The Diamond Pipeline: Conditions and Development

By Tatyana Pototskaja,
Expert market analyst, Krystall

The world diamond industry is split into two branches. The first category is industrial—diamond mining and the production of diamond jewelry from gem-quality stones, and of industrial products from low quality stones. The second category is non-productive—the wholesale trade in gem-quality diamonds, diamond jewelry and industrial quality diamonds; the retail trade in these items; and the advertising of diamonds and diamond jewelry. If we examine the process by which finished goods containing diamonds are produced, we can develop a schematic outline called “the diamond pipeline” in the literature on the industry (fig.1). The major stages along this pipeline are diamond mining; the wholesale trade in loose diamonds; manufacture of diamond jewelry; advertising; and the wholesale and retail trade in diamond jewelry.
Fig.1
The 2004 diamond pipeline*

Rough diamonds

Basic cost of rough diamonds at the source – .89-.5 billion

Value of rough diamonds after mining – .06-.8 billion

Total volume of rough sales at the mines – .3-.8 billion

Total volume of rough sales to manufacturing centers – .9-.6 billion

Polished diamonds

Total value of rough diamonds at the polishing stage – .1 billion

Total value of polished diamonds – .74-.5 billion

Total volume of retail diamond sales – .68-.9 billion

Diamond jewelry

Total volume of retail diamond jewelry sales –  .58-.5 billion

*Source: Even-Zohar, Chaim. “The 2004 Diamond Pipeline” Diamond Intelligence Briefs No. 435: 2005; Buxton, Neil. “WWW pipeline – rough production surges through $ 11 billion mark.” PolishedPrices.com (http://www.polishedprices.com ) May 15, 2005.
Where a range is given, the lower figure comes from Even-Zohar, the higher figure from Buxton.

In reality, it is difficult to strictly differentiate the separate branches of the diamond industry, since one and the same “player” (a country or a company) may be active in more than one branch. This phenomenon may be traced to the desire of many diamond mining and manufacturing companies to achieve so-called “vertical intergration.” Examples of companies that have succeeded in doing this are De Beers, Rio Tinto plc, ALROSA, LLD and Lazare Kaplan International. Vertical integration makes it possible to redistribute profits within the industry more proportionately and to foster demand for manufactured products.

Since the diamond industry often treats market information as confidential, it is extremely complicated to do independent calculations of the key quantitative measures of the diamond pipeline. The available information is frequently based on little more than expert estimates. There are two leading experts for this type of data in the trade today: Chaim Even-Zohar, publisher of the Diamond Intelligence Briefs, and Neil Buxton, whose work can be found at PolishedPrices.com. (fig.1). These authors concur in their estimates of the overall size of the world diamond industry, but they diverge in their estimates of the different parts of the diamond pipeline by as much as billion. This article leans toward the figures given in Even-Zohar’s “The Diamond Pipeline,” because this researcher has been tracing the dynamics and long-term trends in each sector of the diamond industry and publishing his results for many years.

Filling in our outline of the diamond pipeline with detailed statistics gives us a more precise idea of the ways in which the various branches of the diamond industry interact, through interdependence or mutual subordination. Second, we can estimate the profit margins each sector of the industry enjoys, in turn allowing us to calculate the cost added to the diamond as it moves through each stage of the diamond pipeline. The most profitable sectors of the industry are those positioned toward the start of the pipeline—i.e., companies involved in determining the value of rough diamonds and marketing them to manufacturers—and those positoned toward the consumer end of the pipeline. We can also calculate the level of material input and stock needed by each branch (Table 1). In our view, this complicated interplay of factors makes it difficult to objectively estimate the efficiency of each part of the diamond pipeline.

Table 1. Profit margins and cumulative cost increases at each stage of the diamond pipeline

	1999		2000		2001		2002		2003		2004
	Billion $	f	Billion $	f	Billion $	percent	Billion $	f	Billion $	f	Billion $	f
Cost of rough at the mine	1,5		1		1,4		1,46		2,34		3,89
Cost of rough diamonds	7,2	4,8	7,5	7,5	7,9	5,64	7,83	5,36	8,9	3,8	10,06	2,59
Volume of rough sales at the source	7,8	1,08	7,8	1,04	8,5	1,08	7,91	1,01	9,23	1,04	11,3	1,12
Volume of sales to manufacturing centers	8,8	1,13	8,8	1,13	7,8	0,92	8,45	1,07	9,375	1,02	11,9	1,05
Volume of rough diamonds subject to polishing	9,6	1,09	9,6	1,09	9,1	1,17	9,76	1,16	9,76	1,04	12,1	1,02
Volume of polished diamonds	11,4	1,19	12,8	1,33	11,4	1,25	13,7	1,40	14,82	1,52	16,74	1,38
Loose polished diamond sales	12,6	1,11	13,7	1,07	13,5	1,18	14,48	1,06	15,77	1,06	16,68	0,99
Sales of diamond jewelry	52,7	4,18	57,6	4,2	54,1	4,01	56,9	3,93	56,95	3,61	60,58	3,63

