Wednesday, September 30, 2020

Botswana diamonds still to glitter a little longer

By Bonnie Modiakgotla

Botswana is expected to benefit from continued positive long-term outlook for the diamond market through 2030 despite production hiccups.

This anticipated growth will be fueled by demand on the backdrop of technological advances and anticipated growth in major economies.

This is contained in the eighth annual report on the Global Diamond Industry commissioned by the Antwerp World Diamond Centre (AWDC) and prepared by Bain & Company.

The Global Diamond Industry 2018 report projects that despite a 1 ÔÇô 2 percent decline in production volumes, demand for mined rough diamonds will increase up to 2 percent annually up to 2030, backed by the growing US economy and continued growth of the middle class in China and India.

“The projections emerging from this report demonstrate at least two things. Firstly, they show just how intertwined the diamond industry is with the global economy, and we in the industry look to longer-term macroeconomic projections to assess the outlook for the industry as a whole,” said AWDC Chief Executive Officer Ari Epstein.

“What do they tell us? We should expect growing prosperity in the U.S., China and India, and increasing technological efficiency in diamond-manufacturing countries. Secondly, they illustrate the resilience of the diamond industry.  It is clear that consumers around the world still aspire to own a diamond. Provided we keep that desire alive, and deliver the goods in the right, sustainable way, we have reason to be optimistic,” he added.

In the key industry trends that have the potential to affect the diamond industry in the short term, the report narrows it down to advancements in digital technologies, the development of lab-grown diamonds otherwise known as synthetics and generational shifts in consumer demand.

The ever increasing influence of technology is expected to benefit the diamond industry through promotion of transparency and efficiency efforts across all segments of the value chain.

A particular emphasis is being put on the origins of diamonds, with consumers preferring to support and buy diamonds from countries with respect for human rights, and in this regard, technologies like blockchain are helping consumers to confidently identify the origin of their diamonds.

The diamond industry value is made up of upstream, midstream and downstream, and throughout this chain, all players are placing their bets on technology. On the upstream side ÔÇô which involves production of diamonds, mining companies are using predictive maintenance, real-time controls and artificial intelligence to mitigate rising operating costs.

The midstream – made up of diamond cutting and polishing firms – are pursuing advanced solutions in digital mapping, modeling and manufacturing to shorten production cycles and ultimately move toward fully automated processes to manufacture polished diamonds. The downstream which comprises of selling jewelry to consumers will be guided by consumer behavior changing as technology matures; social media, for example, is enabling and influencing new direct-to-consumer and online sales models.

With lab grown diamonds gaining recognition, in July 2018 the US federal Trade Commission amended its Jewelry Guides in making no distinction from lab grown diamonds and naturally occurring diamonds positing that “a diamond is a diamond” regardless of its origin.

It means this will have an impact on the supply and demand. A few months later in September after the decision of the Commission, one of the top diamond producers, De Beers, launched its consumer synthetic diamonds business named Lightbox Jewelry.

The entrance of a major player like De Beers which is highly credited for creating value for diamonds through its marketing of diamonds as “forever” was seen as major shift for a company that has held a stronghold in natural diamonds production and sales. Indications were that De Beers will force down the prices of lab grown diamonds, making it tricky for other players to enter that sector.

“As the lab-grown industry continues to evolve and lab-grown diamond prices decline, players along the entire natural diamond value chain will need to determine how to respond and how to position their products with consumers,” read part of the diamond report.

The report further adds that the current gem-quality, lab-grown polished diamond capacity is estimated at 2 million carats majority of which is melee (diamonds size less than 0.18 carats). By 2030, the market could grow to between 10 million and 17 million carats, if the segment can sustain its current growth rate of 15 to 20 percent annually supported by consumer demand and attractive economics.

‘But we believe manufacturing capacity will be a major limiting factor in the short to medium term,” says the report.

To this end, the authors of the report say marketing and consumer perception will determine the effect of lab-grown diamonds on the natural diamond market.

“Three scenarios exist: Consumers could perceive lab-grown and natural diamonds as interchangeable, as two different products, or somewhere in between. Marketing could uphold the value of natural diamonds, especially if the prices of lab-grown diamonds continue to drop. It’s probable that consumers will view lab-grown diamonds as fashion jewelry but not luxury goods, limiting the effect on natural diamond demand.”

While the report concedes that natural diamond production will decrease down to closing of old mines and other short term factors, it is expected that demand for diamonds will maintain positive momentum due to increased spending power from China and USA consumers, as they benefit from expected global Real GDP of 2 to 3 percent. Growth in demand will also be sparked by India, a growing market for jewelry, as its middle class expands, fueling demand.

The report adds that the rough diamond supply is reasonably predictable over the next 5 to 10 years, but added that financial challenges, production mix updates and overall uncertainty over future market conditions could force or delay production as mining companies adjust output to react to changing market conditions, production may fluctuate at existing mines. In Botswana’s case, production is expected to decline as Jwaneng mine ÔÇô the biggest producer by value- moves to Cut 9 which will expand the mine’s lifespan to 2034.

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