KPMG Gems Jewellery Report

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KPMG in India
The Gem and Jewellery Export

Promotion Council of India
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CONSUMER MARKETS
The global gems and jewellery industry
Deepankar Sanwalka
National Industries Director,
Consumer Markets
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Vision 2015: Transforming for Growth
Ajay Mookerjee
Head Business Performance Services,
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GJEPC
Sanjay Kothari
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1
A GJEPCKPMG report
Message from the Chairman

The global gems and jewellery industry is on the threshold of a large - scale
transformation. While in the last five to six years the industry has seen more
changes than ever before, the next 10 years are likely to bring in deeper and
more far-reaching changes across the entire value chain. Several factors - the
fragmentation of supply sources, steep increases in raw material prices, over
capacity and competition in polishing, pressure on margins in jewellery manufacturing,
changes in consumer buying power in key markets, emergence of new markets,
increasing consumer consciousness and more vigilant governments and regulators
- will make the next few years the most challenging and exciting of times, the
industry has ever seen. Sustenance and growth will require an insight into macroeconomic / industry dynamics, vision and foresight, intense action bias and a
readiness to change. Combine these imperatives with the fact that the
industry is more globally integrated than ever before, and we face the urgent
need for strategic rethinking at the level of the global gems and jewellery industry.
We at GJEPC have been haunted by these thoughts. Driven by our mission to
provide the industry with strategic knowledge and information, we teamed up
with KPMG to prepare a report which will capture the emerging realities and likely
choices. The study was initiated by my predecessor, Bakul Mehta. We appreciate
his foresight in taking up such an important initiative. Over the last six months, the
team has had extensive discussions with key industry players, associations and
analysts, collated data from a variety of sources, conducted comprehensive
quantitative modelling, deliberated the conclusions and debated the
recommendations.
This report, which is an outcome of this study, captures a snapshot of the industry
as it stands today, evaluates a host of likely scenarios, predicts the industry
potential, size and structure in 2010 and 2015 and recommends actions for industry
players to undertake to meet our collective aspirations.
We strongly believe that this report will be an important step in the industry's
journey towards realising its potential. We appreciate the contribution of the
KPMG team comprising Neelesh Hundekari, Ashwin Jacob, Amit Chaudhary,
Lushoo Kapoor and Rohit Mangal for making this study possible.
As the report highlights, the industry has the potential to grow to a size of USD 280
billion through concerted effort. It is now up to us, the industry players, trade
associations, government support bodies alike to come together and realise this
vision
Sanjay Kothari
Chairman
The Gem and Jewellery Export Promotion Council of India
Foreword
The gems and jewellery industry is a fascinating industry in many ways - traditional
on one hand, glamorous on the other. It employs millions worldwide and is a truly
global industry - raw materials in Africa, Australia, Canada, Russia, manufacturing in
China, India, Italy, Turkey and retailing in USA, Europe, Far East, Middle East and
Asia. The industry has however remained insulated from the rest of the economy
due to its traditional nature and as such has drawn little attention from analysts,
financial institutions and professional services firms.
KPMG has been one of the few professional services firms to have worked with
players in all parts of the gems and jewellery value chain. Over the last few years,
we have seen the industry demonstrate a strong desire to change and be a part of
the global momentum for growth. The timing is right for an awakening. Globally,
while the east drives growth and dynamism, the large western markets provide
stability in most industries. Industry level initiatives undertaken now can help the
industry claim its share of the future prosperity.
We share the optimism of the industry for a brighter future and hence joined hands
with GJEPC in studying the industry at a global level - something which has not
been attempted so far. Studies have covered gold, platinum from a commodity
point of view and diamonds have had their fair share of attention from mining to
manufacturing. Regional or country level studies have added to the knowledge
base of the industry. However, there have been few studies of the entire gems
and jewellery industry, at a global level, and with an eye on the future. Given this
need and our long-term association with the industry, we decided to invest in this
study.
Over the last few months, we worked hard - and received whole hearted support
from the industry- to put together this report. We believe this report brings together
- for the first time - all constituents of the industry to take a unified view of jewellery
as a product. We have used quantitative methods to estimate the future size and
structure of the industry and have defined a roadmap for the industry to be able to
retain its right to grow, in a competitive luxury goods market. We are confident that
if the industry implements the recommendations of this study, consumers will
reward the industry with their loyalty and all stakeholders will benefit.
We are grateful to GJEPC for giving us this opportunity and to all stakeholders who
contributed to this study. We sincerely hope that this report will help the industry in
realising its dreams and all other stakeholders to understand the industry better and
consequently share its dream.
Russell Parera
Chief Executive Officer
KPMG, India
Neelesh Hundekari
Director
KPMG, India
Contents
Executive summary
Study scope and approach
16
Industry Current state
24
Sources of precious stones and metals
26
Jewellery fabrication
67
Jewellery retail
75
Predicting the future
86
Scenarios
Realistic view of the future
A time for collective action
91
139
152
A roadmap for the future
154
Aspirational view of the future
170
Appendices
176
Country profiles
178
Silver
216
Coloured gemstones
219
Executive summary
The gems and jewellery industry is extremely global in nature-given
the geographic dispersion of the value chain - from mining of
gold, diamonds, and platinum in Africa, Canada, Australia, and
Russia to polishing and jewellery manufacturing in India, China,
and Turkey, and retailing in the U.S., European Union, Japan, and
the emerging markets of China and India.
As one of the most traditional industries, it has witnessed
sweeping changes since the beginning of this millennium. Supply
sources have become fragmented, raw material prices have shot
up, and consumers have become more demanding and less loyal
than ever before. Regulators are cautious and consumer activism
is on the rise. These pressures have driven changes that are more
intense and lasting than any witnessed in the previous 50 years.
In the absence of a comprehensive global view of the current and
likely future state of the industry, players indulge in selective future
gazing. Given the leadership role of Gem and Jewellery Export
Promotion Council (GJEPC) of India in the development of the
industry, it was considered appropriate to initiate a study to take stock of the
current challenges and predict a future for the industry. KPMG, a global network
of professional services firms, which has done extensive work in the industry
joined in and over the last six months, teams from both organisations conducted a
study of the global industry.
The study focusess on understanding the current size and scale of the value
chain, identifying trends that will have an impact on the future, predicting the
likely state of the industry by 2015, recommending initiatives, and developing a
roadmap for various players given the expected changes in the environment.
Apart from interviews with major industry leaders to gather insights, the study
used quantitative modelling techniques to estimate changes in the size and structure
of the industry.
The report is limited to the precious jewellery segment of the industry, covering
the entire jewellery value chain and its three main elements diamonds, gold,
and platinum, which constitute 95 per cent of the industry in terms of value.
Silver, coloured gemstones, and palladium have been covered partially.
Industry size, segments, and historical growth
Eight key world markets
The size of the global gems and jewellery industry is estimated at 146 billion U.S.
dollars (USD) at retail prices in 2005. The industry has grown at an average
Rest of the
World
23.7%
Compounded Annual Growth Rate (CAGR) of 5.2 per cent since 2000.
Japan
8.3%
CAGR
200
146
160
5.2%
USD billion
118
US
30.8%
Middle East
8.9%
UK
3.1%
Figure 3: Geographic share of the global

