Demand is expected to continue to grow over the long-term, driven by the ongoing economic recovery in the United States, the world’s largest diamond jewelry market, and the growth of the middle classes in developing markets such as China and India, the report says.

 

Sales of polished diamonds in the United States increased seven percent last year, while both India and China saw their domestic diamond jewelry markets grow by a compound annual growth rate of 12 percent in local currency terms between 2008 and 2013.

 

Although diamonds retain their special allure with consumers around the world, "future demand levels cannot be taken for granted".

 

"The overall category is facing increasingly strong and sophisticated competition from other luxury categories, with diamonds’ share of advertising voice in the U.S. market having reduced within its competitive set."

 

Global rough diamond production in 2013 increased by seven percent in carat terms over 2012 levels to a total of around 145 million carats. However, this remains well below the 2005 peak of around 175 million carats. A forecast reduction in supply from existing sources will likely not be matched by new production coming on-stream in the years ahead and diamond supply is expected to plateau in the second half of the decade before declining from 2020 onwards, the report says.

 

"Meanwhile, as mining moves deeper into the earth and towards more remote locations, the extraction process is becoming increasingly complex and costly. The three principal input costs – labor, electricity and diesel – have all seen increases well above local inflation levels in the main diamond producing countries over the last decade and this trend is set to continue.

 

"Substantial investment will be required in diamond production, technology and branding, marketing and retail standards if the industry is to sustain its recent levels of success into the future," the report says.

 

The report also finds that:

 

• China is the world’s fastest growing market for diamond jewelry sales, with the number of diamond jewelry retail doors in the country increasing by almost 30 percent between 2010 and 2013.

 

• Online has become an increasingly important channel for the diamond industry. Over one in six diamond jewelry purchases in the U.S. was made online in 2013 and in China the internet is already used by a quarter of buyers for research purposes before purchase.

 

• Diamonds were a major contributor to the economic performance of producing nations in 2013. In Botswana, diamonds represented more than 25 percent of GDP and over 75 percent of overall exports, whereas in Namibia they represented eight percent of GDP and almost 20 percent of all exports.

 

De Beers Group CEO Philippe Mellier said: “Consumer demand remains the one true source of value for the diamond industry. With demand forecast to increase further from 2013’s record levels, the opportunity for growth is clear. But this must not be seen as cause for complacency. The industry will continue to lose ground to other categories if it does not invest significantly in production, marketing and technology.”