world diamond production 2013-2018

Global Diamond Industry

Essential Charts 2014

Equity Communications www.diamondshades.com

www.diamondshades.com/databank

Contents

Supply 1

Trade 7

Consumption 12

Diamond Prices 16

Long-term Themes 20

Diamond Industry Research Team @ Equity Communications

[email protected] as at 31 August, 2014


Contents

Supply Page2013 World Diamond Production Volume 1

2013 Rough Diamond Sales 1

Rough Diamond Sales Leading Producers 2009-2013 2

2013 World Diamond Production Volume - Countries 3

2013 World Diamond Production Value - Countries 3

World Diamond Production Volume 2004-2013 4

World Diamond Production Value 2004-2013 4

World Diamond Production Volume Forecast 1994-2018 5

World Diamond Production Value Forecast 2004-2018 5

Production Forecast Leading Diamond Producers 2009-2018 6

Production of Polished Diamonds Plus Forecast 1997-2018 7

Value of Polished Diamonds Production 2004-2018 7

Trade PageDiamond Trade Turnover 8

Rough Diamonds Trade Flow Volume 2004-2013 9

Rough Diamonds Trade Flow Value 2004-2013 9

Top Ten Polished Diamond Exporters 10

Top Ten Polished Diamond Exporters 10

2013 Top Ten Net Importers of Polished Diamonds 11

2013 Top Ten Net Exporters of Polished Diamonds 11

Consumption Page

2013 Global Diamond Jewelry Sales 12

Global Diamond Jewelry Sales 2003-2013 13

Consumption Per Adult Key Consumer Markets 2003-2013 13

Diamond Jewelry Share of Precious Jewelry Sales 14

Forecast Diamond Jewelry Sales 2006-2016 15

Forecast Distribution of Diamond Jewelry Sales 2006-2016 15

Diamond Prices PageRough Diamond Index 16

Polished Diamond Index 16

Rough and Polished Indices Trends 17

Rough Index Outpaces Polished Index 17

Precious Jewelry Commodities Prices 18

- 1 -


Supply: 2013 Rough Diamond Production and Sales

www.diamondshades.com/databank - 2 -

Supply: Rough Diamond Sales Last Five Years


Supply: 2013 Diamond Production Country Data


Supply: Rough Diamond Production Last Ten Years


Supply: Rough Diamond Production Next Five Years


Supply: Rough Production Next Five Years By Producer


Supply: Production of Polished Diamonds Plus Forecast


Trade: Diamond Trade Turnover Last Six Years


Trade: Flow of Rough Diamond Trade Last Ten Years


Trade: Flow of Polished Diamond Trade Selected Years


Trade: Net Flow of Polished Diamonds 2013


Consumption: 2013 Global Diamond Jewellery Sales


Consumption: Diamond Jewelry Sales Last Ten Years


Consumption: Progression of Diamond Jewelry Sales


Consumption: Diamond Jewelry Sales Next Three Years


Diamond Prices: Rough Index, Polished Index


Diamond Prices: Rough Index Versus Polished Index


Diamond Prices: Precious Jewelry Commodities


Data Sources

Kimberley Process Certification Scheme

National Statistics Agencies

Company Reports

Kitco

United Nations Statistics Division (Comtrade)

Equity Communications Data

Commodities price data updated quarterly. Last update 15 August 2014. All other data is annual data for

latest full calendar year - 2013. Forecasts are Equity Communications data reviewed every six months. Last

Revision August 31, 2014.


Key Long-term Themes Driving Supply and Demand for Diamonds

Key long-term themes driving diamond supply

Global supply of diamonds is mostly a result of the rise and fall of diamond mining operations in response to

discovery and exhaustion of diamond deposits, political conflict in key producer and consumer regions,

economic crises and changing consumer fashion tastes.

No fresh discoveries of rich diamond deposits have been made in more than a decade and this constraints

long-term supply of diamonds.

