Is the Diamond Market Screeching to a Halt?

diamond market - Is the Diamond Market Screeching to a Halt
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From top to bottom, the diamond market is changing, and in most places the change is anything but positive. The upcoming Sight, business failures in India and Israel and the languishing retail market all have issues. Not all is bad though, there is some good news as well.

Rough Diamond Market: Worry about the Next Sight

The upcoming Sight is planned to be another large one, estimated at $600 million or a bit more. While this Sight is not so large compared to previous Sights, given the current state of the diamond market – large inventories of rough and polished stuck in the manufacturing and wholesaling sector, combined with recent defaults and the sluggish retail market – how much rough is really needed these days?

Sightholders are deferring about 25% of their Sight 6 ITO to August.
The ~$600 million figure is an estimate based on the ITO for the upcoming Sight – Sight 6. When first submitting their requests, Sightholders asked for a large ITO in July. Perhaps they didn’t have much choice; maybe they believed the market would improve.

Currently, however, Sightholders are deferring a large chunk of their ITO, about 25% of the goods by value, to Sight 7 at the end of August. Many don’t see the market or liquidity improving by then, but whatever delay in having to buy rough that they can manage is welcome at this time.

There is a certain tendency in the market to view De Beers as rather blind to what is happening downstream. I’m not sure that is really the case. Prior to Sight 5 last month, De Beers announced it had some shortages, and would not be able to supply the full ITO.

The upcoming Sight is expected to be about $400 million.

Now, two weeks ahead of Sight 6, De Beers has once again informed clients that due to shortages, certain goods won’t be supplied. While mining is somewhat unpredictable, and changes in the composition of production do happen, there is a growing feeling that these shortages are really a way to cut supply a little without saying so outright.

Altogether, between the deferrals and shortages, the upcoming Sight is not expected to be as large as many fear. It’s hard to put a number to it, but $400 million is probably a reasonable ballpark figure.

This is still a lot of goods for the market to digest, but far from what is expected to happen in August. The ITO for Sight 7 is substantial, and with the 25% deferrals from the July Sight, it will be even bigger. Sightholders are already saying that if the situation doesn’t improve, then they’ll have to refuse many goods.

Farewell Zimbabwe

Rio Tinto announced this week that it completed the sale of its Murowa diamond mine in Zimbabwe. The announcement was brief, but the story behind it is significant. It’s not that Rio Tinto sold Murowa as part of a wider strategy to exit the diamond market. It is all about exiting Zimbabwe.

The ITO for Sight 7 is large, and with the 25% deferrals from the July Sight, it will be even bigger.

Between the uncertainties stemming from the government’s actions to the bad name the country has in the eyes of consumers, Rio made a decision that seems to make economic sense. The question remains as to how the new diamond mine owner intends to market the goods. The appetite from the Indian and Israeli markets has declined due to the current market and they are curtailing rough diamond imports. Whatever path they choose, without the good name that came with it being a Rio Tinto mine (which enabled to the company to export during the bad days of the Marange boycott), it will be a challenge.

Manufacturing Pandemic

Recently, two major diamond company closures took place in India. One is a manufacturer that reportedly owes money mainly to rough traders and the banks. The other is a polished wholesaler that mainly owes money to manufacturers and the banks. Together, the total debt is estimated at around $140 million, of which about half is to the industry.

Besides bearing on the market and adding to the difficulty to pay, the psychological effect here is tremendous. Almost everyone is talking about it. They want to know who is owed money, and if one was a client, the anxiety level only has increased. People are worried about how bad debts to other companies will impact their own, who may be next in line to call it quits and where all of this is going in order to prepare themselves.

The two latest business closures captured the headlines. Yet there were several others that happened with a lot less fanfare or media attention, increasing the debts to the industry and the banks.

To keep businesses running, some Indian company owners are resorting to selling other holdings, such as land and real estate in Surat, so they can bring money “from home.” The diamond market’s manufacturing sector is clearly going through a very difficult, unhealthy period.

