Because the diamond industry is one of slow-paced, moderate changes, it’s worth examining these over a decade of activity. What’s happened between the time the industry clawed its way out of the Lehman Brothers crises to the current deep slump? Considering the many conflicting changes, it was a confusing diamond decade.
A Drop in Rough Diamond Sales
In the past decade, we saw a major decline in sales by diamond producers. In 2010, De Beers sold $5.08 billion worth of rough diamonds. During 2019, that figure fell 20% to a little more than $4 billion.
Collectively, rough diamond sales by the top three miners declined by $2 billion during the past 10 years.ALROSA sold $4 billion worth of rough diamonds in 2010, which shrank to an estimated $3.2 billion this year – a 19% decline. The third largest rough diamond miner, Rio Tinto Diamonds is expected to suffer a massive 30% drop in sales in 2019 compared to 2010.
Back in 2010, one of the largest diamond miners was BHP Billiton. Ten years ago, it sold nearly a billion dollars’ worth of rough diamonds. Today, the miner is completely out of the diamond business after selling its holdings in Ekati in 2013. Even exports from diamond-producing countries fell during the 2010s. Exports of $11.4 billion in 2010 are set to contract 8% to an estimated $10.4 billion this year.
Shrinking Market Share at the Top
Collectively, rough diamond sales by the top three miners declined by $2 billion over the past decade. With this decline in sales, there was also a decline in market share. Together, De Beers, ALROSA, and Rio Tinto had an 86% market share 10 years ago. Since then it has shrunk some 13%.
In the past decade, we saw a major decline in sales by diamond producers.This is not a reflection of a highly consolidated market going through a fragmentation process. Rather, it is the result of the growth of smaller companies, mainly the company then known as Harry Winston, today’s Dominion, which bought BHP’s diamond assets.
Production Rises (Nearly) Across the Board
Falling sales took place against a 10-year rise in production. This is not very surprising. Slowing down production is not simple, easy, or fast. In fact, at times, producers continue to mine at the same rate as a conscious decision despite declining sales.
De Beers’ production declined an estimated 6% during the decade, while ALROSA and Rio Tinto forged ahead. ALROSA increased production by 12% as it acquired and developed several new assets, Ten years ago, it produced a mid-single digit more than De Beers. Over the past decade, ALROSA widened this gap and now extracts about a quarter more.
Together, De Beers, ALROSA, and Rio Tinto had an 86% market share ten years ago. Since then it has shrunk some 13%.Rio Tinto went underground at Argyle and boosted its production more than 20%. Global production declined year over year in 2019, yet compared to 2010, it will likely post a 15% rise.
If we assume that the entire production was sold, then between the three leading miners, the average price per carat of their rough diamonds fell 25%. However, not all goods were sold. A good part have simply been shelved.
Recently, ALROSA disclosed that in Q3, its rough diamond inventories grew 40% year over year to 21.7 million carats. This is a massive amount of goods – 73% of its reported production in 2019. By run-of-mine values, this is more than $2 billion worth of rough diamonds waiting for buyers. In practice, the value is probably lower as inventories are tilted towards less desired, lower valued goods, and yet, quite incredible.
A Loss of Value
The story, however, is not just one of a drop in sales and a rise in production. It’s a drop in value too. The combination of declining sales and increased volume of production is driving down the average price per carat.
In 2019 compared to 2010, the top three miners saw average prices fall 26%.“Diamonds, obviously it’s been a tough market,” Mark Cutifani, CEO of De Beers’ majority owner Anglo American, told investors. “Prices on a full year basis are down around 20%. [The De Beers’ Rough Diamond] price index is down about 5%, and the mix is down in terms of quality, by price, about 15%.”
In 2019 compared to 2010, the top three miners saw average prices fall 26%, Rio Tinto has been dragging the average down because of its mix of goods. The average value taking such a hit is a major blow to the industry.
