The world diamond market

The experts of OJSC AHRF Consulting carried out a study of the diamond market in Russia and the prospects of creation in Russia of the international diamond hub. The study highlights the major trends in the market of mining and processing of diamonds, as well as identified the main characteristics of the world's largest diamond hubs.

The world diamond market

Proposal
At present the total reserves of rough diamonds abroad are assessed as 2 billion karat. Diamonds mined in more than 26 countries of the world , the search for new deposits is constantly carried out on all continents. The level of annual mining of diamonds in the world is currently 131 million carats (2014).
The main volume of natural diamonds mining give only five countries: Australia, Botswana , Republic of Congo , Russia and Republic of South Africa. The world's largest world producer of natural diamonds are Russia, Botswana and the Democratic Republic of Congo, in total, provide 59% of world diamond mining.
Illustration 1 Largest countries – diamonds producers

 

Source: kimberleyprocessstatistics.org
Now Russia gains the lead in the world in diamonds mining (29% of the market)

Demand
Based on estimation of Dominion Diamond Corporation, the global demand for diamonds will soon exceed the volumes of proposal , which will lead to higher prices. In the period from 2019 to 2024 , diamond production , based on the forecast , will decrease due to lack of new deposits. The demand in accordance with the forecast will continue to rise due to the fundamental processes such as the growth of wealth of the middle class in the developed and developing countries.
Currently the world's largest diamond markets – consumers of diamonds are the USA, China and India.
Based on the forecasts of the analysts of Paul Ziminsky Diamond analytics, the average price of diamonds in 2015 will be 103 dollars per carat , which will be some decrease in comparison with 2014 (2%).
Mining companies
A distinctive feature of the world diamond market is its high monopolization. The largest mining companies are De Beers , Alrosa , Rio Tinto , Dominion Diamond and Petra Diamonds. These companies take out 70% of all the world diamond mining.
There is another segment of the world market, which is an illegal “black market” of mining and sale of diamonds. Most widely it is developed in African countries such as Sierra Leone , Zaire , Angola and others. Due to the continuing civil strife and wars diamond sales has become a major source of funds for the purchase of weapons.
Table 1 The companies – major diamonds producers
 

* - Exploration - exploration

Processing industry
Currently processing diamond processing manufactures are concentrated in countries with low labor costs (such as India, China and South-East Asia). Initially, the processing plants were located in close proximity to shopping centers (Europe, Israel and USA) , or close to mining areas. Subsequently, most of the enterprises were transferred to the “cheaper” countries , such as India and China. The share of production of “expensive” stones in which value the labor costs are lower, also shifted to these regions. Nowadays, India occupies over 60% of the market of diamond processing.

Diamond market of Russia
Mining
Mining of approximately 99% of all Russian diamonds is carried out in the Republic of Sakha (Yakutia). Currently in the Republic are developed about 10 kimberlite pipes. In addition large diamond deposits are located in Perm’ Territory and Arkhangelsk Region. By the explored reserves of diamonds Russia gains the lead in the world.
Diamond mining in Russia in 2014 increased by 1.1% compared with indicators of 2013 – up to 38.304 million carats. In value aspect the volume of diamonds mined increased by 19.9% – up to $3.733 billion.
T “Alrosa” group carry out more than 95% of Russian mining. At the moment the Joint-Stock Company “ALROSA” in Russia have four mining-and-processing enterprises. There are Aikhal’skiy , Udachninsky , Nyurbinskiy and Mirninskiy mining-and-processing enterprises.
Processing
Sector of diamonds cutting and polishing in Russian Diamond Complex is not homogeneous. Production of diamonds is represented by three industrial clusters in Moscow , Smolensk and Yakutia.
Cutting of diamonds in Russia – one of the less-profitable processing industries , margin even in the best moments is not more than 5%. Russia holds 4% of the world cutting market , while more than 60% of all of the world's diamonds are cut in India.
Russian cutters formed specialization – not being able to compete in prime cost of cutting with India , they shifted towards the processing of large goods, increasing the prime cost. Now in Russia mainly high-quality diamonds larger than 0.5 carat are processed.
Most of the diamonds – more than 60% – sold for export – to Belgium , Israel , the USA , China and other countries , 40% – inside the country.