Not only in India are businesses closing. In Belgium and Israel, a number of companies are experiencing difficulty in making payments, have gone bankrupt or have simply closed. This is a global pandemic. Even in the producing countries, manufacturers that set up polishing plants at De Beers’ encouragement are reconsidering their options.

In this context, the news that De Beers will increase local supply in Namibia from 10% to 25%-30% is surprising. One of the earliest signs of the current crisis were the difficulties at the beneficiation polishing factories in Southern Africa. The cost of manufacturing is high at these plants and the lower cost rough, which is not economical to polish at these facilities even in the best of times, is not always allowed to export to India and China. So why increase the allocation, especially in this market?

You may argue that the current market situation is temporary, and an improvement is bound to happen. However, manufacturers have found out a long time ago that polishing in Namibia and Botswana is at best an investment in getting rough. As far as polishing for a profit, it is not the soundest investment, which is why many have sold, closed or downscaled their polishing operations in Southern Africa.

A Ray of Light?

In spite of all the doom, gloom and pessimism, there is one figure that may indicate a change in the consumer market although it might be a false indicator from the perspective of a jewelry industry analysis. According to the latest data from the US Department of Commerce (DoC), overall fine jewelry sales in the US have increased by 0.5% year-over-year in May. Compared to April, sales increased 3.2%. This is the first increase in sales in seven months.

Based on this and a jewelry market analysis, we estimate US fine jewelry sales at $6.3 billion in May. Here is the caveat: in the past, the DoC has revised its figures retrospectively, and usually when it does, it revises jewelry figures downwards. Another reason for a cautious outlook are the watch sales figures, which are down for the eighth consecutive month. The purchasing trends for fine jewelry and watch sales tend to be aligned.

monthly US jewelry sales - Is the Diamond Market Screeching to a Halt

Meanwhile, the latest Jewelry Producer Price Index (JPPI) and Jewelry Consumer Price Index (JCPI) were released a few days ago. They show a further decline in prices – both those charged by US jewelry makers and those paid by consumers.

In May, the JCPI declined 1.3% compared to April, and fell 3.6% year-over-year, according to preliminary figures. Year-over-year, consumer prices have been declining for the past 20 consecutive months. Some of this was driven by a decline in the price of gold and diamonds, and some by consumers’ growing preference for lower-price items over higher-price ones.

US jewelry consumer price index (JCPI) Is the Diamond Market Screeching to a Halt

The Bottom Line: A Deep Crisis

The takeaway is that the entire diamond jewelry pipeline is in deep crisis. Consumers are not hungry for the product, retailers are selling less, manufacturers are in a very bad financial state. The result is a growing number of business failures and producers are sitting on a pile of goods that is desired by fewer and fewer people. Something needs to change, and the change is as urgent as it must be drastic.

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Comments 20
  1. The diamond industry must put its collective heads together to create a different mindset amoong the populatioon aged 17 to 45 years old which will re-invigorate their desire for diamonds as an important romantic symbol and a kind of valued, durableand transportable asset. Young consumers in the USA tend to now think of diamonds as too expensive, impractical and less and less a romantic purchase. The smartest and best minds of our industry ought to get together, in a cooperative effort with top people in the PR and advertising business, to work toward changing this attitude or we will eventually find ourselves stuck with a commodity that few people will be willing to pay for and one which has little meaning in their lives. Considering the amount of money currently being spent to promote diamonds to an ever decreasing audience, it seems logical to take the steps necessary quickly as waiting will allow further deterioration in demand.

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      Absolutely! Any long-term plan for diamond jewelry must include major promotion efforts otherwise demand simply won’t be there.

  2. Yes, , , a coordinated marketing campaign would make a significant difference. How long would it take? That depends on the type of product you are selling. For items that people are interested in, such as diet products or a just released album, you may only need to show the ads a few times. A few months may be all you need. For more complex products, you could be looking at a relatively lengthy campaign. For diamonds, , , it will take much, much longer.

