ABN AMRO released its latest Insights Report which is focused on the global diamond industry, positing that the industry may see some major structural changes in the near future with a likely movement towards a shorter supply chain. Price competition and the wider acceptance of lab-grown or synthetic diamonds are the two crucial factors that will have a lasting impact on the industry in the coming years, it adds.

Entitled ‘Nothing is Forever...’, the report sees the mismatch between high rough prices and lower polished prices as being one of the key reasons for the current crisis, noting that though rough prices came down in 2015, they remain expensive compared to polished prices.

The bank believes that “rough and polished prices may need to go a good deal lower before they may be able to recover”. The large inventory overhang in the middle segment will keep rough buying muted, and faced with liquidty issues and tighter credit, consolidation will likely be the result in the middle segment in the industry, it says.

 Projecting into the future it says that only the stronger companies (in the mid segment) will survive, mainly those that develop a clear niche for themselves.

Commenting on the supply side, the report says that diamond mine production is expected to delcine by 1% annually over the next few years due to depletion of existing mines and failure to find new deposits. It adds that while there are no clear forecasts on how synthetic diamond production will increase, it is clearly going to be at a high pace.

This ”will lower the entry cost of the industry, increase the total (natural and synthetic) supply of diamonds, and will exert additional downward pressure on natural diamonds”, it concludes.

Stressing that that change is not new to the diamond industry, the report briefly mentions the major shift that took place from the 1980s as the diamond industry moved from being a monopoly led by De Beers to an oligopoly/duopoly dominated by Alrosa and De Beers.

It concludes that instead of fighting the forces pointing towards change, which may make it “more substantial and painful ..... down the road”, the best strategy would be  “to embrace them and recognise that bold adjustments need to be made”.