Nevertheless, current responsible exploitation of known diamond deposits ensures that diamond producers can

provide adequate supply of diamonds for at least twenty years. Our projections do factor in expected

consumer demand for diamonds.

Many diamonds have been produced in the last twenty years…but diamond miners have also added

substantially to global reserves of economically exploitable diamond ore.

In general, large diamond deposits can be mined for a period of 30 years up to 100 years. Diamond producers

often discover additional ore reserves while the mine is in operation and usually extend its life. Furthermore,

technological innovation and higher diamond prices often improve economic viability of previously

unprofitable parts of a diamond deposit.

That being said, global supply of natural color diamonds (pink and yellow colored diamonds, especially) is

threatened by the fast-approaching exit of Australia as a major diamond producer. So is global supply of

diamonds for fashion jewelry markets. So is India's processing industry.



Key long-term themes driving diamond trade

Rough Diamonds

These are the emerging trends in rough diamond trade:

Producer countries in Africa are determined to capture more of the downstream pipeline business. They seek

to further increase share of diamonds processed domestically, further reducing supply for foreign-based

processors.

In the same vein, major diamond producers continue to favor long-term supply agreements over diamond

tenders as the best way to receive maximum value for the diamonds they produce. Therefore, diamond

processors without the ability to recover costs further down the diamond pipeline will struggle to remain

competitive.

Dubai is fast emerging as the preferred trading centre for rough diamonds produced in certain African

countries because relationships are thought to be less patronizing. However, Dubai's ultimate strength is its

favorable environment for diamond traders who dislike tax and intrusive disclosure requirements.

Belgium will likely remain the leading marketing destination for diamonds produced in Canada and Russia.

Belgium is the closest destination while relationships between Antwerp and diamond producers based in

Canada and Russia remain strong.

In the final analysis, Southern Africa, Dubai and Antwerp will likely dominate international trade of rough

diamonds in the coming years. The trio will specialize in the trading of rough diamonds from their catchment

areas.

Diamond traders in India seek to establish a formidable rough diamond trading center in the country but we

believe this would severely expose the global diamond industry to the whims of the government of India.



Polished Diamonds

These are the emerging trends in polished diamond trade:

Geographical expansion of the global market for diamonds is fuelling international diamond trade. Diamond

industry stakeholders have made conscious effort to develop nascent diamond markets since growth

opportunities in traditional consumer markets are now limited. For instance, there is current effort to position

Panama as a launch pad into South America.

Nonetheless, fragmentation and greater internationalization of polished diamonds trade has created a

perception of shortages in polished diamond markets. Diamonds have to travel further and further to find the

right consumer match. Therefore, with manufacturing profits squeezed, trading activities now routinely

provide greater prospects for profit in the diamond pipeline.

That being said, these nine territories - USA, India, China, Hong Kong, UAE, Belgium, Israel, UK and

Switzerland - will likely continue to dominate trade of polished diamonds as they have done for the past

twenty years. Market share of annual flow of polished diamonds will be gained and lost within this group.

In the aftermath of the Global Financial Crisis, diamond traders shifted attention to Greater China while

traditional markets such as USA recovered from fallout of the crisis.

However, diamonds are high-value and low volume consumer goods. Therefore, it is quite easy to be

suddenly stuck with an overstocking situation if stock turnover is slower than had been anticipated. Greater

China has recently stalled so there is current rotation back into the American market.

In general, the diamond industry overwhelmingly follows a push strategy to get diamonds into the hands of

consumers. Polished diamonds are marketed at trade shows, placed with retailers on extended credit terms,

and moved from one market to another to satisfy seasonal demand. Diamonds are pushed to jewelry retailers

with the hope that consumers will buy them.



Key long-term themes driving diamond consumption

From an economic viewpoint, markets that generate increases in disposable incomes and domestic consumer

spending can expect to see growth in diamond jewelry consumption.

There is natural pent-up demand for precious jewelry in less developed regions of the world. Therefore, as

they become wealthier, most emerging markets should expect growth in consumption of jewelry.