    The head of marketing for BMW has said it takes over twenty years of keeping BMW in front of potential buyers to sell their product.

    Our industry rode the coat tails of DeBeers advertising for decades. Once their brilliant ads stopped, , , the industry began to slowly loose their prominent position in the hearts and minds of consumers. Add to that the dilution of traditional media, combined with the emergence of the various social media platforms in 2007/2008, leaves you with a highly fragmented marketing world.

    The golden age of marketing has ended. The marketing age we all grew up with where all it took was a clever ad that you threw money at to reach the hearts and minds of consumers. Fragmentation of the marketing world requires new skills, and vision to move the social needle, , , and deep pockets for this level of project.

    Can we turn this ship around? Can owning a diamond regain the position of prominence it once enjoyed?

    The answer is a resounding, “Yes!”, , , but it will take the industry coming together, , , pulling their resources together to make a concerted, highly focused, sustained, and expensive investment into the future of the diamond trade.

    Sadly, after 30 years in the Trade, , , I have seen little evidence of that level of industry wide resolve.

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      Rod, you raise an interesting point about marketing. To take it one step further, starting a new generic marketing campaign several years after “a diamond is forever” ended, won’t pick up from where the previous one left. There is a lot of lost ground to recover and some corrections that are needed.

  3. I have read with interest a lot of commentary on the struggles of the diamond industry recently, how it may be possible to address the current issues of finance, rough prices unsold pipeline etc.

    Everyone includes new marketing campaigns directed towards 18 to 40 year olds and the new rich and emerging market economies etc etc as possible ways of moving forward.

    As an experienced sales and marketing professional I have seen pretty much zero in terms of creative thinking and ideas. I honestly think the Diamond industry has no idea what to do next.

    I also think most of the commentary revolves around how the industry can save itself, start to sell more product and improve margins, which is fine in itself , but is this not just naval gazing? Is this not The Diamond market, for the Diamond market and for the benefit of the few Governments, Companies and Individuals who control and benefit from the Diamond market.

    Perhaps the Diamond business needs to look at what their customers need or want from the business.

    Frankly traditional marketing and adverts no longer work on consumers, the industry will not improve by tinkering around the edges and doing thinks slightly better than they did 5 years ago.

    Many people seem to think the problems really started when Debeers stopped their marketing /adds, i am not so sure. In the internet and information age maybe it was Sierra Leone, maybe Hollywood movies like blood diamond, maybe exposure of market manipulation and price control, maybe perception of multinational companies taking advantage of African countries who struggle to feed clothe and imunise local populations or people like Mugabe who are even worse, child labour etc etc.

    But was it actually a marketing campaign by the Diamond industry itself that did the most damage? KPC and conflict free Diamonds?

    You can not argue against KPC & conflict free ideal of course, but perhaps the for first time in the history of the mass diamond industry the consumer finally understood the impact of using a Diamond to signify love and beauty?

    Maybe the consumer just looks at a this small piece of sparkling carbon on their finger costings $1000,s & $1000s and can thinks of better things to spend their money on?

    As above I think people collectively need to come up with a better idea than a ‘new marketing campaign’.

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  4. Today customer is the king. We in industry will have to serve the kings & queens for selling diamonds in form of jewellery. Customer seeks valuable experience during the purchase. A great deal goes in the selection of their jewellery by the customer. Customer demands value for money deal.

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  5. We all saw the grower of this from traditional wheel where skill was considered as a great asset and value for diamonds due to greedy industry is coming to a halt very sad

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      The evolution of the diamond market from a few skillful master cutters to a global industry with heavy use of technology and bank financing employing well over 1 million people worldwide was not easy.

      Today, the livelihood of so many people depends on it that a way out of the current condition is very important.