jewellery consumption (2005)
Source: KPMG analysis
136
120
Turkey
2.9%
(2000-2005)
111
India
8.3%
Italy
5.0%
Growth in industry segments
113
China
8.9%
124
Sale of jewellery is concentrated in eight key world markets, which corner more
than three fourth of the worlds sales. The U.S. is the world's largest market for
jewellery and accounted for an estimated 31 per cent of world jewellery sales in
2005. India and China are the emerging centres of jewellery consumption and
have steadily increased their share of the pie to 8.3 per cent and 8.9 per cent,
respectively (2005)
Value addition at the two ends of the value chain is the highest, with intermediate
segments adding relatively lower value (29 per cent in diamond cutting and polishing
and 32 per cent in jewellery manufacturing).
The global gems and jewellery value chain (2005)
0
80
Diamond rough production
12.7
Diamond mine sales
0.5
Diamond rough trade
40
20
CPD output
4.4
Polished diamond inventory
(2.4)
0.7
Figure 1: Global jewellery sales (2000-2005), USD billion

Polished diamond at wholesale

prices
Precious metals
17.6
Diamond-studded jewellery is the largest segment of this industry (2005 sales
Jewellery
fabrication/wholesale
2001
2002
2003
2004
2005
estimated at USD 69 billion); it has grown at a CAGR of 5 per cent over the last
five years. The plain gold jewellery segment is a close second with total retail
sales of USD 60.7 billion in 2005. Over the last five years, this segment has
grown the fastest (at a CAGR of 5.5 per cent), a direct result of the rise in gold
prices (CAGR of close to 13 per cent since 2001).
Market share of various jewellery segments
USD billion
80
100
120
140
160
40.6
20.6
Jewellery retail
67.2
World jewellery sales
146
Figure 4: The global gems and jewellery value chain (2005)

Key trends and likely scenarios

Various socio-economic and political forces are driving the pace of change in the
gems and jewellery industry. These forces have given rise to a number of visible
trends (described in Figure 5) in each segment of the jewellery value chain:
Plain platinum Others

jewellery
5.0%
6.2%
Sourcing: This segment has witnessed an increased fragmentation of rough

diamond supply, emergence of new mines, local beneficiation movement in
mining countries and a bull-run in precious metal prices. Competition and
overcapacity in polishing and high debt levels have placed intense financial
pressure on most players in traditional processing centres.
Jewellery fabrication: Accelerating fashion cycles, relative factor costs

between manufacturing and consuming nations, and volatile metal prices
have fuelled a drive towards moving fabrication to low cost countries.
Diamond
Jewellery
47.2%
Plain gold
jewellery
41.6%
60
1.7
Polished diamond trade
2000
40
Figure 2: Retail mix of various jewellery segments (2005)

Diamond supply controlled by

few having high bargaining power
Steady supply of diamonds
emergence of new mines,
mining companies
Local beneficiation in
African countries
Jewellery retail: Increasing consumer sophistication, dwindling investmentdriven purchases, and competition from other luxury goods are influencing
the quantum and pattern of jewellery consumption in markets across the
world. Stagnation in key jewellery markets and retail organisation in emerging
markets are continuously altering the geographic distribution of jewellery
consumption. Increased consumer consciousness about issues around
origin/source of product' and 'labour conditions in manufacturing countries'
adds to the complexity.
Israel and Belgium

losing market share
Declining
market share
of large
diamond
marketing
companies
Traditional centres finding

rough procurement difficult
Stagnating demand in
the U.S. the largest
market
Shortening fashion
cycles
Emerging consumption
centres linked with
economic growth
3. Consolidation occurs across the jewellery value chain.

4. Existing centres of the industry lose out in favour of new ones.
5. Substitutes such as synthetic diamonds and non-precious metals capture a
share of the precious jewellery market.
JEWELLERY FABRICATION JEWELLERY RETAIL

Consumer demand
for quality,
hallmarking gaining
importance
Gemstone
processing
6. Demand for plain gold jewellery declines.

