Ass #2: Evolution of the Diamond Industry PDF

DDG -Ass #2 : Evolution of the Diamond Industry Early History: - India was the only diamond source until the early 18th century, then the major discoveries in South Africa and helped with demanding coming from the a increasing affluent Western Europe and US - Today over $13 million in rough diamond...

DDG -Ass #2 : Evolution of the Diamond Industry Early History: - India was the only diamond source until the early 18th century, then the major discoveries in South Africa and helped with demanding coming from the a increasing affluent Western Europe and US - Today over $13 million in rough diamonds are produced each year with the annual global diamond jewelry sales is more then $72 billion - India’s Deccan Plateau was the world’s only source of diamonds for about 2,500 years, then peaked in the 13th to 17th centuries AD and then dwindled due to the exhaustion of diamond resources and the emergence of a new supplier: Brazil. - an expertise in diamond mining, cutting and trading first developed in India, cutting and trade hubs then developed in Venice, Amsterdam, Antwerp, and London - The "Golcanda" was a major source in India beginning in the 16th century, utilizing the port city Machilipatnam it became a trade center and is know for producing famous diamonds, and name "Golcanda" is associated with fine-quality diamonds till this day regardless that mine ceased production in the 20th century - Brazil became a top supplier mid- 1700s producing 1.5million carats ( large amount at the time), it as soon out shined by the discovery found in South Africa in the 1800s Modern Diamond Industry - Discovery and authentication of the Eureka, a 21.25-ct. rough diamond, in 1866 started a small diamond rush in South Africa, the major discovery of the "Star of Africa"(also known and The Dudley) a 83.50ct diamond was in 1869 at Zandfontein of the banks of Vaal River which opened the doors to birth of the modern diamond industry - Artisan Miners came to river bed in the beginning and then moved on to "Dry Diggings", these dry digs led to the discovery of deposits in Bultfontein and Dutoitspan in 1869 which eventually led to the what is now the De Beers and Kimberly mines, eventually turning Kimberley into a make shift mining town - Once the soft surface layer ran out, miners start partnerships with small companies that could provided funds, safety measures and advanced equipment to dig deeper at the Kimberley mine - Prices were unstable and made it hard for solitary miners to survive - British financiers and entrepreneurs Cecil Rhodes and Barney Barnato became the main competitors as the consolidation of the mines took place, Cecil Rhodes controlling the De Beers Mine and Barnato controlling the Kimberey mine, Eventually Rhodes won out purchasing the Kimberley mines and Barnato become his partner, establishing De Beers Consolidated Mines Ltd in 1888 in efforts to stabilizing the market prices - The London Diamond Syndicate (or just the "Syndicate") was established as the buyer and seller of the diamonds the mines were producing, once the great depression hit Ernest Oppenheimer (under the De Beers Chairmenship) then created the "Central Selling Organisation (CSO) " to succeed the Syndicate - the CSO decades later became the Diamond Trade Company (DTC) and in turn creating the "single-channel marketing" full becoming the the supply, buying, marketing and sales - to maintain the the newly established Single Channel Marketing system (in efforts to control/balance market prices) De Beers purchased viable mines as when possible to maintain control of the supply chain and maintained dominance for 6 decades - The Great Depression sent the diamond industry into an all time low and the World War 2 increased industrial demand, but not gem quality - De Beers recognized the need to increase demand, then, in 1947, copywriter Mary Frances Gerety jotted down what would become the most popular slogan of all: “A diamond is forever.” establishing the diamond as the major engagement ring stone and making it symbol of enduring love beyond the bridal market - In the mid 1900's rising producers in Russia, Australia, and Canada as well as small independent producer in Africa downsizing De Beers's monopoly over the industry - by the 1990's Russia was the third largest producer by volume - The growth of the Australia mine in 1980's also undercut the De Beer's control over the industry - all these additional source created a multichannel market as other players wanted to sell independently The Global Value Chain: - The journey of a diamond from mine to market consists roughly of six segments: mining, rough sorting and distribution, cutting and polishing, faceted diamond trading, jewelry manufacturing, and jewelry retail. - Based on position in the value chain, rough diamond mining and distribution are considered upstream and diamond jewelry retail downstream. Everything in between is the midstream. - Of all these value chain segments mining is the most risky and unpredictable - mining has fluctuated greatly the last 20's with the last large peak in 2017 due to new site discoveries in Australia and Canada - Larger scale companies leading the industry are called " Majors" - Majors have secured there place industry in just mining are ALROSA (russia) and De Beers, together they supply 60% of the worlds rough diamonds - Russia mining in 2 regions: he Republic of Sakha (Yakutia) in the northeast and the Arkhangelsk region in the northwest - De Beers operates about a dozen diamond mines in four countries: Botswana, Canada, Namibia, and South Africa. - Years or even decades of hard work are invested before mining begins, with the phase being exploration/ evaluation, licensing, mine operations design & construction, making the largest challenges being uncertainty and capital - At the moment the Jwangeng (in Africa) mining produce the most diamonds per ton and have largest quantity of gem quality diamonds - Sorting is the next step after extraction and is start by dividing between gem quality to and industrial, creating the first level of value through this sorting process - A value-adding process adds something to a product that increases its value for consumers. - Industrial quality diamonds are referred to as "Bort" and consist of very included single crystals in yellows, grays, and browns. - rough sorting is based principally on weight, shape, clarity, and color and are sold mainly in three formats: long- term contracts, auctions, and short-term contracts. - The diamond trade’s primary sales format is long-term contracts. Physical