Therefore, to obtain more objective information, it is best to measure the additional cost produced by each segment of the diamond pipeline by taking the ratio of the cost of the manufactured goods to the price charged when they are sold. That is, for rough diamonds, we wish to examine the ratio of mined goods to sales; for polished diamonds, the ratio of manufactured goods to sales; and for diamond jewelry, the ratio of manufactured goods to sales (see table 2). This allows us to do two things: first, we can determine which are the most and least economically efficient sectors of the industry; and second, we can analyze developmental trends in each sector, establish the boundary conditions for each sector, and use the information thus obtained to work out effective marketing strategies.

Our calculations show that the most economically efficient sector of the diamond industry is diamond jewelry marketing (where the factor of cost increase is f=2), followed by rough diamond marketing (f=1,1-1,3). The least economically efficient sector is polished diamond sales (f=0,9-1,1). It is obvious that for the diamond industry, the dynamics that drive cost increases in diamond jewelry are of paramount importance, since the demand for finished products (diamond jewelry) falls under this heading. This demand in turn drives the demand for intermediate products (rough stones and loose polished diamonds). Even a slight reduction in this demand should set off alarm bells for manufacturers of rough and polished diamonds and finished jewelry alike, motivating them to stimulate marketing activity. On the other hand, if this factor improves it will set off a favorable chain reaction all along the pipeline. For manufacturers of polished diamonds, who occupy the most vulnerable position in the industry, at the very center of the pipeline, it is very important to take into account both the dynamics that drive the cost of polished diamond sales and the speed with which sales of diamond jewelry are rising. If these two factors rise or fall in tandem, one can conclude that the world diamond market as a whole is stable, which should allow diamond manufacturers to function with confidence. If these two factors are not working in tandem, this could mean one of two things. Either diamond jewelry sales are rising while sales of loose polished diamonds are falling, which translates into an unusually favorable market in which diamond manufacturers can hope to increase their profits; or diamond jewelry sales are falling while sales of loose polished diamonds are rising, which is obviously an unfavorable condition for diamond manufacturers.

Table 2. Dynamics driving cost increases in the various sectors of the diamond industry

		1999 г.		2000 г.		2001 г.		2002 г.		2003 г.		2004 г.
		Billion $	f	Billion $	f	Billion $	f	Billion $	f	Billion $	f	Billion $	F
Rough	Mined goods	7,2		7,5		7,9		7,8		8,9		10,06
	Sales	9,6	1,33	9,6	1,28	9,1	1,15	9,8	1,25	9,8	1,1	12,1	1,2
Polished	Manufactured goods	11,4		12,8		11,4		13,7		14,82		16,74
	Sales	12,6	1,1	13,7	1,07	13,5	1,18	14,48	1,05	15,77	1,06	16,68	0,9
Jewelry	Manufactured goods	24,9		26,1		26,3		27,4		29,1		-
	Sales	52,7	2,1	57,6	2,2	54,1	2,05	56,9	2,07	56,95	1,95	60,58