7. Large emerging retail markets such as China and India organise and
consolidate.
Creation of store
and product
brands
Jewellery design
& fabrication
Gold
mining
Platinum
mining
1. Mining countries encourage local beneficiation and capture a share of the

polishing industry.
2. Supply sources get fragmented and rough supply increases.
Shrinking margins
Diamond
mining
Coloured
gemstone
mining
The eight key scenarios that are likely to impact the industry are:
Competition and overcapacity

in traditional centres
SOURCES OF PRECIOUS STONES AND METALS
Increasing
rough prices
KPMG used the scenario analysis method for forecasting and modelling the
impact of each of these trends on the future of the industry. Based on trends
distilled from an analysis of current events and expectations of industry experts,
eight scenarios were identified as likely to cause a significant disruption to the
industry equilibrium.
Ore processing
& scrap
recovery
8. Jewellery loses out to competing luxury goods.
Jewellery
retail
The effect of all the scenarios was estimated by building an economic model and
evaluating sensitivity of industry size and structure to the forces of change first
independently, to each scenario, and later, collectively with assigned probabilities.
Jewellery s
declining value
proposition
Bullion
trading
Future of the global jewellery industry
Recovery of
silver
Based on the collective impact of the eight scenarios identified, projections were
made about the most likely industry end state. What follows are seven key
Gold price bull run
High and volatile

platinum prices
High debt levels in

traditional centres
Technological
developments reducing
labour and skill intensity
Figure 5: Snapshot of key trends impacting the industry

Source: KPMG research
Intense competition in
the export markets
conclusions about the size, state, and structure of the industry in 2010 and 2015.
Changing retail
channels
Competition from
other luxury items
increasing
Sluggish world jewellery sales

CAGR
280
Increasing consumer
sophistication
(2000-2005)
230
240
Aggressive marketing to
boost demand
185
200
USD billion
High cost of financing

stock due to volatile
prices
160
146
120
80
40
0
2005
2010
2015
Figure 6: Projected global jewellery sales

(2010, 2015), USD billion
4.6%
Global jewellery sales growth will be sluggish, and will see emergence of
new markets
Global jewellery sales will grow at 4.6 per cent year-on-year to touch USD 185
billion in 2010 and USD 230 billion in 2015. Palladium is expected to establish
itself as an alternative metal for jewellery fabrication, while gold and diamond
jewellery will continue to dominate the market together, accounting for about 82
per cent. Diamond jewellery will be the slowest growing segment at a CAGR of
3.3 per cent.
Growth in the industry will be slow as compared to that expected in other luxury
goods categories such as watches, perfumes, etc. For example, luxury apparel, a
USD 100 billion market today, is expected to grow at 10-15 per cent over the
next seven years1.
Source: Global market review of luxury apparel - forecasts to 2012, Just - Style (2006)
Projected share of industry segments and key consumption markets

China
13%
Plain Palladium
Others
jewellery
5%
6%
Plain platinum
jewellery
7%
RoW
28%
Mass jewellery fabricators
Niche jewellery fabricators
Several retail formats
India
12%
Diamond
jewellery
41%
Italy
3%
Japan
4%
Turkey
3%
US
26%
Plain gold
jewellery
41%
Figure 7: Projected share of various jewellery

segments (2015)
UK
2%
Middle East
9%
Figure 8: Projected share of key markets for

jewellery consumption (2015)
China and India together will emerge as a market equivalent to the U.S.market by
2015. The Middle East will surface as another large market, accounting for close
to 9 per cent of the global jewellery sales in 2015.
Jewellery fabrication will feel the pressure of sluggish demand and will
move to new centres
Global jewellery fabrication output will grow at a CAGR of 5.1 per cent to reach
USD 95 billion by 2015. China and India will be the new centres for the fabrication
of studded jewellery, as the U.S.'s share will decline. Turkey will take over a
significant share of the gold jewellery fabrication market from Italy.
The structure of the diamond-processing industry will change considerably

This segment of the value chain will see changes in rough allocation to countries,
emergence of strong players, and weaker ones exiting the market.
India's share of the processing pie will drop from 57 per cent today to around 49
per cent (in value terms) by 2015. China will emerge as a strong player with 21.3
per cent of the diamond processing share. By 2015, around 9 per cent of the
world's diamonds, in volume terms, will be processed locally by mining countries,
with Angola, Namibia, and Botswana emerging as profitable CPD centres in Africa.
Projected structure of the global diamond processing industry
South Africa
5.5%
Namibia
1.5%
Russia
7.1%
US
1.4% Angola
3.2%
Israel
4.7%
Belgium
0.7%
Botswana
5.3%
China
21.3%
Value addition in diamond processing stage of the pipeline will increase

significantly
Cutting and polishing of diamond (CPD) centres will be the primary beneficiaries
of the fall in rough prices and value addition in polishing will increase from
29.3 per cent in 2005 to 34.1 per cent in 2015. They will also benefit from an
increased flow of diamond rough through the trade channel (a low margin route),
which would imply that rough prices being paid by CPD players will see a
downward trend.
The jewellery pipeline will see consolidation
Shrinking margins and increasing debt levels in the industry will force the
diamond industry to consolidate. This consolidation will have the maximum
impact on the diamond-processing segment of the value chain. Smaller players
will be acquired or will go out of business, and the following will emerge:
Handful of large integrated gems and jewellery players
High volume polishers
Niche polishers
India
49.3%
Figure 9: Projected share of world diamond rough for processing (2015), in value terms
Fragmentation of supply sources and slow diamond jewellery growth will

make the rough diamond industry more demand sensitive
Changes in demand-supply dynamics will decrease the ability of mining companies
to push rough at any price. Rough supply will become more fragmented. The
share of centralised distribution will decrease from the current 55 per cent to
less than 40 per cent (in value terms) and rough sold through traders will
increase to account for 45 per cent of total rough. As more rough is channelled
through traders and sold directly by mining companies, the industry will become
more competitive, leading to a drop in the value addition in diamond trading from
the present 12.9 per cent to 11.6 per cent in 2010 and 9.9 per cent in 2015.
Demand-supply trends will also exert a downward pressure on rough prices,

which would fall by 15-20 per cent to ensure the sustainability of the downstream
industry.

