Diamond inflation predicted at 60% by 2020

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A surge in rough diamond consumption is believed to be taking place at an astonishing rate, pushed by global growth of the middle classes. The biggest impact has been seen in India and China, the two most populated countries in the world, which account for 36.5 percent of the global population.

According to the 2012 Global Diamond Industry Report, these two countries alone will push global consumption to $26.1bn in value. This reflects a compound annual growth rate of approximately 6 percent from its 2011 level of $15.6bn.

Moreover, the annual bellwether diamond industry report finds that global demand will outpace supply, thus setting off rapid price inflation.

The report includes a far-reaching survey of more than 5,000 consumers in eight countries, and a detailed examination and findings from three core diamond markets: India, China and the United States.

The co-author of the report and partner of Bain & Company, Yury Spektorov, said: “The fundamental forces point to a bright outlook for the diamond market. However, the global market is becoming increasingly diverse, so successful players will need to understand the changing forces in global wealth distribution, customs and consumer tastes.”

The report’s findings indicate that the combined consumption in China and India to reach 36 per cent of the global total by 2020, surpassing the United States in diamond consumption.

Currently, the US is far and away the world’s largest diamond market. With $27bn in revenues, twice that of the American mobile phone market, and more than three times the revenues of number-two market China or third-placed India.

However, the report states that the demand in the US will marginally slow down due to several factors:

  1. Demand for diamond engagement rings among younger consumers is decreasing due to growing preference for other luxury goods, especially consumer electronics. It is unclear whether this is a temporary phenomenon or a long-term trend, but judging by the rapid evolution and demand in technology, it seems like this is a trend that will be witnessed throughout the next decade.
  2. The 2008–2009 financial crisis hit the US market hard, as diamond jewellery sales fell 18 percent from 2008 to 2009. The market has rebounded somewhat, but 2012 revenues are only slightly above those of 2000
  3. Retail trends play an important role in reflecting and shaping consumer demand. The specialty retail sector has consolidated in recent years, with the disappearance of more than 5,000 specialty stores. Despite the change, the sector remains very viable, and internet outlets and discounters are playing an increasingly prominent role

Meanwhile, China has grown rapidly into the world’s second-largest market for diamonds, with annual sales approaching $9bn.

Diamonds have strong emotional and spiritual resonance for Chinese women, who associate them with eternity and high status. The custom of giving diamond engagement rings is catching on quickly in China as rising wealth, popular fascination with Western culture and the fast-expanding middle class have powered the market’s growth.

The report also reveals that approximately 90 per cent of affluent households, with annual incomes of $15,000 or more, own at least one piece of diamond jewellery, and most own many diamonds.

Only 20 percent of households making less than $15,000 per year own at least one diamond. Therefore, market penetration among lower-income Chinese, who make up half the country’s 1.34 billion population, is much lower. This represents a large growth opportunity for diamond retailers as demand continues to increase amongst this segment.

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