Diamond industry has murky waters to navigate in the short to medium term, according to the diamond report 2012 by Equity Communications

World production of rough diamonds in 2011 stood at 125.6 million carats, a reduction of 2.1% from the 2010 total. The reduction in world production for 2011 would have been steeper had it not been for significant growth of 31.5% in Zimbabwe production; this according to the "Diamond Report 2012", released today by Equity Communications. The value of 2011 production was US$13 billion, an increase of 12.9% on the 2010 value. On the sales front, diamond producer companies had another splendid year with sales rising by 21.9% to US$15.6 billion.
At the consumer end, global diamond jewellery products sales reached a record US$75 billion in 2011, finally surpassing 2007 sales of US$68.3 billion.  Diamond industry efforts to expand diamond markets paid off in a big way in both 2010 and 2011, with the Asia-Pacific region experiencing outstanding sales growth. The diamond industry had anticipated a similar outcome for 2012. However, global diamond jewellery sales are now expected to retreat 5% this year to US$72 billion because of short-term economic uncertainty that has engulfed key emerging consumer markets for diamonds. This economic uncertainty will slow down consumer purchases of discretionary goods.
"There is robust demand for premium quality diamonds and diamond-studded watches in the Asia-Pacific region," said Tinashe Takafuma, Equity Communications director and lead author for the report. "But consumer markets for diamonds are still heavily skewed towards developed markets and this has resulted in overall demand for diamonds lagging other luxury goods, whose producers have quickly and effectively shifted focus to emerging markets where growth opportunities are numerous."
The report also finds that the diamond supply pipeline is currently clogged. Encouraged by strong sales of other luxury goods, the secondary markets for diamonds restocked excessively in the aftermath of the global financial crisis and this added substantially to the stock of diamonds that were already being held for speculative investment purposes. Current destocking efforts have made visible consumption look weaker than it probably is. Going forward, the major concern for the diamond industry is that rough diamond prices continue to rise faster than polished diamond prices because of the present rough diamonds market structure which invalidates supply and demand fundamentals.
Other findings include:
- In the eight years to 2018, world diamond producers plan to spend US$15 billion on new mines and expansions of existing mines. If all projects go according to plan, annual production capacity will increase to plus 180 million carats around 2017-2018.
- Unprecedented diamond demand for investment consumption appears to have taken over diamond markets in recent times. International trade in rough and polished diamonds increased 56% from US$191 billion in 2007 to US$297 billion at the end of 2011.
- World famous premium luxury goods brands are now actively establishing branded hard luxury goods portfolios after successful trials in emerging markets of the Asia-Pacific region. This will likely intensify competition for high quality diamonds.
For additional information on the Diamond Report 2012, please visit www.equityzw.com/diamondreport.html.