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Will China, India displace US as the top buyer of world diamonds?

10 august 2009

The discourse on whether China and India had the potential to become leading diamond buying countries was a subject of much debate at the recently ended 5th edition of the Botswana Resource Sector Conference.

First to light up the debate was WWW International Diamond Consultants’ co-founder Charles Wyndham who noted that it was “wishful thinking” suggestions that China and India (where more than 70 percent of the world's diamonds are cut and polished) will lead the recovery of the then USD65 billion global diamond industry from the devastating effects of the economic downturn.

His concern was that the monetary value of China and India’s contributions to the diamond industry was low, as shown by 2008 trade’s figures.

He said China represented 3 percent of the diamond market in 2008, while India had 4 percent, Japan 11 percent, and the USA 44 percent.

Despite this Wyndham was optimistic with China and India’s future role in the world’s diamond market.

“China and India are extremely positive long term growth markets, I don’t want to belittle them in any way, but they do not (contribute immensely to) any short term progress, (rather) the industry will have to do that,” he said.

He said though diamond trade figures for the first quarter of 2009 indicated that the US went down by 6 percent, Japan 15 percent, Germany 4 percent and UK 2 percent, China and India’s trade figures were “impressive” as they went up by 30 percent and 5 percent respectively.

One of South Africa’s top rated diamond analysts on the Johannesburg Stock Exchange (JSE), James Allan of Allan Hochreiter, also noted that the Asian giants were set to be leading diamond buyers in the next 10-15 years.

 “The population of China is 1.5 billion people, it is certainly going to be a very big market within 10 years,” Allan said without explaining further.

However, it has to be pointed out that this does not really challenge Wyndham’s position that the two Asian countries do not hold any magic wand to the industry’s troubles.

Allan had a problem, however, with trade figures Wyndham quoted on China’s market share. He said China had contributed 5 percent not 3 percent to the world’s diamond market in 2008. The US enjoyed a 44 percent market share.

Surely, when one compares the US’ 44 percent with China’s 3 or 5 percent, you would be forced to dismiss suggestions that the Asian country had an immediate solution to the diamond industry’s woes, as outright utopian and madness.

Of course China has the biggest population in the world, and is set to dominate not only the world’s diamond market but the resource industry in general.

What is important is the fact that the future of China looks bright, given the financial discipline the country has displayed at a time most big economies such as the US are reeling under the effects of the global economic downturn.

Reports noted that the Chinese diamond e-commerce was going up, with less than 10 percent of women now having one or more diamond jewelry pieces.

About 10 million people are also getting married each year in China and diamond wedding rings are said to have become one of the latest trends in the vast Asian country. About 80 percent of consumers in the country were now buying diamonds for weddings.

Last year alone, online sales surpassed USD1.7 billion and the country’s jewelry industry was operating at USD17 billion worth of goods.

China International Business Magazine also reported recently that part of the reason Chinese sales had continued to rise strongly was due to the infancy of the domestic diamond market.

“China’s diamond business has grown from almost zero to an important market in the world within the last 10 years,” Julius Zheng, General Manager of Rapaport Shanghai, was quoted as saying. “[It] is still very young compared with other mature markets in the world, and has a lot of potential to grow.”

The magazine noted that without a strong tradition of wedding rings and a previous lack of an affluent middle class with the means to buy expensive jewellery, it was only recently that China developed much of a domestic appetite for diamonds.

It questioned whether the fact that the Chinese diamond industry had grown and matured over the last decade meant that it was now large enough to have a positive impact on the balances of multinational diamond exporters.

“I personally believe that because of the world financial crisis, more foreign suppliers will pay close attention to the Chinese market,” Rapaport’s Zheng was quoted as answering to that question. “In my belief, China’s diamond market is one of the very few important markets which has not significantly shrunk.”

Of the USD 1.31 billion worth of diamonds that passed through the Shanghai Diamond Exchange (SDE) in 2008, it was estimated that USD 500 million were destined for Chinese consumers, it reported.

“There is a massive need in the market,” HRD Antwerp’s Jun Jiang was quoted as saying. “With most required for wedding rings – generally between 0.3 and 0.5 carats in size.”

The slashing of the 17 percent import tax on refined diamonds to 4 percent on July 1, 2006 also helped fester smuggling of diamonds and boosted trade in the vast Asian country.

SDE noted that China's refined diamond imports jumped 194 percent year-on-year to USD 147 million in the latter half of 2006, following the review of the tax regime.

Meanwhile, Allan also said India was a potential big player in the diamond industry, as it had a population of about a billion people with a middle class of 400 million people, which is more than the entire population of the United States.

“India has more US dollar millionaires than the United States has got, China and India are going to be very important consumers of diamonds the next 10-15 years,” he said.

Diamond prices fell about 30 to 40 percent last year while sales of rough diamonds also collapsed by about 70 percent.

Polished diamond prices also dipped by 10.8 percent in April 2009 compared to the same month a year ago. This was the fourth month that year-on-year prices dipped for polished diamonds.

The World Federation of Diamond Bourses (WFDB) appealed in October 2008 to mining companies to reduce their supply of rough diamonds.

The move was needed to safeguard the strength of the industry as the quantity of rough diamonds marketed worldwide affects the stability of the industry and, in particular, the global bank debt, estimated at between USD12-billion and USD15-billion.

Some rough diamond suppliers now appear poised to restart mining operations though recent sales forecasts suggested that global diamond sales would be down by low double-digit levels in 2009.

An online survey by International Diamond Exchange (IDEX) revealed that as other global markets were showing signs of bottoming, it was likely that prices of polished diamonds will firm up likely to bring about a gradual recovery.

The recovery is likely to begin in the second half of 2009.

“We believe that diamond demand and diamond prices are more likely to remain relatively untouched by potential commodity market volatility in the future, once the US and the global economies stabilize. Further, we do not expect to see any major shift in consumer demand for diamonds or other jewellery as the global economy emerges from the current recession,” IDEX said.

The world for now is indeed still looking at the US for the recovery of the diamond market, as it maintains a huge chunk of the market, while China alongside India have largely shown a great potential as the leading diamond buying nations in the world. 

About 80 percent of the world diamonds are sold through auctions in the US and New York controls a considerable portion of that business.

China and India certainly are poised to be forces to reckon with in the diamond industry but not for now.

Mathew Nyaungwa, Rough&Polished expert, from Botswana