Multi-party data indicates that the existing major diamond resources will face the dilemma of declining or even depleting capacity in the next few years. The mining of new mines is affected by factors such as thin profits and unstable political environment, which is difficult to effectively fill the capacity gap, which may lead to the market. Price volatility and changes in industry patterns have caused concern.
On August 14th, the diamond industry professional information agency Rapaport reported that the annual natural diamond mining volume will reach its peak in 2019, and then it will gradually decline. The report quoted many viewpoints and predicted that the future capacity difficulties will have multiple effects on the price of diamonds and industrial changes.
At present, the world's major diamond mining sources are experiencing a downward trend, and the newly discovered mineral deposits are low, which is not enough to make up for the losses. With the boost in consumer demand, the price of rough diamonds is at a high level, and the backlog of stocks has basically cleared up, which will have a decisive impact on the diamond industry's supply chain. In addition, the natural diamond industry will face the challenge of synthetic diamonds.
Production declines, new mines are difficult to open
Currently, the world's highest-yielding diamond mine is located in Jwaneng, Botswana, which is owned by the De Beers Group and the Botswana government. Independent diamond industry analyst Paul Zimnisky released a report in March this year, showing that in 2018, De Beers raised Jwaneng's mining load to 95%, much higher than 80% in 2016. Due to the excellent performance of the Jwaneng mine, De Beers is among the top three diamond mining companies, the only company expected to increase its production in 2018.
This year, Russian state-owned diamond mining company Alrosa is expected to reduce 8% of rough rock mining. Alrosa's main diamond mine, Jubilee, is currently depleting. In 2017, Jubilee's production reached 10.1 million carats, and this year it is expected to produce only 8.1 million carats, which is expected to drop sharply to 590,000 carats in 2019. Alrosa is rapidly consuming the previously accumulated rough stocks and is now close to the company's minimum operating inventory.
76% of the world's third largest diamond mining giant Rio Tinto produces diamonds from the Argyle mine in Australia. The diamonds produced by Argyle are not of high quality, but one of the unique pink diamonds is very valuable and is an important economic pillar of the Argyle mine, but Argyle is also expected to deplete and stop mining in 2020-2022.
The world's major diamond mines are currently operating at full capacity, and some are even drying up. Correspondingly, the development of new mine resources is still not fully prepared. Compared with the speed of resource depletion, the current mining volume of new mines is still far behind.
The most recent new mining operations are being carried out in Canada and Angola. Among them, projects such as GahchoKué and Renard in Canada started in 2017 and are currently able to provide a capacity of just over 1 million carats per year. Other mines in Canada, due to their small size, are difficult to dilute facility costs and lack investment attractiveness for diamond miners.
Although the size of the mine in Angola and the quality of the original stone are high, due to political and economic factors, it faces many uncertainties and it is also difficult to attract investment. In an interview with Rapaport, Peter Meeus, president of the World Diamond Mark, said: “The countries that have discovered diamond deposits in Central Africa, Angola and the Congo (Golden) are being affected by huge destabilizing factors in the next decade. It is difficult to provide a stable business environment. Currently, most of Angola's diamond mining comes from the Catcoa mine, which is operated by Angolan state-owned diamond mining company Endiama and Alrosa.
According to Rapaport, from 2019 to 2030, the global diamond rough mining volume will decline slowly. According to the diamond industry report released by Bain Consulting, the decline rate will be between 1% and 5% per year.
Demand boosts price increases
According to the price index monitoring released by diamond industry analyst Paul Zimnisky, since the third quarter of 2017, the price of rough diamonds has risen all the way, and the increase in the second quarter of 2018 is close to 4%.
The price increase reflects the high demand of the market. In 2017, the major raw stone miners increased their own production. The total global production exceeds 155 million carats, close to the level of mining before the 2008 economic crisis. At the same time, miners also seized the opportunity to reduce the previous inventory backlog.
