Hard luxury represents as much as 30 per cent of the GCC luxury goods market, an industry expert said, adding that the EUR2.3 billion ($2.56 billion) market performed better than other luxury goods categories in 2015.

Cyrille Fabre, partner and head of management consulting firm Bain's Retail and Consumer Products Practice in the Middle East, was commenting on the company’s diamond industry report.

Retail sales of diamond jewellery grew in 2014 and in the first half of 2015 by 4 to 8 per cent with solid performance from the US, said the Global Diamond Industry 2015: Growth perspectives amid short-term challenges, released by Bain & Company and the Antwerp World Diamond Centre (AWDC).

Meanwhile, the Chinese market continues to slow, due to stagnant GDP growth – a risk we predicted previously – which caused a ripple effect across the entire value chain. In 2015, diamond producers and mid-segment companies should anticipate a 10-20 per cent decrease in revenue with diamond jewellery sales to remain near flat.

“Following the economic turmoil of 2001 and 2009, prices took 18 to 24 months to recover,” said Olya Linde, lead author of the global diamond industry report and a Bain partner.

“This time, we anticipate the market has the potential to recover much quicker – within just 1 to 2 years – assuming rough-diamond producers and polished-diamond manufacturers closely monitor and manage their supply levels.  This will go a long way toward helping accumulated stocks work their way through the system efficiently.”

Additional findings in the report reveal a somewhat turbulent year for the rough-diamond market in 2014 and 2015.  Rough-diamond revenues grew 8 per cent last year on the strength of increased sales by the top five producers and despite a decline in the overall volume of carats mined.  During that same time, rough-diamond production volume fell by 4 per cent globally to slightly less than 125 million carats, with the largest drops occurring in Australia and Africa.

On the other hand, cutting and polishing revenue continued its positive trajectory last year with growth in the mid-single digits, due in large part to India and China.  Together, they now represent about 80 per cent of the market.

In contrast, Africa’s cutting and polishing market declined dramatically, despite efforts to turn the tide by the governments of Botswana, Namibia and South Africa – countries that have not yet become competitive in terms of manufacturing efficiency and skilled labour.  Elsewhere, countries focused on high-end stones, such as the US and Belgium, recorded declines in polished revenue as volumes of large stones migrated to India.

The country now cuts and polishes more than 40 per cent of the world’s diamonds larger than 1 carat with quality standards comparable to those of developed markets.

As in past years, the industry continues to face challenges – most notably that mid-market companies are being forced to re-evaluate their business models amid industry turbulence and continuing pressure on the market.

“At the moment, the mid-market segment is just too weak to cushion against short-term fluctuations in the diamond jewellery retail market,” said Linde.

“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.”

Ari Epstein, CEO of the Antwerp World Diamond Centre said: “This report confirms just how challenging the past year has been for the global diamond industry, but we must not lose sight of the fact that steps are already being taken to bring the system back into balance. While we have witnessed slow economic growth in the Far East impacting consumer demand, we have also seen continued robust US market performance.”

“The US has always been the main driver of diamond consumption and is still going strong. And while the industry as a whole responded too ambitiously to exponential growth in Chinese and Indian demand in recent years, the current slowdown in those countries in no way implies long-term stagnation.

“The entire pipeline is now recalibrating its output and prices to adjust to somewhat lower growth forecasts. 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,” Epstein added.

Looking ahead, Bain’s proprietary forecasting method anticipates rough-diamond demand will grow at an annual rate of about 3-4 per cent over the next 15 years.  Meanwhile, the aging and depletion of existing mines and relatively little new supply coming online, will eat into supply by 1-2 per cent 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 per cent annual growth through 2030.  This projection is down from about 7 per cent in previous Bain forecasts. – TradeArabia News Service