“Survival in the Absence of Growth” was the subject of a panel discussion at the recent Mumbai “Mines to Market Conference.” It certainly summarized succinctly the diamond industry’s 2016 performance. The full 2016 Pipeline article is published in Diamond Intelligence Briefs.
For five years in a row, the industry’s global polished diamond sales, measured in Polished Wholesale Prices (PWP), have followed a downward trend. Commencing in 2011, when sales peaked at $22.6 billion, this figure gradually declined to $18.7 billion in 2016 – registering a 17% accumulative decline. Last year, the decline was merely 3% over the $19.2 billion of 2015. Our economic models predict that in 2017, global polished sales will remain steady, while the industry’s rough replenishment will continue, comfortably absorbing the higher rough supplies already announced by the main producers.
A glance at each pipeline level
In 2016, diamond jewelry retail sales declined slightly by some 1.3% coming to $74.3 billion. This figure must be approached with caution, though: During the last five years, starting from 2011, the average diamond content in each jewelry piece declined. This trend still continues. In this respect, 2011 was an exceptionally good year – but generally speaking, the average diamond content (in PWP) historically represented some 25-28% of the jewelry piece’s retail value. This rose sharply in 2010-2013 to well over 30%. Since then, however, it has been sliding back to some 27%. Thus, hypothetically, if in two years the same diamond retail value was sold globally, this does not necessarily mean that diamond contents would have been the same. They aren’t. At an average, there simply was “less diamond” in the overall jewelry piece – and gold, other precious materials or stones, design, etc. constitutes a larger part of the jewelry piece’s value.
Diamond mining output almost returned to normal towards the final months of 2016, after it had fallen steeply in 2015. Both Alrosa and De Beers reduced output in 2016, as they were carrying excess rough stock which was not sold. Global diamond production totaled $13.4 billion in 2016, down from the $15.5 billion unearthed in 2015 – and still a far cry from the $16.5 billion produced in 2014. Over the last few years, producers were forced to stock surplus production (and Alrosa stepped up sales to the Gokhran state depository to avoid severe mining cutbacks), creating divergence in what was mined and what was sold to the market. Thus producer rough sales to the market, which peaked in 2014 at $18.0 billion and fell dramatically to $13.3 billion in the difficult year of 2015, slightly increased last year to $14.8 billion. In our forecasts, we expect that producers will sell well over $15 billion in 2017 – and they have already set higher mining targets.