China to drive diamond industry growth
Brian Benza | Friday September 19, 2014 15:08
According to the Diamond Insight Report released by De Beers this week, the USA is still the largest buyer of diamonds but the Chinese market is experiencing phenomenal growth.
As a result of the growth, the share of polished diamonds sold in jewellery to Chinese consumers grew from barely three percent in 2003 to just over 13 percent of global demand in 2013.
Including Hong Kong and Macau, the share of this region’s consumers in the global demand of polished diamonds in jewellery was almost 16 percent in 2013 in US Dollars.
“This vertiginous growth in demand for diamond jewellery has been driven by growing numbers of consumers able to buy into the category, and by the increase in the average price and the sizes of diamonds they can afford to buy. Average prices paid jumped by 32 percent in real terms between 2003 and 2013, to over $1,300. Average carats per piece over the same period rose from 0.18 to 0.25,” reads the report.
Estimates by Goldman Sachs predict that Diamond demand will expand at a compound annual growth rate of 11 per cent in nominal value between 2013 and 2017.Despite being the fastest growing market, De Beers believes that China remains underpenetrated, as the consumer base is likely to continue to widen as the portion of the Chinese population able to buy into the category expands further.
According to De Beers, the potential of the Chinese market is underpinned by the number of wealthy individuals, which is growing strongly.
In its 2013 Wealth Report, Credit Suisse estimates the number of Chinese millionaires to be 1.1 million in 2013, up 90,000 in one year alone. This potential for growth is also recognised by the big Chinese jewellery chains with the store network expanding at a fast pace over the past three years, leading to an estimated total of, approximately, 15,500 stores offering diamond jewellery in 2013 – 29 percent more than in 2010.
According to De Beers, the global diamond jewellery sales were an estimated US$79 billion in 2013, growing at over three percent in nominal value in 2013 in US Dollar terms versus 2012, ahead of the compounded annual rate of growth experienced between 2008 and 2012. Demand is expected to continuously grow over the long term, driven by the ongoing economic recovery in the US, which is the world’s largest diamond jewellery market, and growth of the middle classes in developing markets such as China and India.
Sales of polished diamonds in the US increased by seven percent in 2013 while both India and China saw their domestic diamond jewellery markets grow by a compound annual 12 percent growth rate in local currency terms between 2008 and 2013. The report cautions that while diamonds have retained their special allure with consumers around the world, future demand levels cannot be taken for granted. The overall category is facing increasingly strong and sophisticated competition from other luxury categories: with diamonds’ share of advertising voice in the US market having reduced within its competitive set. Meanwhile, the report states that global rough diamond production in 2013 increased by seven percent year on year in carat terms to around 145 million carats.
However, this remains well below the 2005 peak of around 175 million carats. The report further highlights that a forecast reduction in supply from existing sources will likely not be matched by new production coming on-stream in the years ahead and diamond supply is expected to plateau in the second half of the decade before declining from 2020 onwards.
Speaking to the media via a teleconference from Hong Kong, De Beers’s director of strategy and new business, Bruce Cleaver, said it is unlikely that production will ever reach the 2005 peak, as the chances of finding a huge new deposit were slim.