Therefore, to obtain more objective information, it is best to measure the additional cost produced by each segment of the diamond pipeline by taking the ratio of the cost of the manufactured goods to the price charged when they are sold. That is, for rough diamonds, we wish to examine the ratio of mined goods to sales; for polished diamonds, the ratio of manufactured goods to sales; and for diamond jewelry, the ratio of manufactured goods to sales (see table 2). This allows us to do two things: first, we can determine which are the most and least economically efficient sectors of the industry; and second, we can analyze developmental trends in each sector, establish the boundary conditions for each sector, and use the information thus obtained to work out effective marketing strategies.
Our calculations show that the most economically efficient sector of the diamond industry is diamond jewelry marketing (where the factor of cost increase is f=2), followed by rough diamond marketing (f=1,1-1,3). The least economically efficient sector is polished diamond sales (f=0,9-1,1). It is obvious that for the diamond industry, the dynamics that drive cost increases in diamond jewelry are of paramount importance, since the demand for finished products (diamond jewelry) falls under this heading. This demand in turn drives the demand for intermediate products (rough stones and loose polished diamonds). Even a slight reduction in this demand should set off alarm bells for manufacturers of rough and polished diamonds and finished jewelry alike, motivating them to stimulate marketing activity. On the other hand, if this factor improves it will set off a favorable chain reaction all along the pipeline. For manufacturers of polished diamonds, who occupy the most vulnerable position in the industry, at the very center of the pipeline, it is very important to take into account both the dynamics that drive the cost of polished diamond sales and the speed with which sales of diamond jewelry are rising. If these two factors rise or fall in tandem, one can conclude that the world diamond market as a whole is stable, which should allow diamond manufacturers to function with confidence. If these two factors are not working in tandem, this could mean one of two things. Either diamond jewelry sales are rising while sales of loose polished diamonds are falling, which translates into an unusually favorable market in which diamond manufacturers can hope to increase their profits; or diamond jewelry sales are falling while sales of loose polished diamonds are rising, which is obviously an unfavorable condition for diamond manufacturers.

Table 2.

Dynamics driving cost increases in the various sectors of the diamond industry
Our analysis of the dynamics driving cost increases in each sector of the diamond pipeline leads to the following conclusions:
 • From 1999-2004, there was a decline in all parameters, testifying to a reduction in profitability for the diamond business as a whole. It should be noted, however, that these were unusual years for the industry: our baseline year of 1999 was a period of preparation for the millennium celebrations, which had a significant impact on cost increases for both rough and polished diamond sales; the year 2000 saw the millennium celebrations, which led to large increases in diamond jewelry sales; 2001 saw a market correction due to overproduction; and 2002 saw a recovery.

If the polished diamond sales are rising by a factor of less than 1 (0.9), we can see why the polishing sector is in such difficulties. Increases in rough diamond prices on the one hand, and slower growth in demand for diamond jewelry on the other, leave diamond manufacturers with few opportunities for positive development.

Next, we proceed to a sector by sector analysis of the world diamond industry.

Diamond mining
In 2004, the mining sector produced 130 million carats of rough diamonds worth .06 billion. Mining took place in 24 countries, but only eight of these nations were responsible for 97 percent of world rough diamond production in terms of weight and 95 percent in terms of value: Botswana (23 percent), Russia (20 percent), Canada (14 percent), South Africa (10 percent), Angola (9 percent), South Кorea (9 percent), Namibia (7 percent) and Australia (3 percent) (see table 3).

 Table 3. World diamond mining (millions of $)

	2000	2001	2002	2003	2004
Botswana	2200	2080	2480	2240	2320
Russia	1600	1600	1470	1610	1980
Angola	700	700	760	900	900
South Africa	900	1200	900	900	1050
Namibia	500	500	420	440	700
Australia	300	400	460	460	310
Korea		500	500	900	900
Canada	400	540	430	1100	1400
Other countries	900	410	410	350	500
Total	7,5	7900	7830	8900	10060

Today, there are no unified world standards for classification of rough diamonds, since the majority of the criteria which determine a stone’s value (such as color, clarity and shape) are difficult to measure objectively. Only a diamond’s weight is subject to absolute measurement. The other parameters can only be measured visually by comparison with a sample stone. Due to the subjective nature of these price determining factors, different experts may differ in their valuation of the same rough by as much as 100  percent. Therefore, diamonds are frequently sold speculatively. This is one of the main features of the diamond business due to its ramified system of intermediaries.

Thus, the mining sector can be divided into two markets: primary (direct sales of rough diamonds by the actual mining firms) and secondary (sales of rough diamonds by trading companies or manufacturers of polished diamonds). While the volume of the primary market corresponds to the volume of rough diamonds mined in any given year (e.g. .1 billion in 2004), the volume of the secondary market corresponds to the volume of rough stones re-exported by the main international diamond manufacturing and trading countries—Belgium, Israel, the United Arab Emirates, India and the United States (.8 billion in 2004). Thus, we can estimate the total volume of the world rough diamond market in 2004 at about billion.