trading based on long-term contracts often occurs at prearranged sales events called "sights". The group of buyers authorized by producers to attend sights are known as "sightholders" - Producers evaluate a buyer’s financial strength, market presence, manufacturing capacity, operational efficiency, and legal compliance. Only when a buyer meets all requirements can it be admitted as a sightholder. - Auctions (or tenders) are another sales channel for diamonds similar to "sights" and its also a format for more unique products like the Argyle Pink Diamond Tender (held annually for 40 years) - The Kimberley Process (KP) is a global initiative to combat the trade of “conflict diamonds”—rough diamonds used to finance wars against governments around the world Cutting Centers: - About 90 percent of diamonds are cut and polished in India, Outside India, there are diamond cutting hubs in New York, Antwerp, Tel Aviv, Gaborone, Russia, China, South Africa, and Thailand. - Diamond manufacturers are often the biggest polished diamond sellers, however a a variety of polished diamond sales channels are in place, and new channels keep emerging, most goods are sold through short-term or one-time contracts while some still occurs at auction -A diamond exchange, also known as a "bourse", is a membership-based professional community that provides a physical venue for members to trade rough or polished diamonds, they provide members good service, infrastructure, and taxation assistance to facilitate trading activities and protect their interests, - Large cutting companies sell the majority of their inventory through online trading platforms today as well Jewelry Manufacturing: - Jewelry manufacturing is the next value-adding process, From design to manufacturing, diamond is the most significant gemstone in the jewelry industry, China’s Guangdong Province and India’s Surat boast some of the world’s largest jewelry manufacturers with clients being jewelry wholesalers and retailers all over the world. -Many major players attempt—often unsuccessfully—to use vertical integration, a strategy that allows a business to operate in more than one segment. In the diamond industry, a company can be completely vertically integrated, from mining all the way to jewelry retail. De Beers is a good example,Some businesses opt for partial vertical integration. One example is the world’s largest jewelry retailer, Chow Tai Fook- everything in the value chain except mining and rough sales, so it has enough power to negotiate with all major rough producers. -The highest profit margins are gained at the upstream and downstream segments, while midstream companies struggle to survive on a thin average margin of 1 to 3 percent. Consolidation aka acquisitions of smaller enterprises (commonly in the mining sector once a projects shows promise) this trend has just begun to develop in the cutting and polishing sector. - technological advances, especially in digital technology, influence the entire value chain, X-ray technology in the mining segment has improved to allow the detection of more rough,manufacturing automation enhance rough planning, cutting, and polishing, and retailers have software that allows shoppers to see diamonds at larger-than-life sizes. Consuming Markets: - The US is still the number one market for diamonds with a demand share of nearly half of the world market, and has been the leader for market trends for the last 2 decades, Almost all jewelry market research is oriented toward the U.S. market and despite recent mass store closures the US market is still considered to be focus for the foreseeable future -China is the second largest consumer making up 16% in 2016, Chinese consumers travel all over the world to buy luxury goods. Over the past decade they have become the top revenue generator for some regions’ luxury businesses. - Other Markets India, the Persian Gulf, and Japan are similar, around 5 to 7 percent each. Japan’s market share decreased recently, but it is still a potential area of growth. The rest of the world accounts for about 20 percent of global demand,European countries continue to show much unpredictability due to the economic environment. -The secondary market consists of resale of previously owned diamonds and diamond jewelry. Some trade members call these “recycled” diamonds or diamond jewelry. This can include auctions, antique stores, estate sales, and the like, the stones currently available and circulating in the market will be the largest diamond reserves of the future. New Consumers: - Trade research shows that millennials are already the pillar of the diamond jewelry–consuming market. Generation Z needs to be studied to prepare for their rise.,Together these two generations buy about two-thirds of diamond jewelry in the top consuming markets. The newer generations still believe in love but have their own behavior patterns and unique ways of showing commitment. Individuality, creativity, and social responsibility will be the keywords to unleash their demand. Marketing: - The entire diamond value chain benefits from the effective promotion of diamonds by De Beers decades ago, however sentiment in the trade is that it is time for another wave of promotion to boost demand. -in 2015 the Majors ALROSA, De Beers, Dominion Diamond Mines, Gem Diamonds, Lucara Diamond Corp., RZM Murowa, Petra Diamonds, and Rio Tinto—formed the Diamond Producers Association (DPA). -“Real is Rare: Real is a Diamond” near the end of 2016. This slogan is intended to promote diamonds around the world and to new generations. In 2020, the DPA changed its name to the Natural Diamond Council (NDC) and launched Only Natural Diamonds, the first editorial site dedicated to natural diamonds. - With the Internet and social media impacting consumers’ free time, marketing channels have become further diversified.Engagement rates have become a new measure of how well a message reaches the audience. Jewelers cannot avoid this trend and must find ways to master these new channels. -Women purchasing jewelry for themselves has been identified as an area of growth for the industry. -Jewelry retail is the value chain’s most fragmented segment because there are so many different retail avenues. Traditional sales channels include department stores, branded chain stores, individual brick-and- mortar jewelry stores, discount sellers, catalog sellers, and television. -These days online buying and selling are common and as important as in-store transactions -Yet many consumers still prefer physical stores so they can consult with jewelry professionals and touch the jewelry before buying.