Paul Zimnisky quoted data from the US Census Bureau and the National Bureau of Statistics of China as saying that in the first quarter of 2018, US jewelry store sales increased by 11.9% year-on-year, and mainland China's gold and silver jewelry consumption increased by 7.9%. In the diamond retail industry, the United States and China each account for nearly 50% and 20% of the consumer market. Zimnisky believes that the enthusiasm of consumers in both countries is an important factor in the rise in the price of rough diamonds.
In the future, as the mining volume peaks, industry insiders generally believe that the price of rough diamonds will rise further, but there is no shortage of raw materials. Kieron Hodgson, director of commodity and mineral research at Panmure Gordon, London investment bank, said in an interview with Rapaport: “The scarcity of raw materials brings about an increase in the cost of the industrial chain. This is the basic law of economics. However, there are still a large amount of stocks in the various links of the industry chain. As the price of diamonds rises, it will gradually be released into the market and solve the possible shortage."
Jean-Marc Lieberherr, CEO of the Diamond Production Association (DPA), believes that consumers at the end of the industry chain will gradually perceive the growth of retail diamond prices after a longer delay: “As a luxury, diamond prices remain slowly growing for the industry and Consumers are more advantageous because it highlights the value of diamonds."
However, the price of rough diamonds is mixed for the midstream sector of the supply chain. According to Bain Consulting's report, the industry sector currently in the middle of the supply chain and responsible for diamond polishing is mainly located in India, accounting for more than 90% of the total industry. Due to fierce competition, the industry lacks bargaining space in the supply chain and has low margins.
According to data released by Paul Zimnisky, in 2017, as the price of rough diamonds rose, the average purchase price of the diamond retail sector declined, which further reduced the profit margin of the midstream sector. However, due to the low price in the first half of 2017, the midstream sector purchased a large number of rough diamonds, and only De Beers sold a diamond inventory worth $5.3 billion. Paul Zimnisky believes that with the reduction in rough mining, the inventory accumulated by the midstream sector will be able to effectively resist the impact of rising raw stone costs.
Artificial diamonds affect the market
With the reduction in the production of natural diamonds, is it possible for artificial diamonds to take the opportunity to “upper� The industry believes that synthetic diamonds may have a certain impact on the natural diamond industry in both legal and illegal forms.
Bain Consulting's 2017 Global Diamond Industry Report believes that there are currently loopholes in the regulatory aspects of synthetic diamonds and the possibility of blending into the natural diamond supply chain. In response, the report stated: “The most effective solution is to find a technical means to efficiently distinguish between synthetic diamonds and natural diamonds. Before this technology matures, a production disclosure system for synthetic diamonds should be established in the industry to ensure Find out the source and whereabouts of each synthetic diamond."
In fact, synthetic diamonds have long been directly competing with natural diamonds in the field of jewellery. In this regard, traditional diamond jewellery brands have chosen to take the initiative. To further distinguish the value of synthetic and natural diamonds, the De Beers Group announced in June this year the launch of the new brand Lightbox Jewelry, which sells synthetic diamond jewelry for $800 per carat. The De Beers Group uses far lower prices than similar synthetic diamond jewellery on the market. Its purpose is to lower the market price of synthetic diamond jewellery, and quickly open the gap with the natural diamond market, and the conspiracy theory of “anti-industry†has been on the rise.
In an interview with Rapaport, Jean-Marc Lieberherr said: “Artificial diamonds have a place in the field of fashion jewellery and become an entry jewel that attracts millennials.†In recent years, the public’s values ​​of gemstones have quietly changed, especially millennials. Fashion has become the primary consideration for its consumption of jade, and the first thing they consider when buying jewelry is the aesthetic appearance, the satisfaction of the experience, and the more attention to wearing function and fashion. Therefore, artificial diamonds that are much cheaper than natural diamonds but have a natural diamond phosphorescent effect, are available in a variety of colors, and can be implanted with human factors have been widely recognized for their gemstone consumption circles.
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