Analyzing the two rough diamond markets by country is very difficult, because the same countries that are major consumers of rough stones on the primary market also play major roles as re-exporters on the secondary market. Thus, Belgium imports 33.8 percent of all rough diamonds in the world and is also responsible for 60 percent of the re-exports; India imports 34.3 percent and re-exports 2 percent; Israel imports 24.4 percent and re-exports 24 percent; the United Arab Emirates imports 4 percent and re-exports 12 percent; and the United States imports 3.3  percent and re-exports 2 percent.

Important trends on the rough diamond market in 2004 were as follows:
1. A steady rise in prices (12-13 percent annually).
2. A 66 percent increase in mining expenses.
3. A 13 percent increase in the value of rough diamonds produced. There may have been an actual increase in the quantity of stones mined, but it is likely that rising diamond prices, world inflationary pressures, and the rising costs of diamond mining were more significant.
4. An increase in the major players’ investments in prospecting and mining (De Beers – China, Canada, Korea, India; LLD – Canada, Angola, Namibia; Rio Tinto – Australia, Canada, Zimbabwe, Angola, Guiana, Greenland, Mauritania, Indonesia, Brazil, Guinea, India; Dwyka Diamond – India, South Africa; BHP Billiton – India, South Africa; ALROSA – Sierra Leone, Namibia, Angola, Canada; Randgold - Angola, etc.).
5. Gradual changes in the regional makeup of the world diamond mining industry.Over the past five years, South Korea’s relative share has increased 3 percent and Canada’s 9 percent, while Australia’s share has decreased 2 percent, South Africa’s 2 percent, and Botswana’s 7 percent, despite absolute growth. The shares of Angola and Russia have remained relatively stable.
6. Withdrawal from the world diamond markets of the majority of South Africa’s mines, due to strengthening of the rand against the dollar.
7. A decline in Australian diamond mining, due to the closing of the Marylin mine.
8. A sharp increase in the volumes of diamonds mined in Canada, due to the ramping up of the Diavik Mine.
9. Rough diamond sales increased 24 percent by value, reflecting the general situation of the world diamond market—demand outstripping supply.
10. Reduction of De Beers’s share of the world rough diamond to 48  percent, and reduction of its diamond stocks to 0 million. The net effect is a freer rough diamond market.
11. A gradual change in the distribution of rough diamonds to the cutting centers, with Israel’s share falling by 9 percent in the last five years; the United States and Russia falling by 2 percent; India increasing by 8 percent; and the countries of East and Southeast Asia (Thailand, China, etc.) increasing by 7 percent.
12. Expansion of the DTC trading network as Diamdel opened a new office in Namibia.
13. The European Commission’s ruling against the agreement between ALROSA and De Beers, which required ALROSA to gradually reduce the amount of rough it sells De Beers every year from 0 million in 2002 to 5 million in 2010.
14. ALROSA’s entry into the world market as an independent player, with a new marketing system.
15. The appearance of new trading centers for diamonds, precious stones and precious metals—notably in Dubai and Shanghai.
16. The appearance of large synthetic diamonds of different colors (yellow, blue, pink) on the world diamond market.
17. Increased international oversight due to the ongoing development of the Kimberley Process and activity by De Beers (the “Supplier of Choice” program).
18. Aggravation of the problem of disclosure of synthetic diamonds.

Polishing industry

Despite the complex situation the diamond polishing industry finds itself in today, production continues to increase. In 2004, it totaled .74 billion, up 13.1 percent from 2003. India produced 55 percent (.3 billion) Israel 17 percent (.77 billion), Thailand and other East and Southeast Asian countries 15 percent (.5 billion), South Africa 4 percent (0 million), Russia, Ukraine, Belarus and Armenia 5 percent (0 million), Belgium 2 percent (0 million) and the United States 0 million worth (see table 4). It is difficult to say to what degree the figures given in the table reflect the actual production situation. In our opinion, the figures are better indicators of the price trends characteristic of the current world diamond market, since the rates of increase in prices for polished diamonds (12-13 percent a year) rough stones (+9 to 17 percent a year, according to different sources) and the value of diamonds manufactured are all roughly the same.

Table 4. Dynamics of diamond polishing ($ million.)