While a modelling of the realistic case showcases the most likely turn of events,
history is witness to collective action changing industry fortunes. We believe that
if the actions recommended in this report are undertaken, the industry has the
potential to grow beyond USD 230 billion.
Jewellery sales could reach USD 280

billion by 2015
A number of distinct business models will emerge along the value chain by 2015
300
Aspirational case
Realistic case
USD billion
By 2015, the industry will witness the emergence of six-seven large conglomerates
with presence across the jewellery value chain. These large conglomerates will
be the industry leaders of tomorrow.
50
billion
200
100
In addition to this, players in each part of the industry vaue chain will evolve into
business models (described in Figure 10) which will enable them to remain
competitive in the changed industry scenario.
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Figure 11: Projected potential jewellery sales

(2015), USD billion
Structure of the industry in 2015
We have estimated the range of impact to be around USD 50 billion, taking the
industry size to USD 280 billion by 2015. In such a situation, the industry would
be growing at a CAGR of 6.7 per cent, an increment of 2.1 per cent over the
realistic case. At this rate, the industry would be growing faster than the Gross
Domestic Product (GDP) per capita and would be claiming a share of the market
from other luxury goods.
Diamond and plain gold jewellery (product segments) and India and China (markets)
will contribute the bulk of this incremental growth. This additional growth will
also have a salutary impact on other parameters of industry health e.g. inventory
levels (will decrease from 19 per cent to 7.5 per cent).
Integrated Industry Majors

Multi-product
Retailers
(Global and
National)
Jewellery
Brands
Large Mining Companies
Mass
Jewellery
Fabricators
Relative
scale of
operation
Niche CPD
players
Pure Play
Rough
Traders
High Volume CPD Players
Mining
Sourcing
Upstream
Diamond
Processing
Value Chain
Capturing the industry potential segments and markets
Turkey
9%
Regional Jewellery
Chains
Others
5%
US
35%
Middle East
9%
MNC Jewellery
Chains
National Jewellery
Retailers
Niche
Jewellery
Fabricators
Junior Mining
Companies
e-tailers
In order to realise this vision, stakeholders must come together, overcoming

internal differences and competitive issues, to undertake certain actions.
Plain pla
jewe
1%
China
25%
Local Jeweler/ Independents
Action programmes for the industry
Downstream
USD 50
billion
Diamond
jewellery
46%
Plain gold
jewellery
43%
India
17%
Backward Integrated Retailers
Jewellery
Retail
jewellery
1%
USD 50
billion
Figure 12: Contributing markets to additional

growth of USD 50 biilion
Jewellery
Fabrication
Plain palladium
Others
jewellery
5%
5%
Plain platinum
Figure 13: Contributing product segments to

additional growth of USD 50 billion
To realise its potential by 2015, the industry would have to focus on growing
demand for jewellery as a category and strengthening industry-level and
enterprise-level capabilities. These programmes need to be initiated within the
next 12-18 months for its benefits to be realised over the next 10 years.
Figure 10: Sustainable business models of the future (2015)

Agenda for realising industry potential
Strategic
Capabilities
rprise c apab
ente
iliti
ild
es
Bu
Operational
Capabilities
Grow the
jewellery
market
rprise c apab
iliti
ente
es
ild
Bu
Financial
Capabilities
Supporting
Capabilities
Figure 14: Action plan for the industry

Re-establish value proposition in developed markets: Stagnation in

developed markets must be dealt with through aggressive marketing
and brand development, product and service innovation, and reaching
out to untapped consumer segments.
Maximise potential of emerging markets: Attractive emerging markets
like India and China suffer from lack of organisation, disparate trade
practices, and extreme fragmentation. Industry bodies need to work
with governments in these countries to modernise and transform
these markets. Several segments within these markets remain
untapped by large modern players due to lack of local knowledge or
absence of scale.
Identify markets of the future: We believe there are several other
markets like Russia, and Brazil, which are likely to be high-growth
economies and as such have the potential for jewellery consumption.
Such markets need to be uncovered through trade delegation visits,
conscious efforts by industry-promotion bodies, and bilateral
discussions between local governments and governments of
jewellery-manufacturing countries.
Develop demand for jewellery as a category

The biggest threat that the jewellery industry faces is from other luxury goods
industries. The industry needs to get together and defend itself against this
onslaught. If jewellery as a category can outgrow other luxury goods industries,
the benefits would be enjoyed by all constituents of the industry just as the problems
of low demand growth will be shared by all. Several initiatives will have to be
undertaken to foster the growth of jewellery as a category.
Strengthen industry-level capabilities
Promote jewellery as a category instead of distinct metals and stones:

While individual promotion organisations (World Gold Council, DTC, Rio Tinto
Diamonds, Platinum Guild International, etc.) have done a great deal to
sustain the demand for jewellery at its current level, much more can be
achieved if these agencies were to act collectively. We recommend the
formation of World Jewellery Federation, a nodal body comprising various
segments of the industry which will promoting jewellery as a category.
Identify new product and consumer segments: Unlike other luxury goods,
the target segments and value proposition of jewellery have remained
relatively unchanged. We believe it is time for the industry to think creatively
and target new customer segments and address newer needs. This
extension is an absolute necessity for guarding against stagnating sales.
10
Manage the portfolio of markets: Like any enterprise, an industry needs to

have a portfolio of markets markets that provide scale (large volumes, slow
growth), markets that provide growth (smaller volumes growing rapidly), and
markets with high potential for growth and volumes. For this the industry
needs to -
If the industry is to compete with the more glamorous, well-entrenched, and

significantly researched luxury goods industry, players will have to come together
to improve the general health of the sector. Increased transparency,
professionalising, lowering of financing costs and attracting high quality talent are
the needs of the hour.
Enhance image of the industry in the eyes of governments, regulators,
and consumers: The traditional image of the industry poses a barrier for
growth which is compounded by allegations of conflict diamonds, suspected
links with money laundering, and lack of transparency. The industry needs to
recognise this as a challenge and work towards eliminating such
allegations/suspicions wherever possible and containing the problem where
elimination is not possible.
Q
Publish information: Publishing as much data and information as

possible about the industry is one sure way of making the industry
visible to analysts and external stakeholders and alleviating doubts. At
present, data is available on mining (most countries) and retail (only
the U.S.), unlike other industries where industry bodies or players
themselves regularly put out information in the public domain for the
benefit of external stakeholders.
11
Promote transparency in business: Industry leaders, governments, and

