Transcript Diamond Industry

$ 64b Diamond Industry
World of Opportunities
Dr Rajesh Khajuria, Director
TEAMPro Limited
London (UK) / Vadodara (India)
January 3, 2006
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Can You Make Diamonds? Yes
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Put pure carbon under enough heat and
pressure - say, 2,200 degrees Fahrenheit and
50,000 atmospheres - and it will crystallize
into the hardest material known. Those were
the conditions that first forged diamonds
deep in Earth's mantle 3.3 billion years ago.
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http://www.wired.com/wired/archive/11.09/diamond.htm
l
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Part I: Industry Growth
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For 1,000 years, starting in 4th century
BCE, India was only source of diamonds
Source: Emporia State University, USA
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IT or Diamond Revolution?
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India’s diamond industry handles 80 per cent of the
global polished diamond market, and earned $8
billion last year (compared to software’s $ 10 billion).
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Someone writes 92/100 diamonds are processed in India.
So why do we hear so much about IT and so little
about the diamond business?
What took the Hasidim centuries to accomplish was
overturned by the Jains in only two decades. They
did so using tactics that the software industry
replicated some years later. (Source: Times of India).
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Outsourcing Diamonds first
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Next, they ‘outsourced’ the finishing jobs to
India (where incidentally, the diamond
industry employs more people than the IT
industry), while working their way up the
value chain…
The remarkable thing is, like with the
software industry, India does not produce
much original or branded diamond products
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Diamond's origin may have finally been
revealed in the twentieth century, but an
appreciation of its beauty has been known
since its discovery in India, prior to 400
(Harlow, 1998, p. 118).
Historically, diamond has been referred to as
the essence of purity and invincibility, a
symbol of royalty, and token of everlasting
love. Diamond is the birthstone for April.
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Fashion of Industrial Product?
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Today, 75-80% of the world's natural
diamonds are used for industrial
purposes
And 20-25% for gemstones,
which are further used in Jewellery
making.
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South Africa w/w/o Diamonds
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SA: Ocean > diamonds / Land
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Over the past 100 million years up to 1,400
meters have been eroded from the land's
surface, releasing billions of carats of
diamonds on a trip to the sea. An estimate of
diamonds eroded from the Kimberley mine -the "Big Hole" -- alone is 500,000 carats. The
rivers carried most of the eroded diamonds to
the Atlantic Ocean.
Because powerful ocean waves break the
poorer quality diamonds, 90-95 percent of
marine diamonds are of gem quality.
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80% find Industrial Use
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80% of the diamonds
mined annually are
used in industry;
4 times that production
is grown synthetically
for industry - that's a
total of over 500 million
carats or 100 metric
tons.
Diamond is a
fundamental industrial
material that affects our
daily lives.
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Venice to Paris and Antwerp
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Diamonds begin appearing in European
regalia and jewellery in the 13th and 14th
centuries.
The early diamond trading capital was Venice,
where diamond cutting probably originated
sometime after 1330.
By the late 14th century, the diamond trade
route went to Bruges and Paris, and later to
Antwerp.
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Goa as 1st Trading Centre
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By 1499, the Portuguese
navigator Vasco da Gama
discovered the sea route to the
Orient around the Cape of Good
Hope, providing Europeans an
end-run around the Arabic
impediment to the trade of
diamonds coming from India.
Goa, on India's Malabar Coast,
was set up as the Portuguese
trading centre, and a diamond
route developed from Goa to
Lisbon to Antwerp.
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Koh-i-Noor in London Museum
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Mogul rule of India (1526--1857), when diamond
production increased, is notable for the creation of
lavish objects like the Peacock Throne of Shah Jahan
(1592--1666), which may have held the Koh-i-Noor
diamond as a dangling bauble always in view of the
shah's eyes.
Many of the great riches of Persia were obtained by
Nadir Shah when he sacked Delhi in 1739, taking the
jewels and Peacock Throne back to Teheran, where
most of the looted objects reside today among the
Iranian Crown Jewels.
Sadly, the Peacock Throne was apparently destroyed
soon after Nadir Shah's death.
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Ukraine
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KIEV - Ukraine announced the discovery of a large
diamond field in the centre of the country.
A statement from the president's office quoting
Ecology and Natural Resources Minister Pavlo
Igantenko said the quality of the diamonds found in
the Kirovograd region matched those produced by
world leaders South Africa and Russia.
Ukraine has a thriving industry in cutting small and
medium-size diamonds.
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Source: [email protected]
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Top 7 Diamond Countries
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The top seven producing countries, that
account for 80 percent of the world's
rough diamond supply, are Australia,
Botswana, Zaire, South Africa, Russia,
Angola, and Namibia.
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http://www.emporia.edu/earthsci/amber/go340
/diamond.htm
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Diamond: India to Global base
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Extensive mining of diamonds shifted from
India (17th century),
to Brazil (18th century),
to the African continent (19th century), and
finally
Australia and Canada (20th century).
