Are Diamonds Forever? A Brief Look at the Diamond Industry Today

By Villinger, Niti D. | Journal of Global Business Issues, Fall 2011 | Go to article overview

Are Diamonds Forever? A Brief Look at the Diamond Industry Today


Villinger, Niti D., Journal of Global Business Issues


ABSTRACT

Currently, the Diamond industry is experiencing change and possible growth. According to statistics, consumers are still in awe with real diamonds and are interested in luxury purchases. Since 2007 and until 2010, there have been difficulties in the industry for major players. Emerging markets show demand growth. Supplies are limited but some markets are showing expansion.

"The diamond industry has been severely hit by the difficult global economic environment, the world's largest diamond producer De Beers said on Friday. The company, 45 percent owned by Anglo American, posted a 99 percent fall in first-half net profit and said rough diamond sales declined 57 percent to 1.4 billion U.S. dollars" (as stated on July 24, 2009; "S. Africa's diamond industry hit by bad economic environment. Also, "The combination of three principal factors - high stock levels throughout the diamond pipeline, constricted liquidity in the industry, and lower levels of retail and consumer demand - led to substantially lower demand for rough diamonds."lvi Others suggest growth in the industry:

"Despite the 40% rise in average rough diamond prices since January 2007, and the credit crunch, BMO forecasts a 30% increase, from August 2008 levels, by 2012"James Picton, BMO Diamond Analyst, 2008lvii

Diamonds are forever for millions of women who expect strong sales and purchases from boyfriends and family members. Evidence suggests that diamond sales have dropped due to the 2008 recession. As the preceding quote indicates, sales are down for the leading producers. Also, there are some threats in the industry. Copy cat firms have emerged producing diamond like substances which rival the quality of an original diamond. While most persons would prefer to have an original, costs make the copycat diamond also desirable.

What is the state of the industry? According to recent reports, the diamond industry has recovered from the crisis in 20io.lviii Other major players see the chance for growth. Hot markets continue to be China and India, where disposable incomes are increasing and North America (the USA market consists of 40% of diamond sales1*). According to Rio Tinto (as stated on their website): ""A significant supply gap is expected to emerge in the medium to long term and the outlook for demand is strong, driven by the growth of emerging markets. Argyle is well positioned to capture the new demand."* Exports in 2003 suggest that Belgium/Lux and Israel and India continue to be major exporters.

According to DeBeers in July 26, 2011: "Sales were driven by exceptional price growth, powered by strong demand for diamonds in the U.S., China and India," the company said in a statement today. Rough diamond revenue at its trading arm rose 33 percent to $3.49 billion and underlying earnings more than doubled to $666 million, the company said"*1. Sales had decreased by nearly 28% in Qi 2009 for DeBeers*".

Diamonds represent a large share of overall gemstone sales and purchases. Diamonds are also the most popular gemstone. Why are diamonds special? According to many consumers and producers, they are special because "Precious stones ~ diamond, ruby, sapphire and emerald ~ traditionally command a premium price in the market due to their extraordinary color or brilliance and extreme rarity.

For many, diamonds are the most exclusive item of jewelry, followed by demand for rhodium, platinum and gold. Due to its exclusivity and also scarcity, its value is quite high. The largest mines for diamonds are in the African region followed by other regions such as Russia and Australia (as producers). According to recent data, the largest demand areas are North America, the Asian region, and also other emerging markets. Largest exporting countries are Benelux, Israel, the United Kingdom and India (for finished diamonds) . Rough diamonds are processed in many parts of the world: notably Israel, the Benelux countries, India and New York. …

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