industry organisations need to take it upon themselves to promote
greater transparency in all parts of the value chain. Some markets and
some parts of the value chain are notorious for the extent of off - the book transactions. Consequently, they depend on trusted family
members for handling the business, which constrains the ability to
grow, which in turn lowers the willingness to become transparent.
Professionalise and transform family-owned businesses: The bulk of the

industry comprises family-owned businesses, with the promoters and family
members playing hands-on/operational roles. To grow, individual enterprises
need to transform into professionally managed corporations that are listed on
stock exchanges, are widely held, guided by visionary founders, managed by
professional managers, and that subscribe to the contemporary standards of
corporate governance.
Attract talent from luxury goods industries: Nearly all the talent in the
industry today is home grown. There has been little infusion of talent, either
of young professionals at the entry stage or lateral entrants from other
industries. We believe the industry can benefit significantly by attracting
talent from other luxury goods industries. They can strengthen the branding,
marketing, and retail experience capabilities and help the industry garner a
greater share of discretionary spends.
Reduce the cost of financing: High-value raw materials have made the
industry capital intensive, and low transparency has led to a premium on
financing. Thus, while funds have been forthcoming, they are not at the most
economical rates. Further, with relatively few players accessing the capital
markets and modern financial products (compared to other industries), the
overall cost of financing has remained high. The industry can reduce this cost
and improve access to funds if individual players embrace transparency and
go public.
Players to select strategic position and enhance individual capabilities
12
Compete on one of the four strategic positions: The fast-unfolding future

holds several challenges for the industry, but at the same time provides an
opportunity to morph into players with sustainable business models. In the
future, industry players will have to choose one of the following four strategic
positions to survive and build sustainable competitive advantage:
Volume player (large scale operations in a single segment): Depth in a

particular segment of the value chain will allow players to compete
with others on the back of economies of scale. These high-volume
players will enjoy greater bargaining power, and their focus on one
segment will allow them to develop processes and systems that are
operationally the most efficient.
Specialist (possession of skills): Players that choose to compete on
skill will have to develop specialized expertise in various areas of
business - organizational flexibility, product design and development,
business operations, and the use of technology. The premium that
their goods will fetch will allow these players to employ the best talent
in the industry.
Straddler (presence in adjacent segments): In comparison to players
present only in one segment, these players would have the ability to
shuffle resources between the two segments in which they are
present, as well as hedge their risk and garner greater margins.
Critical capabilities for segments: Although the capabilities required by a

player will be dependent on future strategic position and business model, a
dominating presence in one segment of the value chain will force it to master
certain skills.
Q
The changes that the industry is likely to face in the coming years should be
looked upon both as challenges and opportunities. Over the next few years,
players that develop multiple capabilities to manage growth will flourish.
Big brother (presence across the value chain): Players with presence
across various segments of the value chain will function as a portfolio
of businesses, allowing them end - to - end visibility of the supply
chain, providing natural risk mitigation, and access to global talent.
Mining: Wide-spread exploration, mining, and possible mergers and

acquisitions are expected to place tremendous pressures on the
availability of capital in this segment of the value chain. Therefore, the
ability to raise capital at low costs will be crucial for players in this
segment.
Sourcing and processing: This is the segment that is likely to be at the
heart of the shakeout in the industry. Several players will acquire scale
through the inorganic-growth route. Managing mergers, acquisitions
and alliances will, therefore, be one capability that players in this
segment must possess.
Jewellery fabrication: With the bulk of jewellery manufacture
relocating to low-cost countries, players will be looking to squeeze out
maximum margins in this segment. Therefore, operational planning,
(including demand forecasting, supply chain optimisation, and
distribution planning) will be a critical capability for players in this
segment.
13
Jewellery retail: With the reorganisation of the retail markets of India

and China and increasing consumer sophistication, jewellery retailers
will be competing with luxury goods for greater footfalls and
consumers' share of the wallet. Consequently, skills to brand and
market jewellery will be of utmost importance to these retailers.
Way forward
So far the industry has grown due to the intrinsic attraction of its product, the
sporadic marketing push by some incumbents, and the entrepreneurial skills of
individuals. However, the threat posed by luxury goods, changing consumer
habits, industry's opaque and transactional mode of operation, and various socioeconomic and political forces are fast changing the environment the industry
operates in. Growth of the industry (and of individual players) is dependent on
their successful reinvention of the category, substantial infusion of capital and
talent, and adaptability to change.
14
Gems and jewellery have played a very important role

in the tradition, culture, and history of human civilisation.
The intrinsic value of jewellery has always attracted
human beings across geographies, cultures and social
strata. As human society evolved, different activities
connected with jewellery mining, cutting and polishing,
fabrication, retailing, etc. started getting organised.
Consumer preferences and reasons for buying jewellery
started getting segmented into fashion, bridal and
investment. Over a time, an industry evolved,
initially concentrated around specific geographies and
meeting specific needs, but gradually emerging as a
global industry. The industry has evolved substantially
over the past three decades, and today accounts for
an estimated retail value of USD 146 billion (2005),
with a (CAGR) of 5.2 per cent over the last five years.
Today, the industry is at a turning point. It is expected
that the interplay of various trends such as globalisation,
increasing role of regulation, technological advances,
structural changes in the industry, increasing consumer
sophistication and activism, emergence of alternative
retail channels, increasing emphasis on transparency,
professional work practices, corporate governance,
etc., could potentially change the industry structure
and the way it functions in multiple ways.
Study scope and

approach
Our analysis indicates that the next 10 years will see

the global industry being impacted by several forces
and thus face new challenges, and industry
constituents who will survive and flourish will therefore
be the ones who adopt radically different strategies.
The purpose of this report is to delve deep into the
past, analyse the present and predict the future of the
industry.
The report also examines new entrants like jewellery made from synthetic
diamonds and palladium; however, the coverage is limited to the impact they
have on these three segments. The report does not cover other jewellery
sub-segments such as pearls, semi-precious stones, and fashion jewellery made
from non-precious stones and metals, given their relative infant status in the
overall industry. However, these sectors are now taking off and could become
significant contributors to overall size and growth in the future. The industry has
been divided into four key jewellery sub-segments whose combined retail sales
have been estimated at USD 146 billion in 2005.
However of this report, detailed analysis has been limited to three key jewellery
sub-segments diamond, gold and platinum, which together account for 95 per
cent of the global retail sales of jewellery in value terms.
The gems and jewellery industry value chain