  6. First of all…Great read!

    There are so many things to be said about the diamond market and its situation, but the way i see it, that it is the first time that this business meets with reality.
    The end of the “Illusion Era”!!!

    In today’s world, transparency occurring in every aspect of life a business that has been use to exist between the shadows is finally getting out….and it hurts.
    Most of the people in this business are very rough and smart business people that took a very unique (but generic) product, and either cut it, re-polished it and so on and moved it to the next hand, without giving it any added value (outside the industry).

    And now the game is almost over. No generic campaign, or something like that will work. It is about time to replace the “Disk” and start to understand that diamonds are diamonds and not too long that mining companies and synthetic rough manufacturers will sell their diamonds with almost no middlemen.

    It is about time to create an added value for the product and for the brand.

    The design is the next king, of either or both the gemstone/diamond and the final jewelry. It is the time of designers and brands to shine. But around it there will so much more…

    Ethical behavior of each brand and company
    Customer service
    Social existence
    And many more aspects that will put both the product, the brand and off course the customer in the front raw.
    This business will change in the way that there will be no justification to the way it is running right now.

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      You are touching on two important issues. First, the inefficient trade, aka the spaghetti chart. It needs to be streamlined.

      Second, design. Differentiation is very important and today you can walk into a store and see dozens of very similar designs that quickly all look the same. That is a turn off.

  7. I think Dan hits the nail on the head when he said the end of the “Illusion Era.” Anyone can walk down 47th street and buy a diamond, or purchase one on the internet. Consumers are mostly interested in the GIA report and the price. After doing some research, some think they know as much as a gemologist or an experienced jeweler. They don’t think the retailer has anything of value to offer and they don’t want to pay extra for that experience. I am noticing this in other trades as well, where you can buy from the manufacturer, so why pay the mark up of the brick and mortar retail store.

    If a person can buy a diamond (and a setting) anywhere or anytime with a click of the mouse, off of a database, the romance and illusion are gone.

    Many diamond dealers are placing their inventory online, so unless a customer understands the value I add, as a person of experience in the trade, they are not buying their diamond from me. If things are to change, I think this is the place to start, not marketing.

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      Dan, you make a compelling case for selling love and emotion. Otherwise, consumers are simply buying something pretty.

      If you feel it’s not love, than what from your experience veteran jewelers have to offer?

  8. Customers can look at several stones at once, an experienced jeweler can point out the qualities of each stone. They can see the difference and decide. I would say many buy the paper not the stone at this point in time. A mount that is different or custom is always good here in NYC. I sell mostly antique and period rings myself, with a call for contemporary diamonds and setting now and then.

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      Exactly. You can point out a high H vs a low H, something a site can’t for example. Consumers are missing out on this and that is why specialty jewelers are seeing their market share declining. The whole specialty jewelers experience is slowly losing its attractiveness in consumers eyes.

  9. hmm, if expertise and knowledge were that important, how do you then explain the growth of websites Amazon, and Blue Nile?
    Seems price, or the appearance of price (as its not hard to match value of these two sites, for a traditional brick and mortar store actually), AND convenience (sitting on your butt, hitting a few buttons will still be more convenient than walking into a store to make a purchase) are still a major element in buying.
    The diamond, is a symbol of commitment and trust, companionship and those traits are as old as “dirt”, are not connected to a “diamond campaign”.
    Our society on the other hand has changed in the way they express these same feelings, a new cell phone, a new mobile device, a vacation, etc now do the same.
    Too many vendors, too many outlets, both brick as well as on-line. Like many industries, supply and demand will run its course. But, it will be hard ti changed a society that thinks “an e-mail” is as good as a “hand written thank you letter”, hmm.

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      Craig, you make an excellent point: price has become the overriding issue for the ABC goods and that is why independent specialty jewelers are losing market share.

      At the same time, the old marketing messages of “forever” seem to have lost their appeal. A new approach is needed, one that restore diamonds’ position of a luxury item.

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