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Industry
An Industry Perspective
De Beers CEO Bruce Cleaver is optimistic about the future of diamonds.
By Avi Krawitz
 | | REUTERS/Bobby Yip |
Bruce Cleaver returned to De Beers on July 1, just six months after becoming strategic director at parent company Anglo American. His appointment as De Beers CEO came 11 years after he joined the company’s legal team. More recently, Cleaver led De Beers negotiations with government partners and its mergers and acquisition activity and was instrumental in realigning the company’s mining portfolio, creating its technology unit, and the relocation of its Global Sightholder Sales from London to Botswana. In his first interview with Rapaport Magazine as CEO, Cleaver shares his views on the key challenges facing the industry.Avi Krawitz: How is the diamond market this year?
Bruce Cleaver: Consumer demand for diamond jewelry was flat in 2015, with the U.S. still positive and China generally stable. It was tougher for the rough market, and if we and others had not taken the action we did to produce according to demand and do more targeted marketing, it might have been worse. The industry has shown supply-side discipline. The world is not free of risk, but the first half of 2016 was better for the rough trade. Rough and polished stocks are more in balance than they were a year ago. We remain cautious in our outlook. The rest of this year and 2017 are not likely to be stellar from a global economic point of view or for diamond jewelry consumption. But the medium to long-term fundamentals of the industry are still good.AK: Is there profitability in diamond manufacturing today?
BC: Our clients tell us profitability is more sustainable than a year ago. The midstream gets squeezed in a downturn, and being stuck between the retailers and the miners isn’t easy. The midstream needs to think differently. It needs to innovate and consider how it’s going to operate and co-create brands for the future. AK: Are rough prices higher than the value of their resultant polished?
BC: It’s a complicated question because not all polished moves in the same way. There’s also a time lag between when people buy rough and sell their polished. We have to very carefully balance rough to polished yields and assess how those might play out over time. There is a strong correlation between rough and polished prices but calculating when they coincide is not an easy equation. AK: What impact does inventory have on prices?
BC: Inventory is a big piece of the calculation we do. It’s not always easy to work out polished inventory levels at retail, or rough and polished inventory in the midstream. De Beers inventories are much more in balance than nine months ago. We’ve maintained our production guidance at 26 million carats to 28 million carats for the year and see no reason to change that. AK: What must the diamond trade do to market diamonds?
BC: The future of the diamond industry depends on how everybody will adapt to answer that question. We’re an enthusiastic supporter of the Diamond Producers Association (DPA). There is a need for category demand stimulation, although we believe very strongly that the future is about brands. Our research tells us brands are going to succeed and Millennials are interested in brands and ethical sourcing. The ability to shape marketing programs for the future world, which is different to the past world, is going to be key. AK: How do the future and the past differ?
BC: We connected with 75,000 Millennial women in the four key markets — the U.S., China, India and Japan — in our research and concluded they are committed to and believe in diamonds. Diamonds are an important gift for them and self purchasing is a big opportunity. But the traditional method of retailing and marketing will have to change. Millennials are much more individualistic. They’re much more interested in experiences. They become more affluent later and they’re much more interactive. Retailers have to work out how to create an experience that is consistent with Millennials’ values. AK: Is that what we can expect from Forevermark?
BC: We’re focused on Forevermark and continue to have bespoke marketing campaigns in different jurisdictions. This year we will relaunch “A Diamond is Forever” in China. Our research shows the slogan resonates very strongly with consumers, especially Millennials. It has a tremendous amount of trust associated with it. No one has found a magic wand yet for China. Some luxury brands have done tremendously well there and others have struggled. The fact that you’re a global brand doesn’t mean you’re going to make it. AK: Are synthetics a threat to the natural diamond industry?
BC: We have a big industrial synthetics business called Element Six, which has allowed us to have cutting-edge gem synthetic technology to tailor our response. We’re a natural diamond business and we’re very focused on growing the natural diamond market. Our research shows when you ask a consumer if they’d rather have a unique real and rare product formed over millions of years by the miracle of nature or something created in a press in a week, the answer is obvious. For us, the most important thing remains differentiation. Consumers should be absolutely clear what they’re buying. That’s not always so easy, and from time to time, there is noise about undisclosed synthetics, particularly very small melee. It seems to be more noise than actual synthetics in the pipeline. AK: How do you tailor your response to the threat?
BC: Our core strategy is to detect, differentiate and disclose. We continue to invest in detection technology. We developed the Automatic Melee Screening (AMS) machine, which allows us to screen 10,000 diamonds a day with effectively 100 percent accuracy. So every time there’s a new threat, we feel we’re quite capable of responding to it. From a technology point of view, there’s no reason we shouldn’t be able to detect synthetics. We continue to invest in natural diamonds and drive the message that natural diamonds are rare, that they’re a financial and an emotional store of value. As we see it, a synthetic diamond can’t offer either of those. AK: Do synthetics pose a threat to the value of natural diamonds?
BC: As the cost of producing synthetics continues to fall, the price of synthetics — assuming there is consumer take up — should diverge more and more from the natural. Provided there is enough demand stimulation for natural diamonds and provided enough investment continues to be made in detection technology, there shouldn’t be an impact in the long term. AK: Why do you think people buy diamonds?
BC: They buy diamonds for two interconnected reasons. They are an emotional store of value, connected in a very deep way to people, relationships and life’s great experiences. They also represent a financial store of value. People buy them with the expectation that they will maintain value over time. AK: What are you expecting for the rest of the year?
BC: It’s difficult to expect it will be a knockout season. There’s a lot of geopolitical and economic uncertainty but we hope the marketing campaigns will be helpful. Like all businesses, we tend to get a bit introverted and forget to look at the big picture. All industries face threats. But I think the fundamentals of the diamond industry, despite those, are very good. If people are innovative and smart and evolve in a sensible way, the future should be rosy for everybody.Article from the Rapaport Magazine - October 2016. To subscribe click here.
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