Diamond Exchanges (hubs)
The most important part of precious stones trading in the international diamond business are the Diamond Exchanges (clubs). In these exchanges there are dealers , brokers and manufacturers for buying or selling diamonds and rough diamonds. Today such exchanges work in the world's major diamond centers – in Belgium , the USA , Israel , the Republic of South Africa , the Netherlands , Great Britain and Japan.
The diamond hubs are the areas , where entire spectrum of services and industrial production of the diamond branch are centered. They are the connecting nodes in the trade , decor , crediting and processing of diamonds for the majority of global suppliers. Centre of the diamond hub is the diamond exchange.
The basic principles of diamond hubs structure:
1. The large centers of mining and processing of diamonds;
2. Historically developed shopping centers , near major ports;
3. Developed capital market;
4. Modified tax and customs regimes;
5. The concentration of skilled and inexpensive manpower.

Major international diamond exchanges (hubs)
Israel (Ramat Gan)
The development of the diamond industry in Israel is fully supported by the state. In Israel there are no duties on imports and exports of rough diamonds of jewelry quality. Having their own cutting factories also gives the country a competitive advantages in the diamond market.
The main Israel Diamond Exchange is located in Ramat Gan and is a whole region where several high-rise buildings are concentrated, where organizations working in the market of diamonds and jewelry are situated. Daily about 6 000 people visit the Exchange.

Belgium (Antwerp)
The most important center of the diamond business is Antwerp. Four diamond exchanges operate in Antwerp. In the city a whole district (Diamantenzentrum) is created , where all the major institutions of the market from the exchanges to the museum diamonds are concentrated. In the region there are more than 1,500 different organizations engaged in the sale of diamonds.
Through the Antwerp diamond exchanges pass about 80% of all diamonds that are processed and sold in the world. Traditionally Antwerp was the place of the Russian diamond sales. The ALROSA company sell more than 65% of diamonds in Antwerp , which is 25% of the turnover of this world's largest diamond hub.
India (Mumbai)
In India one of the largest by the area in the world diamond exchanges is located in the business district of Mumbai – Bandra Kurla. On the territory with an area of 8 he there are more than 2,500 outlets, customs, banks and other organizations provided the process of selling diamonds and processed precious stones. Since 2015 began an actively creating of a new diamond exchange in the city of Surat , where most processing industries are located. That will reduce costs of the selling companies.
Most of the diamond cutting and jewelry centers of India are actively developing due to providing the enterprises , working in these centers , tax and customs preferences within the limits of free economic zones established there. In 2007 the Indian Government abolished all customs duties on imports of diamonds into the country , which was a significant move in the development of the industry as a whole.
United Arab Emirates (Dubai)
Today the United Arab Emirates (UAE) is one of the world's largest centers of trading of rough and cut diamonds , which is carried out through the Dubai Diamond Exchange. In 2001 the diamond trade in Dubai was practically not carried out – its volume did not exceed the amount of 5 million dollars. Now the annual trading turnover of over 39 billion dollars.
In 2005 the Government of Dubai created a Free Economic Zone in the area of high-rise towers on the Beautiful Lakes and the Dubai Center of Exchange Goods , where sale of precious metals and stones , including diamonds , as well as goods of other industries , is carried out.

All major regions , considered to be the diamond hubs , have a significant advantage in the form of free economic zones , tax and customs preferences , administrative stimulations. Diamond Complex of Russia needs a similar support to make the enterprises competitive in the world market of diamonds and jewelry.
The most valuable for use in the Russian practice are the following steps of the state support:

1. Tax and customs preferences (exemption from duties and taxes , accelerated VAT refunding and so on.);
2. Administrative preferences (the principle of a “single window” (all services are rendered in one place) , the simplification of customs procedures etc.);
3. Infrastructure (ready buildings and plots for construction, auxiliary services of banks , auditors etc.);
4. Direct financial preferences (guarantees , grants).
To date the organization of international trade on the territory of Russia is limited by the following factors:
• Low domestic demand for jewelry inside Russia. The fall of Russian consumption of jewelry by 40% in the first quarter of 2015 compared to the same period of 2014 , worsen this trend;
• Diamond processing is carried out outside of Russia. The trend of the transfer of processing industries to countries with cheap manpower is preserved.
• Lack of confidence on the part of partners. Due to worsening of the geopolitical situation trade on the territory of Russia will be perceived with caution.
• The absence of a free customs zone as in major diamond hubs of the world;
• The need for infrastructure and the availability of finance , including obtainable crediting.