Bain & Company said that the surprisingly strong diamond demand growth posted in 2011 and uncertainty around fourth-quarter holiday sales in 2012 introduced significant variables into the demand outlook for the year.
China and India accounted for most of the diamond demand growth last year.
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China and India accounted for most of the diamond demand growth last year.
However, faced with tough economic conditions, the Indian government devalued its currency by 20 percent early last year.
The devaluation effectively raised jewellery prices by the same amount for Indian consumers.
Bain & Company said during a webcast last week when it launched its annual diamond report that the recent increase in the export tax on gems, which froze the market in its tracks for several days in 2012, had further constrained the market in India.
Tighter lending policies by Indian banks also made it difficult for some polishers to finance new purchases of wholesale diamonds, it said.
As a result the import of rough diamonds declined by 36 percent from July 2011 to July 2012.
Bain & Company said a similar phenomenon was taking place in China.
It said Chinese imports of polished diamonds fell 14 percent during the first six months of 2012, compared with the same period last year.
“It is likely that China’s uncertain economic growth prospects have lowered confidence levels among consumers and distributors, resulting in a temporary dip in the market,” the company said.
Small bumps
However, Bain & Company said these small bumps in the road do nothing to dim China’s long-term growth prospects.
Retailers in China, it said, are still pressing ahead with ambitious expansion plans, and the country should remain a very attractive market for diamonds in the long term.
It also said the long-term projections in India were extremely positive despite economic challenges.
“In fact, diamonds could be an accelerator that drives the overall luxury market,” the company said.
“While tastes are still evolving among Indian consumers, the country reflects a huge long-term opportunity. It has the potential to become one of the largest global markets for luxury goods, including diamonds.”
Bain & Company said China (including Hong Kong) was now the world’s second-largest diamond jewelry market after the US, with demand growing 18 percent from 2010 to 2011.
India was the third largest, with growth of 17 percent during the same period.
“Powered by strong demand, the diamond market in both countries is developing rapidly,” it said.
“The number of retail jewelry outlets is soaring, and a growing number of consumers are adopting the Western practice of giving gifts of diamond jewelry to celebrate engagements, weddings and anniversaries.”
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Diamond jewellery
Diamonds have strong emotional and spiritual resonance for Chinese women, who associate them with eternity and high status, said Bain & Company.
The custom of giving diamond engagement rings was also becoming popular in China.
“Chinese women like highly visible diamond jewelry, preferring rings, necklaces and pendants to earrings,” it said.
“Stones of one carat or more are popular, and even mass- and premium mass-market stores in large cities often have several large stones on display.”
Buoyed by surging demand for all kinds of jewelry — up 19 percent per year since 2005 —diamonds’ share of the Indian jewelry market had grown from 24 percent in 2005 to 27 percent in 2011, it said.
“In fact, diamonds are India’s second fastest-growing discretionary purchase, trailing mobile phones but well ahead of packaged holidays, clothing and motor vehicles,” said the company.
Apart from demand growth in China and India, the US, which was the world’s largest diamond jewelry market, posted a 7 percent gain in sales as the country’s economy rebounded, with a 1.7 percent increase in 2011 GDP.
Consumer confidence in the U.S continued to strengthen, it said.
“Thus far in 2012, U.S demand remains relatively stable, although the country’s economic uncertainty is pushing some consumers to gravitate toward cheaper jewelry and smaller stones,” the company said.
Production
Meanwhile, Bain & Company said global diamond production in 2012 was expected to at least match last year’s levels, with the potential for a slight increase.
Global rough diamonds contracted by 3 percent in 2011 to 124 million carats, down from 128 million carats in 2010.
Production decline coupled with strong demand growth contributed to price increases of 31 percent for rough diamonds and 24 percent for polished stones in 2011.
“Thanks to those strong price increases, all major diamond producers realised significant average price growth, ranging from 27 percent for Petra Diamonds to more than 50 percent for ALROSA,” Bain & Company said.
It said it expects world diamond demand to grow at an average annual rate of 5.9 percent each year, to nearly $26 billion (in 2011 prices) by 2020.
India and China were also expected to account for 50 percent of incremental global demand by 2020, and together would overtake the US as the largest diamond jewelry market.
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