Petra Diamonds Limited
Annual Report and Accounts 2013
18
Strategic Review
Our Market continued
The ultimate late cycle commodity
The chart to the right demonstrates China’s per capita consumption
of various basic materials relative to the US at its ‘steady state’
consumption rates. Whilst China already consumes more than
the US on a per capita consumption of early cycle materials, such
as steel and cement, there remains large potential upside for late
cycle commodities such as diamonds, as consumption per capita
in emerging regions is still far below that of mature markets.
Likewise diamonds are late cycle in terms of discretionary consumer
purchases. As disposable income rises, consumers eventually
aspire to buy and own gem set jewellery.
Factors driving the market
...plus widespread use in luxury goods
Over the last few years, the prices of smaller gem quality
diamonds have increased at a faster rate than those of larger
diamonds due to their high demand across a wide range of
luxury goods, but particularly in the watches segment.
Likewise, there is a now a trend for all manner of luxury goods
to be adorned with diamonds, such as pens, mobile phones
and other portable digital devices.
Even jewellery set with other gemstones, such as emeralds, rubies
and sapphires, very often includes smaller white diamonds as
these serve to perfect and add lustre to a central coloured stone.
Smaller gem quality diamonds are in high demand
due to use across a wide range of luxury goods.
Mass luxury will drive the market...
As a new consumer market matures, diamonds are no longer
the preserve of a wealthy elite and a mass market is able to
flourish once consumer disposable income allows. Evidence
suggests that the Chinese and Indian markets are thereby
starting to follow the US trend, with retailers stating that these
markets will be driven by ‘mass luxury’ – i.e. affordable diamond
jewellery ranging from US$200 to +US$2,000 per item.
As in the West, mass luxury purchases in the East are underpinned
by the bridal/wedding market, followed by other opportunities
to celebrate life’s most momentous occasions, such as birthdays,
anniversaries and new births.
The number of China’s brides receiving a diamond
engagement ring grew by a CAGR of 23.9% from
1994 to 2010.
There is large potential upside for late cycle
commodities such as diamonds in China.
CHINA’S PER CAPITA CONSUMPTION OF
KEY COMMODITIES
Relative to the US (100%)
% OF FIRST TIME BRIDES WHO RECEIVE A
DIAMOND-ONLY ENGAGEMENT RING
Source: De Beers
National GDP increase
Source: Bank of America Merrill Lynch Global Metals and Mining Research
120
100
80
60
40
20
0
% saturation
USA
50 years
CAGR 4.2%
JAPAN
30 years
CAGR 9.5%
CHINA
16 years
CAGR 23.9%
DIAMONDS
PULP
TIO2
PLATINUM
COPPER
ALUMINIUM
GOLD
ZINC
NICKEL
STEEL (120%)
CONCRETE (250%)
USA
10
80
1940 1990
JAPAN
5
77
1965 1995
CHINA
?
1994 2010 PEAK
31
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