Nevertheless, the rise of the Chinese consumer could well mean that it will not be possible to develop and

grow new alternative markets for jewelry in future. To be sure, 1.35 billion people going through a period of

massive economic transformation raises the stakes for everyone that follows. If we add India and South East

Asia into the mix, it is probably accurate to conclude that Asia is the last frontier market for the consumption

of precious jewelry and other luxury goods that have finite availability.

For one thing, US$1,000 today does not buy you the same quality and quantity of precious jewelry it did just

ten years ago. US$1,000 will likely buy even less precious jewelry in ten years time.

That being said, the idea of diamond as a gift for the loved one is still the leading driver of the diamond

jewelry business. For this reason, the long-term buoyancy of the diamond jewelry business is strongly

depended on the number of marriages that occur annually, especially in markets that adopt 'diamond culture'.

In fact, sustainability of 'diamond culture' is paramount for the diamond jewelry business.

Diamonds as a gift of love was successfully introduced in Japan after America. The diamond industry is now

trying to reproduce the same success in India and China. Incidentally, efforts in Europe were much less

successful.

If the diamond industry successfully introduces diamond engagement ring culture in both India and China, it

will be massive for diamond consumption. After all, the number of weddings that occur annually in USA is

less than twenty percent the number of weddings that occur in each of India and China in a single year.



Nevertheless, current indications are that the diamond industry will likely not succeed in its effort to develop

mass 'diamond culture' in China and India. Precious jewelry is consumed in a different way in what we call

adornment+investment markets for jewelry.

As it happens, diamonds do not have a convincing advantage for appeal in adornment+investment markets. In

contrast to gold jewelry, diamond jewelry is bought at retail prices and difficult to trade-in even at wholesale

prices.

For China, the approaching demographic squeeze is another significant impediment that is difficult to

overlook. More than anything, China seems likely to follow the path taken by Japan but too quickly.

However, China's huge population does ensure that further economic growth will drive diamond jewelry sales

for many more years, particularly for the premier or luxury brand segment.

For India, there is potential for massive consumption of diamond jewelry in the country. However, we remain

unconvinced that policymakers in the country will let India become a net importer of diamonds. Duties on

polished diamond imports and current efforts to disrupt gold imports for domestic consumption suggest that

diamond consumption growth is heavily discouraged.

Currently, India allows massive imports of rough diamonds because these are re-exported as polished

diamonds at higher values. In other words, the trade is foreign-currency positive for the most past.

Overall, growth in consumption of diamond jewelry in most emerging markets will be depended on expansion

efforts of the world's leading luxury brands.

In the final analysis, the USA market will remain the most important market for diamond consumption for

many years to come. The country has deeply rooted 'diamond culture' and demographics going forward are

more positive than in most advanced economies.



Key long-term themes driving diamond prices

Rough Diamond Prices

On one hand, many diamond producers have deeper operations and lower mining grades to contend with.

Equally important, environmental regulations have become tougher for mining operations.

Therefore, even in the absence of strong demand growth for diamonds, miners still require high rough

diamond prices for sustainable operations and a decent return on investment. Virtually all diamond

producers are under pressure to recoup huge capital outlays made to boost production capacity in

anticipation of a strong rebound in consumer demand.

On the other hand, diamond traders complain about rough diamond prices that rise higher and higher

independent of conditions in the downstream diamond pipeline. However, higher rough diamond prices are

not by themselves evidence of abuse of market power by producers.

On balance, higher rough diamond prices simply represent economic rent due to scarcity. In essence, there

are just too many secondary market players chasing a limited supply of rough diamonds. That is not about to

change.

For the above reasons we have concluded that rough diamond prices are naturally structured to rise over

time.

Nevertheless, the period starting late 2015 to 2017 should witness restraint in annual growth of rough

diamond prices. The major difference from the period 2010-2014 is that diamond producers are expected to

increase supply of diamonds by up to 38 percent in the next three years.

