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The next biggest consumer of diamond jewellery is...

16 june 2014

For decades, the USA, with consumption at around 40% of global sales by value, remained the world’s biggest consumer market for diamond jewellery. But, with changing economic scenarios, life styles and fashion, the developing centres like China and India are catching up and how! Both the consuming centres, India and China continued to grow y-o-y in the past few years. It is estimated that Chinese diamond jewellery demand grew at 32% and India at 22% compound annual growth rate between 2005 and 2011. However, both the countries registered just 10% growth in 2012 and 2013, due to a slowdown. But now, with the economies of China and India showing signs of growth, it is predicted that by 2020 there will be a boost in demand for diamond jewellery to even exceed the American market that is moving distinctly towards electronic gadgets and other luxuries.

During the recent Hong Kong Fair, Indian exhibitors were happy with the response, indicating that loose polished diamonds were in good demand, especially the small stones. China, a comparatively new market for diamond jewellery, was slow in growth take-off, like India. Again, like India, China traditionally is more into gold jewellery; so much so that a few months ago China’s import and consumption of gold exceeded the world’s biggest gold consuming country, India!  According to Moscow-based consulting firm, Bain & Co., China is currently the world’s second-largest diamond market, next only to US. And is this scenario in a transition period, with India and China in their race to become the largest consumer? Probably so... going by the rate at which the demand for diamond is growing in both the countries.

Clearly, the choice for diamond jewellery has been on the rise in both the countries in recent times, which is attributed to various reasons including the influence of western life style, as well as increase in purchasing power of the middle-class. To cash in on the changing scenario, mining companies like Rio Tinto and De Beers are undoubtedly putting in all efforts to promote diamonds in China and India. Rio Tinto, for instance, is continuously on the road to meet China’s growing and changing demand for diamonds. When the rare red, blue and pink gems (Argyle’s gems), debuted in Hong Kong recently, Alan Davies, CEO, Argyle (Diamond and mineral division)   was said to have been extremely positive and predicted that China is expected to grow strongly into the next decade- a sentiment also held by many analysts and market watchers around the world.

China’s potential can also be gauged by the many diamond-marketing initiatives launched by Rio Tinto in recent years. During one of the launches, Jean-Marc Lieberherr, Managing Director of Rio Tinto Diamonds pointed out that ‘increasing wealth will continue to underpin China's demand for diamond jewellery which is in strong demand as a fashion accessory.’ So, now diamond jewellery purchasing in China has gone beyond the solitaire engagement ring or even the bridal sets. The diamond fashion-jewellery market in China shows tremendous growth, creating opportunities for purchasing diamonds of all sizes and colours. The same pattern seems to follow suit in India, where fashion seems to play a major part in diamond jewellery consumption.

Chinese consumers in the past were often known to be the most discerning and consumed better quality gems of the highest grade. Today, however, market forces have brought about a change. China, which until recently focused on high-end engagement rings and wedding jewellery, soon showed enormous demand for every-day entry-level diamond jewellery, too. This triggered the demand for smaller stones, as seen in recent fairs and shows. In addition, high-end as well as coloured diamonds are in good demand as well.

So, the bigger picture reveals that China is a potential market for  ‘diamonds’, whatever the type, colour, size, etc., they might come. Coloured diamonds are supposedly a big hit with the younger generation in China, who prefers them for their everyday use as well. Mining major Rio Tinto proclaimed in its study, that Chinese tastes in diamond jewellery are shifting fr om an emphasis on large white gems to more coloured rocks, even for everyday wear.

Of late, Indians are showing an even greater appetite for diamonds than ever before. The country’s middle-class households spend an average of twice the amount on diamond jewellery as their Chinese counterparts. Some of the leading Indian jewellers, who have catered to the domestic retail sector for decades and have seen the changes in the demand pattern, have this to say. “The consumer is more aware about jewellery today than in the past. Today an Indian connoisseur has a greater sense of style and design than before owing to the global exposure. The jewellery as a buying category is no longer confined within the domains of weddings. This has led to a great surge in the demand of diamond jewellery in the recent past,” says Sulish Verma, managing Director of Vikas Chain & Jewellery (P) Ltd of Delhi (India). He also adds, “There has been a humungous growth in the Indian domestic jewellery market over the past few years. Purchasing power of the people has shot up immensely thanks to the growing economy of the country. Though the domestic jewellery market has grown a lot over the years, I still feel the ‘high tide’ is yet to come. Interest in investment options is also on the rise.”

This trend is expected to take a tremendous upward curve as a prediction in price rise, especially in diamonds, is anticipated during the current and future years. It is forecasted that the Indian jewellery market will cross 500,000 crore by 2018 from the current level of around 250,000 crore.

The Chinese market for diamonds registers annual sales of more than US $9 billion on an average. Lower taxes and tariffs on diamonds have helped in the growth as well, but analysts see further scope for growth in China as most of the Chinese population still do not own a diamond and would aspire to do so in the years to come. And, as a population obsessed with fashion, there is always a possibility that a Chinese would go in for diamond jewellery as soon they can afford one, making diamond jewellery the fastest-growing discretionary purchase. The availability of quality certificates is the top determinant of store choice for shoppers in China.

