about 3 % to 4 % per year on average, relying on strong fundamentals in the US and the continued growth of the middle class in India and China. The supply of rough diamonds in value terms is expected to decline by 1 % to 2 % per year through 2030.

To further investigate the diamond & jewellery industry on Luxury Society, we invite you to explore the related materials as follows:

- Luxury Insight: Are Millennials & Synthetic Diamonds Ready To Tie The Knot?
- In Conversation with Laurence Graff, Chairman, Graff
- Fine Jewellery: The Last True Luxury Frontier?


Bain & Company is a leading advisor to the global luxury goods industry.