Today diamonds are mined in some 25
countries on every continent but Europe and
Antarctica.
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Global Diamond Production
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Diamond Production
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India's maximum production, perhaps 50,000
to 100,000 carats annually in the 16th
century, is very small by modern standards.
Brazil and Venezuela are barely discernible
compared to South African production
following discoveries in 1867.
For the most part, except for major wars and
economic recessions, diamond production has
been steadily increasing, with non-African
sources growing in relative proportion.
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Diamond Dominant Countries
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Major production is now dominated by
Australia, Botswana, Russia, and Congo
Republic (Zaire),
but South Africa is still a major
producer, in both volume and value.
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Sorting
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Sorting
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There are two aspects of moving diamonds from
mine to dealer.
The first is the fairly straightforward but important
task of separating diamonds into gem-quality, near
gem-quality, and industrial-grade diamonds.
The second is the more intriguing aspect: the primary
diamond marketing, which has been and still is
largely controlled by De Beers Consolidated Mines,
Ltd. through its majority control of Central Selling
Organization (CSO).
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Sorting
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The CSO sells a large percentage of mine
production to diamond dealers;
independent mines sell by closed bids and
through private transactions.
Diamonds are grouped into "sizes"
-- more than one carat;
"smalls" -- between 1 carat and 1/10th carat;
and "sand," -- less than 1/10th carat,
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with some leeway for market pressures.
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Sorting
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Diamonds larger than about 15 carats are
handled individually.
Shape groups comprise "stones," "shapes,"
"cleavages," "macles," and "flats," describing
characteristics familiar to the market.
The ultimate purpose of sorting is to estimate
an asking price for the rough diamonds.
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Diamond Pricing
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After great swings in diamond prices, the
Diamond Trading Corporation (DTC) was set
up by De Beers in 1934 to handle the actual
sales of diamonds.
The DTC and the Diamond Producers'
Association (the mine operators) form the
nucleus of the Central Selling Organization.
The CSO stabilizes prices in hard times and
raises them in accord with inflation and
demand during good times.
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Diamond Pricing
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It needs considerable wealth and stockpiles
of diamonds to maintain this position, but this
"single channel marketing" system has been
an effective cartel.
In the United States cartels are illegal, so De
Beers cannot operate here. However, the
company's interests are represented by a
public relations office, the Diamond
Information Center, and indirectly by the
diamond dealers and jewellers who sell gems.
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South Africa Story
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South Africa Story
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The story of diamonds in South Africa
begins between December 1866 and
February 1867, when 15-year-old
Erasmus Jacobs found a transparent
stone on his father's farm, on the south
bank of the Orange River. Over the next
15 years, South Africa yielded more
diamonds than India had in over 2,000
years.
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South Africa Story
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In the 1870s and 1880s Kimberley,
encompassing the mines that produced
95% of the world's diamonds, was
home to great wealth and fierce
rivalries, most notably that between
Rhodes and Barnato, English
immigrants who consolidated early 31foot-square prospects into ever larger
holdings and mining companies.
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South Africa Story
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In 1888, Rhodes prevailed and merged
the holdings of both men into De Beers
Consolidated Mines Ltd., a company
that is still synonymous with diamonds.
Today South Africa is third in production
in terms of value and is likely to stay
that way for the foreseeable future.
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Africa
The Jwaneng mine, in Botswana
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Africa - Botswana
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The Jwaneng mine, in Botswana, is
the most valuable diamond mine in
the world.
Its 1995 production of about 10.5
million carats had a value of about
$1.2 billion.
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Africa
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Africa is the richest continent for diamond
mining, accounting for roughly 49% of world
production.
The major sources are in the south with
lesser concentrations in the west-central part
of the continent.
The major producing countries are Congo
Republic (Zaire), Botswana, South Africa,
Angola, Namibia, Ghana, Central African
Republic, Guinea, Sierra Leone, and
Zimbabwe.
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Africa - Congo
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Congo Republic (Zaire): With 18% of
world production, this is the second largest
producer of diamonds by weight (20 million
carats in 1995) after Australia. Only 6% is of
high gem quality; another 40% consists of
small stones, called near-gem, that are cut in
India. Mbuji-Mayi is one of the world's most
prolific mines. In recent years production has
been about 5 million carats per year.
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Other African Share
Other significant African producers and their
percentage of world production in 1996:
 Angola 1.8%
 Ghana 0.7%
 Central African Republic 0.6%
 Guinea 0.5%
 Sierra Leone 0.3%
 Zimbabwe 0.2%
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China Threat
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"If there is any place in the world where
we can speak optimistically about the
diamond industry, it is China," said
Shmuel Schnitzer, president of the
World Federation of Diamond Bourses.
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http://www.chinadaily.com.cn/en/doc/200311/19/content_282793.htm
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Diamond industry sparkles in
China?
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According to Guo Zhiyue, chairman of the
China Diamond Manufacturers' Association,
over 20,000 workers in China manufacture 3
million karats of diamonds every year, making
it the second biggest diamond manufacturing
centre in the world, next to India.