Midstream Diamond Decade Struggle
The diamond midstream did not fare much better than the mining sector over the past decade. Consider the macro view. In the past decade, India’s rough diamond imports rose more than 23%, solidifying its position as a manufacturing center. However, polished diamond exports fell nearly 13.5%. Belgium’s rough diamond trade is forecasted to shrink 17% during the 10-year period.
Israel’s trade has suffered the most. Its net rough diamond trade was sliced by half, and polished diamond trade cut nearly 30%.
Conversely, trade through Hong Kong, soared more than 25%. In the US, rough diamond trade sank, but polished diamond imports posted an 18.6% rise, according to our estimates.
A Bright Diamond Decade for Retail
US polished diamond imports rose because it’s a consumer market, and despite all the distress of the American jewelry retailer, retail is the sector of the diamond pipeline where we see growth.
A 39% drop is a major erosion in interest in diamond jewelry.In the span of a decade, jewelry sales in the US increased 23%. US specialty jewelers increased their revenues 27% during the period. Not the kind of growth we would like to see over 10 years, but still better than the rest of the diamond pipeline. And all the while, at the onset of the decade there were some 22,250 jewelry retailers in the US. Their number has fallen more than 15% by the end of the decade.
Some companies did much better than average. Tiffany, for example, had $3.1 billion in sales in 2010. Based on company reports, they are expected to raise that revenue 44%. Signet, by slowly increasing its number of doors (Zales was swallowed by Signet), pushed up revenue 82%.
If anything, for better or worse, the US market is stable. China is the market that offered sweeping gains with a booming number of stores, a population with growing discretionary income, and an expanding range of diamond demands. Underscoring that, Chow Tai Fook’s revenues leaped more than 190% during the past decade.
If we had a crystal ball, one that would allow us to understand where the market is going, gazing into it, what would we see? I’m still not sure it’s rising consumer demand. My doubts are fed by the “Oracle of Mountain View,” aka Google. Global interest in a product fuels searches, and Google is where most online searches start.
In the past 10 years, global searches for the term “diamond jewelry” have been declining continuously. This indicates a steady and ongoing decay in consumer interest in the product.
From its peak in December 2010, searches for the term fell 44%. If you decide to commit to memory any of the figures presented here, this is the one to remember. A 44% drop is a major erosion in interest in diamond jewelry. The second trend to pay attention to is that, over time, the December peaks are not as dramatic compared to the rest of the year. Peak to valley is shrinking.
Finally, although somewhat moderating during the second half of the decade, the downward trend is a consistent one. As far as crystal balls are concerned, we’ve got a pretty good gaze into where things are heading – unless action is taken to change that.
Confusing Diamond Decade Roundup
Much more can be said about the changes the market went through during this decade. The drop in bank financing, rise of lab-grown, the shift in rough sourcing in the “outside” market from Africa to tenders in Antwerp, the discontinued organized exports from Angola, and more. There are so many questions to ask without these added issues.
So, is this is a major business cycle contraction, a recession? The answer is: it’s complicated. We are seeing a contraction in trade, manufacturing, and most other economic activity. However, consumer spending actually increased during the 10-year period.
It must be asked, how is it that rough diamond sales contracted, but retail sales expanded? First and foremost, there was a major destocking in the midstream in the last couple of years forced by the decrease in financing and the rise in rough diamond prices. This explains the decrease in mining sales and diamond centers’ trade, as well as the rise in imports to the US with its rise in jewelry sales.
Also, this has partially to do with a shift in American consumer tastes – a growing preference for smaller goods at the expense of larger ones. Smaller rough is sold for less and is more available. This also explains the decline in searches for diamond jewelry. Consumers are less interested in the diamond. They are interested in jewelry, where diamonds are a possible component, but not a must!
So, while on the upside, its measured pace has elegance befitting a luxury market, on the downside, the diamond industry is not modern or agile where and when needed. This is leading to a decline in value but higher sales – indeed, a confusing diamond decade.
Have a great holiday season and New Year. May the coming decade bring prosperity and growth to us all.