In order to facilitate an in-depth and structured analysis of the industry, we have
used the value-chain approach and divided the industry into its key value chain
components, as shown in Figure 15. Each of the different constituents have
been broadly grouped into three major value-adding stages:
Sourcing of precious stones and metals: This stage covers the upstream
end of the value chain, i.e., the mining, extraction, and processing of precious
stones and metals.
Jewellery fabrication: This stage covers activities related to the fabrication

of jewellery and combining precious stones and base metals in different
propotions.
Jewellery retailing: This stage covers the activities related to jewellery

retailing. The report covers snapshots of the key consumer markets and
various retail trends witnessed by the industry.
The four key industry components

Diamonds: Diamonds have always enjoyed a special place among precious
gemstones, contributing about 47 per cent (2005) to the total industry size, in value
terms. In the past, diamond jewellery was limited to a very small elite segment of
the global population. However over the past 50 years, diamonds have seen
increasing democratisation. Diamond jewellery has, therefore, emerged as a
segment showing significant growth in some of the emerging markets.
Gold: Gold has always been the jewellers favourite metal, given its intrinsic
luster and ease of fabrication. Gold jewellery enjoys the leading position in most
markets across the world, and in many ways forms the backbone of the precious
jewellery industry. Given the fact that gold is also one of the traded metals, gold
jewellery consumption is also impacted by gold price movements. This segment
today forms about 42 per cent of the total industry, in value terms.
Platinum: Platinum forms a niche but integral part of the gems and jewellery
industry, catering mainly to the high-end segment. However, due to extremely
high and volatile prices, the demand for platinum for jewellery fabrication has
been decreasing. Currently, plain platinum jewellery accounts for above 6 per
cent of the total industry, in terms of value.
Coloured gemstones:This segment includes all other forms of jewellery - precious
gemstones (emeralds, sapphires, rubies and tanzanite) and semi-precious
gemstones, silver, pearls, etc. The industry is highly fragmented, making it
difficult to track supply, demand, and global trade. Our estimates indicate that the
segment constitutes about 5 per cent of the global retail sales of jewellery, in
value terms.
18
Figure 15: Global gems and jewellery industry value chain

19
Study approach and research methodology
The global spread of the industry
Key Gemstone processing locations
Key mining locations
Given the relative absence of

high quality research and
data on the industry, we
adopted a four-pronged
approach to collate
information and generate
insights and forecasts.
In carrying out this study, KPMG adopted a four-pronged approach as shown in

Figure 17. Most of the activities have been carried out concurrently.
Approach and methodology
Jewellery consumption centres
Jewellery fabrication location
Figure 17: KPMGs approach to the study

Figure 16: Key sourcing, processing, fabrication and consumption centres.
The industry today operates at a global level and involves high levels of
interdependencies between countries at various stages in the value chain.
There is no single country that has substantial presence across all the stages of
the gems and jewellery value chain. The industrys fortunes are, therefore,
impacted by global as well as local economic conditions in key markets and
sourcing destinations.
20
Key guiding principles of the approach include:
Extensive secondary research: Proprietary and public domain sources were

used for secondary research. Data from one source was corroborated with
two or more sources to validate its authenticity wherever possible.
Extensive stakeholder interviews: The team also carried out extensive

stakeholder (leading industry players, analysts, trade associations, etc)
interviews in order to capture qualitative and quantitative insights.
Scenario analysis: KPMG adopted Scenario Analysis as a means of

simulating the forces impacting the industry. The analysis on the likelihood as
well as materiality of each of the scenarios has been used to derive the
possible future states.
Financial modelling and hypotheses testing: KPMG has employed a

quantitative approach to capture the significance of components of the
industry value chain and analyse the resultant impact of the key trends.
21
Stakeholders involvement across locations and segments
Industry Players
Associations
Trade
Analysts
Industry
Others
Diamond
Gold
Platinum and palladium
Colored gemstones and silver
Synthetic stones
Jewellery manufacturing and retailing
KPMG conducted detailed

interviews with more than
50 CEOs and analysts
across various industry
stakeholder groups as part
of the study.
Belgium
UK
US
Industry players, associations

and analysts across locations
contributed their insights
to the study.
Figure 18: Study coverage across segments, type of stakeholder, and geographies
22
Italy
Israel
Dubai India
Botswana
Getting ready for the future requires an accurate

assessment of the current. We realised early in the
study that capturing the current state of the industry
accurately is not going to be easy, given the relative
absence of comprehensive research.
Through extensive research and corroborating mutiple
sources, we have managed to capture the current state.
Industry Current state
In this section, we probe each segment of the value

chain, at a time, to unearth the current state of the
industry and the players, and identify the trends that are
likely to shape the future of the industry.
Sources of precious
stones and metals
Refining/ recovery of metals and processing of stones
Metals produced from the earth and processed (ore dressing) at the mines are
typically of 85-90 per cent purity. The ore is further purified at the refining stage
where methods such as electrolysis are employed to remove impurities. At the
refining stage, 99.99 per cent purity is achieved. After this, the metal is then cast
into bars or coins which are then traded at various exchanges across the world.
Diamond and coloured gemstones processing typically involves cutting the rough
stone (splitting or cleaving) into various shapes, polishing, and shaping the stones
to maximise its visual appeal and showcase its intrinsic clarity and brilliance.
At the supply stage, each

