In 2100, the diamond industry will look vastly different from its current makeup, Martin Rapaport assured diamantaires at the recent Antwerp Rough Diamond Days event. Most notably, it will be less influenced by the mining companies as demand dynamics increasingly impact the market, the chairman of the Rapaport Group noted.
“Market power is shifting from supply to demand,” Rapaport explained at the November 21 event, which coincided with the Antwerpsche Diamantkring bourse’s 90th anniversary. “In the next 90 years, diamond-mining companies will not have market power. They probably won’t even exist, as diamond mining will be very limited.”
When rough supplies are reduced, and eventually eliminated from the open market, recycled diamonds, gems and jewelry will emerge as the primary source of supply, with elderly consumers selling and young ones buying. That will result in a more profitable diamond and jewelry trade, as “unconstrained free-market supply becomes available from motivated sellers,” Rapaport continued.
Gift of commitment
Meanwhile, on the demand side, growth will be driven by demographics as the global population is projected to rise by 40% to 10.9 billion people by 2100, and middle-income earnings will rise by 24% to $7.08 trillion, according to United Nations forecasts Rapaport cited.
With those predictions in mind, the challenge for the diamond industry is to ensure that diamonds remain a symbolic gift of commitment. “The gift of a diamond engagement ring is a social contract and the idea of a social contract at a time of commitment is a cultural requirement that transcends generations,” he explained. “It will be as relevant in 2100 as it is today.”
Ensuring the continuation of diamond demand into the next century requires maintaining an honest and liquid diamond market that provides fair value to buyers and sellers.
Riches in the niches
The long-term viability of the diamond trade, particularly for dealers, was an issue he emphasized in a presentation at the New York Diamond Dealers Club the previous week. Rapaport recognized the turmoil the diamond industry currently faces, as profits and liquidity are disappearing.
Midstream profit margins are being squeezed by the mining sector, which can only improve its profit by raising rough prices, while manufacturers keep buying the rough so they can keep getting credit, he noted.
At the same time, consumer demand has narrowed, in part due to a shift toward branding and a lack of generic marketing over the past decade or two. Instead of trying to sell diamonds to everybody, companies have decided to sell diamonds in areas where you can make the most money, which is by having a brand.
As dealers are in the generic business, they need to create a niche that differentiates them — whether in a certain cut of diamonds, or goods with strong blue fluorescence, for example. “The riches are in the niches,” he stressed.
Finding a niche is not so easy considering the midstream is being further squeezed by “disintermediation” — the phenomenon in which suppliers cut out the middleman by selling directly to the consumer. It’s worse than that, since everybody’s supplier’s supplier is trying to sell the customer’s customer, Rapaport continued. “De Beers is opening up jewelry shops and Tiffany is cutting diamonds,” he noted.
A critical mass
Despite this trend, Rapaport stressed that dealers still added value to the distribution chain. “Brands are selective, but they still need goods,” he emphasized in New York. “There’s no way a retailer can keep an inventory of all the items that are necessary and so dealers become the retailer’s lifeblood.”
As such, Rapaport outlined an opportunity for the New York trade to make money: Becoming a very efficient source of memo goods for the US market. The key role of diamond dealers is to move the entire range of diamond types and quality down the pipeline: “That’s how dealers make money. They find the right diamond, for the right person, at the right location, at the right time, and at the right price,” he added.
Similarly, diamond manufacturers need dealers as a source of liquidity, because if dealers don’t buy their polished, cutters might lose their credit lines, and therefore their ability — or contract — to buy rough.
“Don’t underestimate the power of the dealers, or our power as a group of committed people working together in an industry,” Rapaport concluded at his New York presentation. “We have a critical mass. There is added value coming from the simple fact that we’re all together.”
Maintaining that vibrant trade will be crucial for the future of the diamond market over the next 90 years, he added in Antwerp. “The ability of diamonds to retain value is in the hands of the diamond trade,” Rapaport stressed. “It is the responsibility of the diamond trade to ensure liquid, fair markets for natural diamonds.”
Image: Martin Rapaport, chairman of the Rapaport Group, delivers a presentation on the future of the diamond industry in Antwerp last week. (Rapaport News)
Source: Rapaport News