	2000	2001	2002	2003	2004
India	6800	5500	7035	7035	9300
Israel	3200	2700	2800	2900	2770
CIS	800	700	600	700	800
Thailand, China, Hong Kong	700	1000	1500	2500	2500
United States	500	400	400	400	400
Belgium	400	400	400	780	370
South Africa	400	600	500	500	600
Other countries		100	400	5
Total	12800	11400	13700	14820	16740

The most important statistics for the diamond polishing industry relate to debt and diamond stocks. Last year, both figures rose, underlining the existence of problems in this sector. Thus, in 2004 the debt totaled .1 billion (60.1 percent of world diamond production). India holds the greatest share of the debt (.9 billion), followed by Belgium (.65 billion), the United States (.85 billion), and Israel (.75 billion). The growth rate of the aggregate debt slowed considerably, from 22 percent in 2003 to 17 percent in 2004. It should be noted that the Israeli and U.S. industries barely increased their debt and the Indian industry did so in a minor way, but Belgium’s debt continued to increase significantly.

These trends demonstrate the characteristic problems of today’s world diamond market. Since Belgium is the leading world center for both rough and polished diamonds, its activity in this sphere is the most energetic. It is obvious that the magnitude of the industry’s debt is influenced not only by the level of demand for polished stones, but also by many other factors, such as marketing expenses, which also grew in 2004.

The level of diamond stocks the industry holds is closely linked to the size of its debt. Since more diamonds were polished than could be sold in 2004 (fig. 1), stocks grew by -0 million in value. The main consumer of loose diamonds in the world market is the jewelry industry. However, jewelry manufacturers usually do not buy their diamonds directly from diamond polishing firms, preferring to use dealers as intermediaries in order to obtain precise assortments. These dealers select the exact diamonds the jewelers need by drawing on stocks and buying goods on the open market. The main world centers of this part of the diamond pipeline are Antwerp, Belgium, Tel Aviv, Israel and New York City, United States.

Thus, the leading exporters of diamonds are countries with a considerable polishing industry and/or those that have legislation designed to stimulate the diamond trade – India ( billion), Belgium (.1 billion), Israel (.3 billion) and the United States (.6 billion). The leading importers are those countries with long traditions of jewelry manufacture, sizable domestic jewelry markets, and/or low manufacturing expenses, as well as legislation designed to stimulate the diamond jewelry trade – the United States (.9 billion), Belgium (.6 billion), Israel (.6 billion), Japan (.1 billion) and India ( billion). 

The rough diamond market remains relatively strictly controlled and regulated even today, with obvious effects on prices—over the past 50 years, rough diamond prices have never fallen; only the rates of growth have fluctuated in response to changing conditions on the world rough diamond market at different points in time. By comparison, the market for loose polished diamonds is relatively freer and less stable. Nevertheless, the factors affecting the prices of rough and polished diamonds have much in common.
When establishing the price of polished diamonds, carat weight, color and clarity play the major role, just as with rough diamonds. The only added characteristic is cut. When it comes to polished stones, however, discrepancies between different experts’ evaluations tend to be narrower than is the case with rough diamonds. In any case, most polished diamonds weighing over 1 carat are sold with certificates. This aspect of the world diamond market gives the process of price formation greater objectivity.

In addition, the fact that diamond manufacturers are located midway on the diamond pipeline between rough diamond producers and manufacturers of diamond jewelry makes them vulnerable to both upstream and downstream fluctuations. In other words, polished diamond prices are directly influenced by the prices of both rough diamonds and diamond jewelry. Because rough diamond prices are always rising, albeit at varying rates, while it is always difficult to increase diamond jewelry prices since these are expensive luxury goods to begin with, prices for loose polished diamonds tend to get squeezed in the middle. If the price of loose polished diamonds is rising at the same time that the price of diamond jewelry is stable or falling, the situation cannot be maintained and the price of loose polished diamonds will start to decline. Only if prices of both loose polished stones and diamond jewelry rise in tandem, can rising prices for polished diamonds be maintained.

This constant squeeze on the polished diamond market generates a significant amount of competition among the polishing companies, a fact that we managed to illustrate by compiling figures on more than 1,500 diamond companies operating in the world market.
The total world consumption of loose polished diamonds was .68 billion in 2004, a 6.2 percent increase. The main consumer market was North America at 48 percent of the total (.94 billion), followed by the countries of East and Southeast Asia at 12 percent (.93 billion), the Middle East at 10 percent (.83 billion), Japan at 10 percent (.75 billion), and Europe at 9 percent (.53 billion). As to individual countries, in 2002 the largest markets were those of the United States (45.6 percent of the world total), Japan (8.5 percent), the Persian Gulf (5.2 percent), India (5.1 percent) and Italy (4.9 percent).