sub-segment of the Industry
operates separately having a
unique profile of key players
and a distinct set of influencing
forces.
The gems and jewellery value chain begins at the point at which precious stones
and metals are excavated from the earth for further refining and processing. At
the supply stage, each sub-segment of the industry is distinct; in other words,
each sub-segment of the industry (diamonds, gold, and platinum) is unique as far
as the profile of producer countries and players is concerned.
Given the fact that precious stones and precious metals are rare, supply is usually
constrained and hence, supply conditions play a significant role in influencing
prices and consequently, demand.
While similarities exist between the sourcing and processing of metals and
precious stones at a high level, their distinct physical properties neccesitates a
different process flow at the micro level. Therefore, while a precious like a
diamond has to pass through multiple stages before it can be use in jewellery
fabrication, the journey of precious metal is much simpler. In addition, the
demand-supply dynamics behind each of the constituents vary on thier own,
therefore influencing the force of each one of them independently. Keeping the
above in mind, this section has been organised such that the distinguishing
features and critical trends for each constituent are captured. Further in this
chapter we have scrutinised the historical demand and supply trends for gold and
platinum. However, we begin with a look at the most complicated and at the
same time interesting part of the sourcing chain - the sourcing of diamonds.
The supply stage of the jewellery value chain can be further divided into two
segments:
Mining
Globally, mining as an industry has been pivotal to the growth and development
of various civilizations. Gold, diamonds and platinum group elements (PGE) are
the most sought after commodities globally.
Mining takes place in every continent (excluding Antarctica, due to a prevention
treaty). USA, Canada, Australia, Russia, China and Southern Africa dominate the
global mining industry in terms of output and mining and exploration methods
and technology.
Mining operations for most precious metals and gemstones are typically very
capital-intensive operations and also carry a higher financial risk.
26
27
Pipe mining: Pipe mining is typically used to extract diamonds embedded in

Kimberlite pipes and refers to the extraction of diamonds from volcanic pipes
using sophisticated machinery.
Diamond ore once mined, must be processed to extract diamond rough from it.
World rough diamond production
(2000 - 2005)
14
74%
increase 11.8
12
Diamond the king of gems

Diamonds are essentially a crystalline form of carbon. Carbon acquires this lustrous
form under conditions of enormous temperature and pressure. Typically,
diamonds move up to the surface of the earth due to seismic activities and are
found near the surface of the earth in what are called Kimberlite pipes.
Diamonds need to pass through a number of stages ranging from mining to cutting
and polishing before they can be set into jewellery. These stages constitute the
diamond value chain as shown in Figure 19, and would span multiple
countries/geographies.
USD billion
The diamond value chain is

slightly more complicated
than that for precious metals
and involves a number of
intermediate stages.
7.8 7.5 7.3
Jewellery fabrication: The cut and polished diamond finally reaches the jewellery
fabricator, who then sets these in precious base metals along with other
gemstones as required and creates studded jewellery.
6
4
2
Diamond mining
0
2000 2001 2002 2003 2004 2005
180
Jewellery retail
Figure 19: Expanded diamond sourcing value chain
The journey of a diamond

Mining: Given the nature of the stone, diamonds are essentially available in two
types of formations alluvial formations along riverbeds or oceans and Kimberlite
formation or stopes. The mining for diamonds, therefore, varies depending on
the source.
28
Alluvial mines sources: Alluvial diamond mining is undertaken essentially in

places where the diamonds have washed onto the surface of the earth, in
riverbeds and on ocean beaches.
120
156
144
140
Million carats
171
31%
increase
160
Sources of precious stones and metals
Processing and polished trading: The rough is then sent for cutting and polishing
to centres across the world, where rough is converted into polished diamonds
that can be set in jewellery.
9.3
10
8
12.7
Rough sourcing and trading: Rough is purchased by processors or traders

(and a few jewellery manufacturers) from the mines or marketing arms of
mining companies. The processors send it to their processing factories and
rough traders channel it to the different rough trading centres.
131
110
117
100
80
60
40
20
0
2000 2001 2002 2003 2004 2005
Figure 20: World diamond rough production

(valueUSD billion) and (volume)million carats)
Source: Diamond Facts - Diamond Industry
Reports North Western Territories, Canada, De
Beers website (www.debeersgroup.com), Annual
reports of various mining and rough sourcing
companies, KPMG analysis
Exploration and commercial mining of diamonds is extremely capital intensive

and carries an inherent risk. While modern technology has reduced the time
between initial exploration and commercial production of diamonds, anecdotal
evidence suggests that it still takes anywhere between five and seven years for
a mine to start commercial production.
Mining costs vary from country to country and is dependent on the level of
automation, type of terrain, cost of labour, and the type of mining operations.
Mines across the world differ on two accounts gem quality (grade) as well as
size of the rough output.
In value terms, world production of rough diamonds stood at USD 12.7 billion
(2005), a 7.6 per cent increase over the previous year. Production in terms of
value has grown at a CAGR of 10.3 per cent (2000-2005). This increase was
mainly due to the continuing output from the Russian mines and most African
mines. In volume terms, world production in 2005 is estimated to be 171 million
carats, a 9.6 per cent increase over the previous year. As far as growth in production
volumes is concerned, it grew at a CAGR of 9.3 per cent (2000-2005).
It is worth noting that between 2002 and 2005, the world production of diamond
rough in volume terms grew by 31 per cent; in value terms the increase was
over 70 per cent. This clearly highlights the increase in the average price per
carat of rough diamond over the last few years.
29
The structure of the diamond mining industry has changed several times over the
last 400 years due to the emergence of new mines and the depletion in production
or quality of older mines. In fact, through much of their history, diamonds were
procured primarily from alluvial sources in India and in the early part of the 17th
century from Brazil.
The beginning of modern diamond mining started several years later in the late
19th century, when South Africas gargantuan diamond reserves were discovered.
The discovery changed the rare-gem status of the diamond, by increasing overall
affordability. The discovery of diamondiferous deposits, changed the fortunes of
these African countries, then plagued by poverty, famine, and war. This also
marked the beginning of the era of mining diamonds from Kimberlitic pipes.
South Africa remained the key supplier of rough diamonds for many years, until
the time large diamond reserves were found in Russia in the mid-1900s. About
50 years later, the industry landscape changed yet again with the discovery of
large diamond deposits in the north-western regions of North America.
Diamond production is limited

to a few countries, with
seven key countries contributing
88 per cent in terms of value
and 96 per cent in terms of
volume to the global production
(2005 estimates).
Although diamond mining occurs across the globe in over 25 countries, major
part of the supply comes from only a handful of countries namely, Russia,
Canada, Botswana, Congo and South Africa, Australia, and Angola. These countries
account for over 88 per cent of the worlds production in terms of value and 96
per cent of the world produce in terms of volume (2005) as shown in Figure 22.
Production in most of these countries involves Kimberlite or pipe-mining
operations.
14
USD 12.7 billion