In the longer-term, the period starting in late 2017 could witness even faster annual growth of rough

diamond prices. Essentially, supply growth in the next three years likely means that more diamond traders

will be able to access rough diamonds. The supply situation is expected to flatten and then gradually reverse

as we approach the 2020s. As it happens, many diamond traders will start to lose access to rough supply and

competition could lead to a new round of rapid rough diamond price increases.



Polished Diamond Prices

Polished diamond prices are primarily influenced by the purchasing power of the world. Polished diamonds

are used in the production of jewelry and extravagant luxury gadgets. They have no other use.

Since polished diamonds exit the diamond pipeline in retail markets, consumer demand for diamond jewelry

and luxury watches ultimately shapes prices of polished diamonds.

We forecast continued low single-digit annual growth in the average price of polished diamonds. In general,

retailers and manufacturers of diamond jewelry are constrained in their ability to pass on higher costs of

rough diamonds to consumers. They are forced to absorb more of the cost increases since jewelry purchases

by consumers are price-point sensitive.

More important, we believe polished diamond traders will adequately meet demand from jewelry

manufacturers and retailers for the near future. Diamond producers are expected to increase supply of rough

diamonds in the next three years. By extension, supply of polished diamonds will also increase.

For the most past, polished diamond production has been in annual surplus for nearly two decades.

According to our calculations, 609 million carats of polished diamonds were produced from 1997 to 2013.

This is what we can measure confidently.

Of these 609 million carats, we do not know the volume of polished diamonds stored in the diamond

pipeline and the volume of polished diamonds bought by consumers. Nonetheless, it would likely require

three to four years of zero production to clear global polished diamond stocks in the pipeline.

Ultimately, it is actually a good thing for the diamond industry that polished diamond prices rise gradually

over time. Indeed, we must never take it for granted that there is minimal recycling of polished diamonds

after consumers make purchases. Diamonds are marketed to consumers as symbols of love and devotion. By

and large, consumers stick to the program and that is a good thing.



If polished diamond prices were to fluctuate wildly for any reason, traders and consumers would

immediately have a strong financial incentive to liquidate this large stock of polished diamonds. Moreover,

diamonds would no longer be symbols of love; they would quickly become just another avenue for

speculators to make money, to the eventual ruin of the whole diamond industry.


The Big Picture View – Ten Years To 2024

If you desire a big picture view, everything that is happening in the diamond industry at this moment points to

greater consolidation in the coming years. Right across the industry value chain or pipeline. Current expansion

and volatility in the global diamond industry will give birth to long-term stability.

Within a decade, we will likely have a leaner but ultimately stronger diamond industry. A few companies will

continue to dominate diamond mining; diamond processing will grow in Africa with the transfer of technology

and accumulation of processing skills; global processing over-capacity will become a thing of the past after

massive shakeout in India; few specialized diamond banks will dominate industry finance, while the world's

big banks steer clear of the diamond industry; and retail markets will be dominated by large multinational

corporations with strong brands and balance sheets.

Fundamentally, the diamond industry will rise in value as has happened with other global industries that have

consolidated. In the long run, revenues will increase for everyone who survives the great shakeout.

Greater consolidation of retail markets for diamonds is also likely. As diamonds become more expensive,

fewer consumers will afford them and fewer companies will have the deep financial resources to maintain

stores in poor performing regions.

Ten years from now, the big three markets of USA, India and China will likely dominate sales of diamond

jewelry. Moreover, retailing of diamonds could consolidate in gateway cities of the world - places like Tokyo,

London, Paris, Milan, Mumbai, Shanghai, Dubai, New York, Miami, and Hong Kong etc.

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Acknowledgements

Global Diamond Business 2014 is based on research by the Diamond Industry Research Team at Equity Communications:

Tinashe Takafuma, Romeo Takafuma, Fred Divine and Gerald Manyengavana.

Global Diamond Business 2014 is based on information available up to the end of March 2014, for the most part.

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