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However, most diamonds processed in China
are small and sold cheaply, meaning it is less
profitable than processing the bigger gems.
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Diamond industry sparkles in
China?
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In terms of the revenue gained from diamond
manufacturing, China still lags behind India, Israel,
South Africa and Belgium.
Schnitzer estimated China will become the second
largest diamond manufacturing centre measured in
US dollars in five years.
Shanghai is the fourth city in the world to be both
home to a diamond bourse and manufacturing base,
together with Antwerp in Belgium, Bangkok in
Thailand and Israel's Tel Aviv.
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Diamond industry sparkles in
China?
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Trade on the three-year-old Shanghai Diamond
Exchange Co Ltd (SDE) received a boost last year
when the government announced a substantial tax
cut within the exchange.
The trade volume has amounted to US$370,000 since
June (2003), according to Kang Huijun, chairman of
the board of SDE.
He said the SDE aims to achieve a trade volume of
up to US$5 billion by 2010 and became a major
trading centre in Asia by 2015.
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Diamond industry sparkles in
India
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The diamond market in India is now estimated to be
$1.4bn or Rs 6,600 Crore annually and is expected to
top Rs 7,500 Crore next year.
India has emerged as the fastest growing market in
terms of consumption.
However, in terms of value, US still leads the pack
with a 52% market share, followed by Japan.
India and the gulf region approximately consume the
same quantity of diamonds.
 http://economictimes.indiatimes.com/articlesho
w/1344370.cms
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Part II: Jewellery and
Branded Diamonds
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Export of Gold Jewellery
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India’s export has increased from Rs
5,000 Crore in Y 2000 to Rs 17,000
Crore in 2005 (USD 1.1b to 3.8b).
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The fastest growing export segment in
Gems and Jewellery industry.
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http://www.iijs.org/gjepc/gjepc.aspx?inclpage=
Uinfo_St_Statistics&section_id=6#/
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India’s Gold Jewellery Export
Major Destinations in 2004-05
Rs Cr
USD Mil.
USA
6,063.07
1,348.7
UAE
8,773.27 1,956.19
UK
700.71
155.80
Singapor
e
Total
India
570.07
127.22
17,112.00 3,812.88
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India’s Precious Metals Jewellery
Export Destinations in 2004-05
Rs Cr
USD Mil.
USA
317.65
70.77
Italy
36.65
8.18
UAE
11.02
2.46
UK
43.83
9.75
588.56
131.19
Total
India
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Retail Malls in India
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This is Vijay Shah's temporary abode for his
stay in Delhi. The Antwerp-based diamond
giant, chairman of the $400 million Vijay
Diamond Group, is in town to launch Signet,
his company's first retail store in November
2004.
Mumbai-based DiA boutique is owned by
Devaunshi Mehta, whose family have been
DTC sight holders (under the company
Mohanlal Raichand & Sons) for over half a
century.
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Retail Malls in India
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Vijay Jain, CEO, Orra says: Orra comes
from Rosy Blue, one of the biggest
diamond companies in the business,
worth approximately $1.5 billion and
present in 15 countries.
The trend globally is pointing towards a
movement away from cloak-and-dagger
secrecy in the diamond industry.
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Source: The Economic Times
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Reducing Concentration
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De Beers, from owning 80 per cent of
the production of diamonds globally,
has now reached a plateau of about 60
per cent, thanks to mines found in
Russia and Australia, far from Africa and
De Beers' control.
Diamond industry is getting under
better control of Non-De Beer People.
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Reducing Taxes, Attracting FDI
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GoM (Group of Ministers) of India is
meeting on 4th January 2006 to discuss
replacing income based tax to turnover
based tax – like the world over in
Diamond industry.
If done, this will attract more FDI than
ever before in Diamond Industry in
India.
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Part III: Strategic Options?
Management of Growth
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Strategic Options to You
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Set up processing centres in China / x place?
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Buy Diamond Mines or Partnerships in NonDB countries?
Up your value chain?
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Cheaper cost, Closer to market, Needs more
security
Diamond Processing to Branding
Diamonds to Jewellery
Spread geographically to UK, France,
Germany, USA, UAE ?
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Strategic Options to You
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Whole range of Marketing issues?
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Branding, Advertising, Sales and
Distribution.
Finance Issue?
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Fund Raising Globally in multi-currency
Taking advantage of London as the largest
Financial Centre of the world
Financial Management
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Can TEAM Help?
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Conducting Market Research
Devising Growth Strategies
Implementation Advise
Fund-raising from India, UK etc based
on Project Viability studies
Management
100% Confidentiality Assured.
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Thank You!
Dr Rajesh Khajuria, Director
MBA (Finance), PhD (Management), CMC, FIMC, MIoD (London)
TEAMPro Limited
London (UK) / Vadodara (India)
[email protected]
www.TeamPro.org
India M: 94260 75402, T. 0265-2 750 752
London T: +44-20-8866 4345 (Sunil Vaghani)
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