In India, diamonds are the country’s second fastest-growing discretionary purchase, trailing only after mobile phones. The diamond engagement rings culture too has become a norm. Today, more than 90 percent of India’s affluent women own diamond jewellery, with rings and earrings being the most preferred pieces. Women, who belong to the lower-income strata, too possess necklaces, pendants and bracelets in their jewellery collections. Traditionally solitaires, usually set in a yellow gold band, are mainly purchased for wedding and engagements.  With the Indians’ love for jewellery, it’s not surprising that there are more than a jaw-dropping 300,000 jewellery stores in India. This is said to be seven times more than in the entire USA and six times more than in China. In India, independent retail stores dot the country’s landscape but in recent years, large national chains have cropped up across India.

Interestingly, people in India and China are quite similar in terms of spending styles too, and one can clearly see that diamond jewellery is still the preferred purchase ahead of any other luxury items or vacation. They also treasure their diamonds as wealth and as an investment. In China and India (both developing markets), diamond jewellery is at the top of most women’s lists of preferred and favourite gifts. Chinese women, unlike Indian women, associate diamonds with eternity.  For Indian women, diamonds carry a strong monetary association as well as a positive emotional charge.

At a conference in India some months ago, Kent Wong, MD of Chow Tai Fook Jewellery Group said, “China’s culture is similar to India and that consumers behave in somewhat same way as in purchasing jewellery for festivals, marriages and look for value for money.” He also said that China’s capita income and consumption has grown 200% and that there are a large percentage of affluent consumers nowadays. Wong maintained that China is the biggest online jewellery market in the world, going by the success of his on-line venture.

Another speaker at the same conference, Michael Huang MD, Diamond Index Group said that people in China were passionate about diamonds and that the demand for engagement rings has raised y-o-y in the country. Demand for diamonds per se has risen as more young and middle class are purchasing high-end diamond jewellery. According to Michael, everyday jewellery like rings, earrings, etc., are also in very high demand in China throughout the year.

In the year 2013, demand for diamonds in China grew in popularity as affluent Chinese opted for diamond jewellery.This registered a 30% growth in China’s jewellery sector, from 25 percent in 2008. Though the year 2012 saw a slowed down in demand, China jumped to become the world's second-largest diamond consumer in 2013, buying 10% of the world's production,  ranking behind the U.S., which buys 38 to 40% of the world's diamonds.

Kent Wong, MD of Chow Tai Fook, forecasted that by 2020, China will account for 29 percent of the global diamond market, while the U.S. share will shrink to 30 percent. “In my opinion, diamonds are the only imported product that can obtain a long-lasting popularity in China,” said Sun Feng Min, administrative vice president of the Gems and Jewellery Trade Association of China (GAC).It is predicted that by 2015, the annual turnover of the Chinese total jewellery market will be approaching $50 billion- wh ere diamond jewellery can capture a big chunk of the pie.

According to Gems & Jewelry Trade Association of China, China is likely to become the biggest consumer market in the world for jewellery by 2020. The Chinese market, which is growing at 50-60%, will offer wide range of possibilities for the global diamond and jewellery market. Currently, however, the higher-value diamonds like 1 carat and above comprises just 10% of the market. In other words, there is a huge potential waiting to be tapped for smaller stones and entry-level diamond jewellery.

However, when it comes to Indians, their ‘love affair’ with diamonds is from time immemorial. And demand for diamond jewellery in India will exist as long as people love to celebrate or gift or even just make themselves happy by gifting themselves. As Colin Shah Managing Director of Kama Schachter Jewelry Pvt. Ltd, of India points out, “India’s appetite for diamonds will never dry” and adds, “The Indian consumer has come a long way. The change in lifestyle, way of living, spending power, and disposable income play important role in the way purchases are made.”  With diamond prices also rising steadily over the last few years, many people are beginning to look at the stones as an investment product as well. However, as not all diamonds have resale value, the price jumps and the value lie in the bigger diamonds that come with a certificate.

The Indian diamond jewellery market is pegged at almost $8.5 billion with the year-over-year increase of around 15-20 per cent. But prices for diamonds have increased by 80% in the last three years, said Jignesh Mehta, managing director of Mumbai-based jewellery company, Divine Solitaires.“Returns are expected to remain strong because the supply of diamonds is far outstripped by demand,” Jignesh adds.

As in China, in India too fashion preference is also changing buying patterns, as diamond is considered more stylish than gold. In the past 2 to 3 years, profitability on gold came down drastically and Indian jewellery retailers began peddling more diamond jewellery as the margins were better. According to Jignesh, “The total diamond jewellery market in India is estimated at Rs. 46,500 crores. Of this, the market for solitaire diamond jewellery is estimated around Rs. 23,000 crores. The market for solitaire diamonds is estimated to increase to Rs. 90,000 crores by 2017.”  The future for diamond jewellery market in India looks bright indeed.

Today, the demand for diamonds in the Indian market has never been stronger! The Indian market which has shown a collective growth of 50% in the past two years and according to performance statistics it has once again shown a 20% growth this fiscal.  India has become the fastest-growing market for De Beers. “It’s now a priority market for us,” said Forevermark CEO Stephen Lussier at a launch some months ago. “It’s also the most extravagant market in terms of its diamond designs. Women wear such extraordinary pieces. You wouldn’t see that in Europe unless you were having dinner with the Queen,” he added.

That’s India for you!

Aruna Gaitonde, Rough&Polished, India