Diamonds are not forever

It’s one of the most popular James Bond films, a Shirley Bassey song and an advertising slogan (the De Beers catchphrase written by copywriter Frances Gerety in 1947). Everyone knows a diamond is forever – after all, it’s the ultimate way to say I love you.

Formed billions of years ago deep beneath the earth’s crust, this stunning gem has always been rare – and, therefore, expensive and treasured by all lucky enough to own one.

Now there’s a warning they are getting rarer and will, in fact, one day actually cease to be mined. Diamonds, it seems, may not be forever, after all.

Philippe Mellier, CEO of diamond giants De Beers Group, issued this stark warning on the back of record $81 billion sales (about Dh297.5 billion) worldwide across the industry last year. Millions of carats remain underground ready to be mined in specific identified locations dotted around the globe, he said, but within five years supply will start to decline – and with that, prices can be expected to skyrocket.

But with the emotional value of diamonds already at a premium, this is unlikely to deter buyers keen to seal special moments with this classic gift.

‘Diamonds are a rare and finite treasure of nature and they’re getting rarer,’ says Philippe. ‘They were formed under conditions of extreme heat and pressure, deep beneath the earth’s crust. Those conditions no longer exist, so no more diamonds are being formed. They will continue to be mined for many years to come. However, by 2020, when many of the existing mines will begin to see declining outputs, overall supply will likely plateau and, unless major new discoveries are made in the coming years, supply can be expected to decline gradually from 2020.’

Increasing supply shortages forecast for the next decade, coupled with increases in consumer demand, will likely support upward price trends in the long term, he adds.

De Beers spends about $50 million per year on exploration in Canada, Botswana and South Africa around its existing operations. Angola and India are also thought to offer real potential for long-term diamond production and the company is working closely with governments to secure licences for exploration in the coming years.

‘India is expected to be among the bigger beneficiaries of this trend and its overall economic growth is forecast to see an upsurge this year.

‘It is also noteworthy that the development profile of the consumer landscape in India means that the diamond industry should see direct benefit as more consumers enter the middle class.

‘And this also holds true for China. While China may be seeing a deceleration in its growth rate, the reduction of the pace of growth should not be sharp and there is expectation that the slowdown will be effectively managed.

‘On top of this, we must bear in mind that China will still see among the fastest rate of growth in the world. And as the economy continues to rebalance towards greater reliance on consumption rather than infrastructure investment, diamonds should perform well in each of the major consumer markets.’

Global rough diamond production is estimated to be around 130 million carats every year (De Beers produced 31.6 million carats last year from its mines in Botswana, Canada, Namibia and South Africa. This year’s production levels are expected to be in the range of 32-34 million carats).

‘The differences we see between markets are mainly in the preference for size against clarity or colour,’ says Philippe. ‘In the US, for example, the affluent consumer prefers large, high-quality stones, but the wider market there accepts larger diamonds (upwards of half a carat) of somewhat lower clarities. The Far East markets (China and Japan) traditionally prefer higher-quality diamonds, with preference for better clarities, even if the diamonds may be smaller.

‘In India – traditionally a gold market – demand is for high volumes of small diamonds, which are used in pavé settings to decorate large gold jewellery pieces. However, there are regional differences in India, and while the North is very much focused on larger diamonds with lower clarities, demand in the South is for very high-clarity small diamonds.

‘In the Gulf region, and especially Dubai, we see a delightful combination of all of the above, as different nationalities and ethnic groups bring their preferences together.’

The diamond industry is persistently plagued by cheaper imitation products flooding the market and De Beers alone has invested almost $65 million in research to develop sophisticated technology that can readily detect all types of gem synthetics.

But Philippe, who when he became the Chief Executive of De Beers Group in 2011, was the first CEO in the organisation’s corporate history to be appointed from outside the diamond business, is confident “the real thing” will keep demand and supply hand in hand in the coming years.

‘Essentially, sustaining demand throughout the value chain for the long term requires us to build and maintain what we call diamond equity – the value that people perceive in diamonds. It is made up of financial and emotional value, ethical and product integrity.

‘Consumers want the real thing – diamonds to mark significant milestones, personal achievements and emotional moments for which fakes or replicas will not suffice.’

And on the whole, despite the finite amount of this world-renowned natural resource and the race against time to preserve the delicate link between supply and demand, Philippe remains upbeat about his industry.

‘We believe the future of the diamond dream is absolute,’ he smiles.

For the foreseeable future, at least, diamonds are still a girl’s best friend.