Global "Diamond Dream" encounters high inventory

De Beers, the world's largest diamond manufacturer, pointed out in the "2015 Diamond Industry Analysis Report" that under the combined effect of China's economic slowdown and the strengthening of the US dollar, the demand for global diamond jewelry may stop growing this year, maintaining A level comparable to last year.

"There is no doubt that China's economic growth has slowed down, and it has hit the industry's midstream companies the most. When the economy begins to slow down, they continue to hoard inventory." De Beers during the exclusive interview with China Business News Stephen Lussier, executive vice president and chief executive of Forevermark, said that in the downstream consumer market, sales in the first half of this year will remain basically the same as last year. "Global economy, especially China's economic growth. Slow down, but they are still growing and there is no slowdown."

Low demand for rough diamonds
Last year, the entire diamond industry was still indulging in the joy of demand. In 2014, the industry saw the growth of diamond jewelry sales for the fifth consecutive year. The global diamond jewelry sales exceeded 80 billion US dollars for the first time, and the main markets accounted for 75% of global demand increased. Sales of rough diamonds exceeded $20 billion, an increase of 12%.

But now, even De Beers has to face the reality of shrinking demand. A few months ago, De Beers announced that it will reduce its production target this year from 30 million to 32 million carats to 29 million to 31 million carats.

“Our customers have reduced demand for rough diamonds and are now in an unbalanced relationship between the consumer market and the rough diamond market.” Lushir admits that De Beers will reduce production in response to customer demand before the two markets return to equilibrium. .

Obviously, the diamond industry has been somewhat overly optimistic about the economic slowdown.

Last year, the five major diamond jewelry consumer markets, which accounted for 75% of global consumption, showed growth. Although the US is the most mature market, it still achieved a 7% increase. China and India increased by 6% and 3% respectively. The number of jewellery retail stores in developing markets in Asia continued to grow in 2013, but the growth rate slowed slightly.

“When China is growing rapidly, jewelers are expanding and opening new stores. Mid-stream companies are buying diamonds to meet downstream business expansion. When the economic growth starts to slow down, they are still buying.” Luhill said. And jewelers suddenly no longer need so many diamonds, or no longer need as many diamonds as they think, resulting in a surge in the inventory of middlemen.

The aggressive strategy of the midstream enterprises has made the upstream De Beers very rich. Last year, although sales in the consumer market increased by only 3% year-on-year, De Beers ushered in a record year. Sales of rough diamonds increased by 12% year-on-year to US$6.5 billion, far exceeding the consumer market.

“In the first half of the year, the entire industry is still in the process of reducing inventory. Only when these stocks are completely consumed, can we see the market demand for rough diamonds recover.” Lu Hill pointed out, however, the good news is retail. Consumer demand for diamonds is still on the market, and diamond stocks in the middle will eventually be consumed.

The industry hopes that the Indian market, which has grown almost continuously over the past 20 years, will bring more opportunities. De Beers' report predicts that 75 million new Indian households will rise to $5,000 to $6,000 in the next 10 years, which will help drive demand for diamonds.

Affected by the reduction of stocks in the middle of the game, in the first half of the year, De Beers' profit before interest and taxes fell 25% year-on-year, and the target output also decreased accordingly. However, the price benefited from the higher quality of the produced diamonds, up 7% year-on-year.

“The price is actually a bit soft, but we are fortunate to have found high quality diamonds. But it will be uncertain whether there will be the same high quality production, even if the output of the same mine will be very different. You never know what kind of diamonds you will meet next." Luhill said frankly.

Say goodbye to the Kimberley Mine
As the leader in the upstream and mid-stream trade of diamonds, De Beers has been established since 1888. The Kimberley mine in South Africa is the first diamond mine developed by De Beers. Today, the Kimberley mine will also face the fate of being sold.

"We are in the process of accepting the bidding. There are already several interested bidders, but we have not set a deadline. We hope to finalize it at the end of this year or early next year." Luhill said that De Beers hopes to find it. A taker who can continue to care for this community, the amount of the bid is not the most important indicator.

The Kimberley mine has been in existence for 127 years since its mining. In the past 10 years, the Kimberley mine has stopped new mining. Instead, it uses existing new technology to reprocess the abandoned ore left after the initial mining and find some small ones. diamond.

“When a mine becomes older and has only a few years of life, we will consider selling it. This is the situation of the Kimberley mine.” Luhill admits that the decision to sell the Kimberley mine and the current market The situation does not matter.

Last year, the Kimberley mine produced a total of 722,000 carats of diamonds by reprocessing waste ore. “For a large group like De Beers, we need a lot of output. In fact, there is almost no difference in whether we sell the Kimberley mine. The output of this mine is less than 1% of the total output.” Luhill said that De Beers hopes to eventually sell to a local group, allowing the life of the Kimberley mine to continue for several more years.

In addition to the oldest Kimberley mine, De Beers' diamond mines are mainly located in Botswana, Canada, Namibia and South Africa. Lushir said that the highest-yielding mine is now the mine in Botswana and the Venezia mine in South Africa. Next year, De Beers will add a new mine in Canada.

"Reducing production this year is mainly due to the impact on several large mines, especially the decline in mine production in Botswana, but we will not close the mine." Luhill said frankly.

The worst time may have passed
In the first half of the year, for the luxury industry that is actively expanding the Chinese market, it is an unforgettable nightmare, and diamond jewelry has not been spared.

"China's economic growth is slowing down, and it has a relatively large impact on us. In general, women's products are less affected, but when the economy slows down, people will become more cautious in consumers," Luhill said.

Now, the high-end De Beers diamond jewelry has three stores in Hong Kong, and there are two stores in Macau. The reduction of mainland tourists has made these stores perform flat. "Macau's consumers are a bit short." Luhir reluctantly laughed, the store opened in Macau Galaxy Entertainment, the situation is unpredictable.

But to expand the scope to the world, the performance of De Beers diamond jewelry has not been seriously dragged down. “Hong Kong has lost those richer mainland tourists, but this is not a big problem for the luxury goods industry. Chinese tourists continue to consume in Europe, Japan, etc. De Beers’s overall performance in the first half of this year is good, very To a large extent, thanks to the sweeping behavior of Chinese tourists around the world, the income of Paris stores is growing strongly,” Luhill said.

The immortal mark on the marriage market is less affected. Luhill said that despite the overall decline in the jewellery industry, the performance of the Forevermark in Hong Kong in the first half of this year was basically the same as last year, and the sales volume in August increased by 16% year-on-year.

"This is the first time we have had strong growth in Hong Kong in the past 8 or 9 months. I hope that the worst situation has passed, and of course we have to look at the performance in the next four months." Luhill said that De Beers will also Continue to implement the development plan in the Mainland. The annual development goal of this year’s Forevermark has been completed ahead of schedule and may achieve better development than the plan.

“The industry obviously needs to further reduce inventory, but for us, the good news is that we are close to the gold consumption period of the year. Important festivals in India, China and the United States are approaching, and we will also increase marketing investment.” Lushir admits that if the performance is good during this period, then in the first quarter of next year, it is expected to see the need for retailers to increase their stocks. "Our focus is not on sales this year, and our attitude towards this year's performance is still cautious."

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