Bain & Co Report Analyses Diamond Value Chain
The Antwerp World Diamond Centre (AWDC) and Bain & Company released the third annual report on the global diamond industry: ‘Journey through the value chain’. The report focuses on the diamond value chain and traces diamonds’ route to market, offering for the first time a detailed view of channels and approaches for rough and polished diamond sales.
The report foresees a balanced market in the next four years, with a growing gap between supply and demand in the long term. It predicted continuing consolidation in the middle market. “The middle market has traditionally garnered the lowest margins along the diamond value chain, with some companies earning as little as 1-2%. The margins of middle-market players are likely to remain stable. The name of the game for them will be to lock in access to primary sources of rough diamonds, make their cutting and polishing operations cost-competitive and secure financing for their operations. Further consolidation and integration is expected in the middle of the value chain in order to maximise margins through scale and scope.”
In addition, the study cautioned manufacturers about a worrying new trend, that of retailers looking at options outside their current supply chain to meet their needs. “A number of premium retailers have already integrated backwards along the value chain by investing in mining assets, cutting and polishing operations and in securing access to primary rough supply. This trend is expected to continue. Such consolidation, in turn, will create additional pressure on the middle market as retailers start competing with their current suppliers for access to rough diamonds,” it stated.
Following the success of the first two studies, Bain & Company and AWDC renewed their collaboration and prepared a new report for 2013.
AWDC CEO Ari Epstein said: “With ‘Lifting the Veil of Mystery’, AWDC and Bain & Company were able to provide unprecedented insight in the complex dynamics of our industry. The resulting document is widely acknowledged as an invaluable tool in understanding how the global diamond industry works. The second report, ‘Portrait of Growth’, provided an in-depth analysis of the underlying processes of consumer demand and preferences. This third report is another valuable addition to understanding how our business works and which challenges lay ahead.”
Stephane Fischler, president of AWDC, added: “Given Antwerp’s responsibilities as the historical and international leading trade centre, it is only fitting that AWDC again takes the lead in sponsoring this latest report. Over the course of hundreds of years, Antwerp has created a robust diamond cluster that includes a multitude of specialised players, including producers, sightholders, high-end cutters and polishers, and specialised financial and educational institutions. The dynamics of competition and cooperation ensure that the city remains at the heart of the international diamond trade. These reports are a testimony to the long-term commitment and intellectual stewardship of Antwerp as the world’s diamond capital.”
In addition to the focus on the diamond value chain, the report compares 2012 results with those of previous years, highlighting the impact of continuing economic uncertainty on the diamond market.
Furthermore, the report reviews a significant new trend in diamond production: a stream of merger and acquisition activity among the top producers of rough diamonds. Other new elements in this report are in-depth analyses of diamond sales models and approaches. Finally, the report summarises key challenges and provides an outlook for the diamond industry through 2023.