Year 2014 in Review

    2014 was an eventful year for the Diamond industry with several new trends, opportunities and challenges emerging. We bring you an annual roundup of major developments during the year.

     

    1. Mined diamond resources depleted faster, moving towards declining production and supply

    In past few years, no new viable discovery of diamond mines was made and many development projects got delayed. The last major discovery, in 2004, of Bunder mine in India by Rio Tinto continued to face development challenges. Rough mined diamonds’ production flattened and is expected to be so for the next decade, after which the Industry will face severe crisis of declining production. This was echoed by several expert opinions including a McKinsey’s report – “Perspectives on the diamond industry”.

     

    2. Diamond miners and Jewelry retailers entered into direct tie-ups, bypassing intermediaries and resulting in Vertical Integration in the industry

    Rising operating costs and shrinking margins led many diamond miners and jewelry retailers to enter into direct tie-ups. Tiffany & Co. invested in a Sierra Leone mine in 2011 and entered into other agreements for securing future output from mines from South Africa to Canada. Similarly, the world’s largest listed jeweler, Chow Tai Fook, after collaborating with Rio Tinto for Argyle’s pink diamonds and similar tie-ups with Alrosa and De Beers, is exploring investments in individual mines in Canada and other places. Firestone Diamonds, for its Liqhobong mine in Lesotho, tried to tie up with multiple retailers for direct supply deals. These developments indicate change in industry’s business model where intermediaries, cutting & polishing units, which employ hundreds of thousands of people, are being bypassed. Miners like De Beers running retail business – own jewelry division, Forevermark and retailers directly investing in mines to secure supply have resulted in vertical integration in the industry.

     

    3. Lab-grown diamonds gained significant acceptance

    Though vested interests of some factions in the industry had vehemently opposed Lab-grown diamonds, the mood changed with industry moving from denial to acknowledgement and gradual acceptance. With more awareness, consumers’ perception towards Lab-grown diamonds changed and more consumers adopted the sustainable option, which are 30-40% cheaper than mined diamonds. More jewelers alike also started to stock and sell them.

     

    4. Consumers became more Environmentally conscious

    Generally, consumers worldwide got more concerned about environment and took notice of the fact that in spite of the tremendous harm that is caused to environment in various forms including carbon emissions, soil displacement, wildlife threat etc., very few diamond miners even took the first step to reduce the environmental harm. However, the overall environmental impact of the industry is alarming. A detailed research study by Frost & Sullivan on the Environmental Impact Analysis of both Mined diamonds and Lab-grown diamonds gave the verdict that the environmental damage of mined diamonds is manifold than that of Lab-grown diamonds. Consumers are thus are tilting towards the eco-friendly diamonds.

     

    5. Technological developments of Lab-grown diamond production further advanced

    Chemical Vapor Deposition (CVD) technology had already gained prominence over the traditional High Pressure High Temperature (HPHT) technology for Lab-grown diamonds production. However, CVD technology further got bolstered by the more recent Microwave Plasma CVD (MPCVD). Such technological advances enabled the Lab-grown diamond manufacturers to grow bigger gem-quality diamonds. Lab-grown diamond production technology achieved a breakthrough after Pure Grown Diamonds successfully grew a 3-carat colorless IIa grade gem-quality diamond.

     

    6. Financing and Liquidity remained a challenge for the Industry

    Liquidity crisis in the industry amplified after closure of Antwerp Diamond Bank. This also resulted in other banks tightening their purses to industry players. To overcome this challenge, bankers spelled out that transparency is the key. But many industry stakeholders did not solely rely on debt financing and increasingly explored Equity funding routes and even newer models like Crowdfunding. Globally, diamonds were still not considered a mainstream investment option, with only a handful of funds for investment in diamonds taking off.

     

    7. Stronger branding of Lab-grown diamonds re-invigorated consumers’ interests in diamonds

    Diamonds as a category faced tough competition from other luxury goods including high-end watches, perfumes, bags and electronic gadgets, especially considering the lower marketing efforts by diamond companies. However, latter half of the year witnessed a series of stronger branding initiatives by Lab-grown manufacturers that outpaced those of mined diamonds segment. Unique marketing events like public proposal by a Southern University’s alumnus to his fiancée with a Lab-grown diamond ring, during a football game at New Orleans’ Superdome, helped raised consumers’ interests in diamonds again, especially in the eco-friendly, conflict-free and cheaper alternative.

     

    2014 has been an interesting year and 2015 certainly promises to be an an even more exciting year for the diamond industry. But before we step in to 2015, we would like to wish you Happy Holidays from BDI and may you have an amazing Christmas and a sparkling New Year!

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