Important trends in the polished diamond market in 2004 were as follows:
1. An increase in the quantities of diamonds manufactured.
2. A gradual change in the geographic distribution of the diamond polishing industry. Over the past five years, the proportion produced in the countries of East and Southeast Asia (Thailand, China, Hong Kong, etc.) has increased by 10  percent, while the proportion produced in Israel and the United States has decreased 8 percent and 2 percent respectively. The proportion produced in India has remained stable despite a constant increase in absolute terms. These  numbers reflect the general industry trend of migration to countries with low labor costs.
3. Sales volume rose, but in our opinion, this did not reflect a real quantitative increase, but rather a rise in the price of rough diamonds and general worldwide inflation.
4. A gradual change in the regional distribution of polished diamond sales, due to an increase in the proportion sold to the United States (up 6 percent over the past five years) and a reduction in the proportion sold to Europe and Japan (by 1 percent and 3 percent respectively). This trend reflects the ongoing economic problems characteristic of the European and Japanese regional markets, which are suffering from depressed consumer demand.
5. An imbalance between rates of growth in manufacturing and sales of polished diamonds. In 2004, manufacturing grew 13.1 percent and sales rose only 6.2 percent; in 2003, manufacturing was up 8.1 percent while sales grew 9.1 percent. If manufacturing grows faster than sales, the natural result is active accumulation of diamond stocks, with negative results for the industry. This accumulation of stocks may take place if polishing firms are unwilling to sell goods with small profit margins and buyers are unwilling to pay high prices for expensive goods. In 2004, this situation reached its apotheosis, as the quantity of polished diamonds manufactured actually exceeded the quantity sold in absolute terms.
6. A shortage of rough diamonds for already existing polishing plants.
7. A discrepancy in the rate at which prices rose for rough and polished goods. In 2003, rough prices rose 12 percent and polished prices rose 6.75 percent; in 2004, rough prices rose 13 percent and polished prices rose 10.8 percent. These figures, which are based on the Rapaport Diamond Report, do not take inflation into account, and reflect only the prices for top-quality diamonds—D-H color, IF-VS2 clarity [7,8,9].
8. If we analyze the real, inflation-adjusted prices of polished diamonds in 2004, we can see extremely positive dynamics – namely, a constant rise in prices for all weight categories, except 0.5 carat diamonds, which fell 1 percent. The largest price increase was in 3 carat stones (up 8  percent). On the world market, large stones were generally in the greatest demand, resulting in sharp prices increases: e.g. 1 caraters (up 5 percent) and 5 caraters (up 4 percent). This trend is the result of constant sharp increases in the price of rough diamonds, demand for which exceeds supply. The average price increase for the highest quality goods across all weight categories in 2004 was 4 percent.
9. A more detailed analysis of the market for all polished goods, not just the highest quality stones, can be found at Polishedpriced.com. This website divides polished diamonds into three quality categories—Fine: color D-I, clarity FL-VS2; Commercial: color J-K, clarity SI1-SI3; Mixed: color L or lower, clarity I1 or lower [15]. The greatest attention is paid to stones weighing 1 carat or less (those most frequently used in transactions). The price increase in this category in 2004 was 17 percent.
• For “Mixed” category diamonds weighing 1 carat, sharp price increases were observed in practically every month of 2004, except January, February and June. In November, prices for this category of goods were some 63.5 percent above where they had been in January. For the year as a whole, prices for these goods rose 57 percent.
• The second highest increase occurred in commercial quality diamonds weighing 0.3 carats. The greatest increase (39 percent) came in June. For the year as a whole, prices for these goods rose 35 percent.
• The third highest increase occurred in commercial quality diamonds weighing 0.5 carats. The greatest increase (31 percent) came in June. For the year as a whole, prices for these goods rose 23 percent.
10. Growth in demand for fancy color diamonds.
11. Growth in demand for square-cut diamonds.
12. A sharp increase in industry bank debt, which was up 22 percent in 2003 and 17 percent in 2004. At the end of 2004, total bank debt stood at .1 billion.
13. Significant international growth in polishing by large companies. (LLD – Canada, Angola, Namibia, Botswana, Armenia, China, Hong Kong, ALROSA – Angola, Lazare Kaplan – Namibia).
14. The introduction of “best practice principles” by the DTC, in an effort to combat the spread of conflict, synthetic and treated diamonds.
15. A sharp increase in DTC sightholders’ marketing outlays in an effort to stimulate demand.
16. Growing attention to branding and certification of diamonds (e.g., the DTC’s Forevermark, the HRD’s introduction of a new computer certification system, and IGI’s new Hong Kong branch). This trend was a response to growing concerns about a flood of gem-quality synthetic diamonds onto the world market.
17. Active growth in the Asian market – China, Hong Kong and the Persian Gulf; and a gradual recovery in the Japanese market.
18. Russia’s active entry into the Asian diamond market (ALROSA – Japan, Crystall – United Arab Emirates).

