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MIDSTREAM

Following a challenging 2015, more normal trading conditions returned to the diamond industry’s midstream in 2016, notwithstanding the short-term disruption following India’s demonetisation process.

2015

Slower growth in demand from China required midstream businesses to adjust their rough diamond purchasing. Excess inventory of polished diamonds caused declines in wholesale polished diamond prices. De Beers increased consumer marketing, adjusted rough diamond prices and offered enhanced flexibility in rough diamond supply.

2016

The appetite for rough diamonds returned as polished stock levels normalised and downstream demand supported polished prices. The Indian Government’s demonetisation programme in November reduced cash in circulation by more than 85 per cent. Midstream buyers delayed rough purchases until liquidity improved in 2017.

2017

Rough demand increased in early 2017. Rough purchases have subsequently been stable, as the midstream responds to slightly improved trading conditions downstream.


INDIA

The business community has generally welcomed the Indian Government’s fiscal and monetary reforms. Despite short-term disruption, these are seen as creating a more stable and professional environment and an opportunity for improved economic growth. Larger retailers and companies in the midstream that have been able to maintain normal operations are seeing the benefits of transparency and compliance with more stringent financial regulations. Smaller operators in the cash economy, however, have suffered more significant disruption.


LOOKING AHEAD

Changing expectations from a range of industry stakeholders are set to have a significant effect on the future success of midstream businesses.

The evolution of consumer behaviours and attitudes in the major diamond consumption countries will require midstream participants to:

  • formulate flexible business models that add more value downstream;
  • differentiate their offerings through better consumer understanding, design innovation, enhanced branding and pipeline insight.

The recent trend towards greater marketing investments from industry players across the value chain (including an increased budget for the Diamond Producers Association, as well as heightened investments from individual producers, brands and trade bodies) will help support this, but midstream businesses will need to adapt both product and service offerings if they are to maximise their opportunities.

Furthermore, diamantaires are under increasing pressure from primary suppliers, banks and tax authorities to impose higher standards of corporate governance and financial transparency.

As a result:

  • early responders are building a stable platform for future growth with sophisticated funding portfolios combining their own equity with long and short-term debt;
  • there will be increased competition for the available bank funding, with businesses able to evidence a strong track record of performance bestplaced to compete;
  • sufficient financing will, however, be available to those with formalised structures and professional reporting standards.