Jewelry industry

The jewelry industry, which creates and markets jewelry with or without precious stones, can be found in practically all countries and reflects a multitude of national traditions. However, only a small number of countries produce high-priced precious metal jewelry.The leaders are India (22 percent of world gold jewelry production), Italy (16 percent), and, to a lesser degree, China, the United States, Saudi Arabia and Turkey, each of which are responsible for 5  percent. These countries are also major end consumers of gold jewelry, though the amount they consume is different from the amount they produce. India consumes 30 percent of the world’s gold jewelry, the United States 19 percent, China 9 percent, Saudi Arabia 7 percent, Egypt 6 percent, Italy 5 percent and Turkey 4 percent.

The diamond jewelry industry is the part of the diamond pipeline where the greatest amount of value is added. Since it is also the ultimate generator of demand for diamonds, it can be regarded as the major determiner of the world diamond industry’s configuration.

The development of the diamond jewelry industry today is subject to several negative factors. First among these is the constantly rising cost of precious metals. From January 2002, prices for platinum, the metal most used in manufacturing diamond jewelry, rose 82 percent. The greatest price increase for platinum—95 percent—occurred at the beginning of 2004. The price of gold rose 58 percent in this period. The greatest price increase for gold—61 percent—occurred in December 2004.

During this same period, diamond prices developed unevenly, decreasing 10 percent at the end of 2003 but growing again from January 2004. This chaotic movement in the cost of rough diamonds had negative consequences for the polishing industry. At the same time, rising prices for all their raw materials caused jewelers to cut back on their purchases of diamonds. This led to the accumulation of large stocks of diamonds (0 million in 2004).

These trends doubtless took their toll on the diamond jewelry industry. It is logical to assume that the quantities manufactured declined considerably. Because the industry so often treats market information as confidential, it is difficult to find statistics that would bear out this assumption, although in 2003 several international sources did confirm the impression that the jewelry industry is stagnating. According to some of these sources, in 2003 jewelry manufacturing decreased 7 percent. Most of the trade media, however, eschewed statistics that would have borne out this impression of general worldwide decline, instead choosing to focus only certain regional jewelry markets that were developing successfully, or on other positive trends that were probably insignificant in the wider scheme of things, as we can see in table 5.

Table 5. World diamond jewelry markets and the Gross World Product, 1998-2004

	1998	1999	2000	2001	2002	2003	2004
Diamond jewelry produced ($ billion)	22,2	24,9	26,1	26,3	27,4	29,1	-
Diamond jewelry sales ($ billion)	51,1	54,9	55,7	53,6	54,7	60,2	65,4
Gross World Product ($ billion)	29528	30638	31455	31195	32410	36327	40671
Diamond jewelry sales as a percentage of Gross World Product	0,173	0,179	0,177	0,172	0,169	0,166	0,161
Change in proportion of Gross World Product spent on diamond jewelry (percent change from previous year)	-1,2	3,6	-1,2	-3	-1,8	-1,8	-3,2

Even constant growth in diamond jewelry sales does not mean that this sector is economically healthy, since competition from other luxury goods and new technological goods and services is stiff.

Based on the .58 billion in retail diamond jewelry sales worldwide in 2004, we can estimate the current capacity of the diamond jewelry market at about billion—50 percent of the world jewelry market and 21 percent of the world market for all luxury goods.

The current diamond jewelry market can be broken down regionally as follows: North America – 52 percent (up 6 percent in the last five years), Japan – 15 percent (down 3 percent), Europe – 13 percent (down 1 percent), Asia-Pacific region – 6 percent (unchanged), Middle East – 6 percent (unchanged). Diamond jewelry sales grew in the United States (6 percent), the United Kingdom (8 percent), China (11 percent), India (21 percent), Canada (11 percent), Taiwan (6 percent), Spain (4 percent), Thailand (8 percent) and Japan (3 percent) (see table 6).

Table 6. Diamond jewelry sales ($ m