12
10
1.5
RoW
1.6
South Africa
USD 7.8 billion

Market shares of key diamond producing nations (2005)
RoW
12%
Angola
12%
South Africa
9%
Australia
4%
South Africa
13%
RoW
4%
Angola
4%
Australia
17%
0.84
6
Total production value: USD 12.7 billion
1.11
0.8
Congo (Dem Rep)

18%
Canada
7%
Total production volume: 171 million carats
Figure 22: Share of diamond rough, in value terms (USD bn) and volume terms (mn carats)
Source: Diamond Facts - Diamond Industry Reports North Western Territories, Canada, De
Beers website (www.debeersgroup.com), Annual reports of various mining and rough sourcing
companies, KPMG analysis
Canada
1.4
Botswana
0.58
0.45
2.12
0.36
0.73
1.5
2000
2005
Botswana
19%
Russia
17%
Canada
11%
Congo (Dem Rep)
Russia
22%
Congo (Dem Rep)

6%
Russia
2.2
1.59
Botswana
25%
30
Changing face of diamond rough production
USD Billion
Figure 21: Major mining centres of diamonds

Today, India and Brazil have virtually moved off the diamond mining map, while
seven key countries located in various corners of the world have emerged as the
Big Seven in diamond mining as shown in Figures 22 and 23.
3.2
Australia
Angola
0.5
Figure 23: Contribution to world diamond rough production, by value

Source: Diamond Facts - Diamond Industry Reports North Western Territories,
Canada, De Beers website (www.debeersgroup.com), Annual reports of various
mining and rough sourcing companies, KPMG analysis
31
IN FOCUS: Conflict diamonds2

The problem of Conflict Diamonds has been labelled as an African Problem, primarily associated with four countries,
namely Sierra Leone, Liberia, Angola, and the Democratic Republic of the Congo. As the term would suggest, these
diamonds have played a role in fuelling domestic conflict and terrorist activities in these as well as neighbouring nations.
Diamonds have been used to purchase arms and drugs by local warlords, and also as a store of wealth for those who
want to amass their wealth without being in
Conflict diamonds in Africa
the eyes of the taxman.
Typically, diamonds obtained from alluvial
3
mines are generally more prone to being
used for such illegal purposes, given the
relative lack of sophistication in alluvial
mining. Diamonds, given their relatively
small size, are easily concealed and can
be smuggled across the porous borders of
these African nations.
Given the increasing amount of awareness
on the issue, coupled with growing
consumer activism in the developed
markets, the global diamond industry
recognised the importance of mitigating the
effect of conflict diamonds on the industry.
The objective of the Kimberley Process is to prevent conflict diamonds from entering the legitimate diamond trade. The
international certification scheme has been based on various national certification schemes and internationally agreed
minimum standards for certificate of origin. It has two objectives:
Cut down the flow of rough diamonds to rebel groups, in identified nations who are using the same to fund war and
conflict against legitimate governments.
Protect the legitimate trade of diamonds, which is a key driver for socio-economic growth in many African countries.
KPCS has introduced a world-wide system to regulate the international shipments of rough diamonds and is
acknowledged by various industry experts, as successful in achieving its objectives.
In the first three years of its introduction, it managed to cover almost 98 per cent of the recorded global production of
rough diamonds. However, the remaining 2 per cent still remains a challenge for the process, because the problem persists
in under-developed regions specially in the alluvial diamond mining areas.
Sierra Leone
Liberia
Democratic Republic
of the Congo
The scheme has also taken charge of regulating and managing various issues related to conflict diamonds. Although it
has not eliminated conflict diamond trade completely, it has played an instrumental role in increasing transparency in
the industry.
Angola
Figure 24: Countries with identified conflict diamond trade

Source : Global Witness, Diamond World
Over the past few years, players have individually and collectively tried to put in place auditable controls to curb the free
flow of these conflict diamonds into mainstream trade. The matter is further complicated by the fact that once a
diamond of dubious antecedents enters the mainstream market, it is virtually impossible for the general trade to
identify its origin with certainty.
The Kimberley Process Certification Scheme (KPCS)
The Kimberley Process Certification Scheme (KPCS), is the most widely adopted system by the industry in its efforts
to control the flow of Conflict Diamonds.
The KPCS is a joint initiative between governments of diamond producer and trader countries, the diamond industry
and social groups and is backed by the United Nations. The process seeks to ensure that on the one hand, there are
adequate safeguards in place to prevent the accidental or deliberate use of conflict diamonds by players and on the
other hand, end-consumers are assured of the antecedents of the diamonds they buy.
32
Sources:
Global Witness, Diamond World
Note:
Industry sources have estimated alluvial mining to account for about 22 per cent of
the overall global diamond mining output
33
IN FOCUS: New horizons, exploration of diamond reserves4

Growth in the world diamond jewellery sales has sparked a renewed interest in exploration of diamond deposits across
the world over the past few years. As per Diamond Facts 2005 (Diamond Industry Report Northwest Territories
Canada), total expenditure on diamond exploration in 2004 was estimated to be around USD 300 million, of which two-thirds
was invested in by the industry majors De Beers, Alrosa, Rio Tinto, and BHP Billiton.
Other geographies
Exploration is also taking place across the world in a number of locations such as Russia, Ukraine, Greenland,
Venezuela, Paraguay, Australia, Indonesia, and China.
Major locations for diamond exploration
A number of smaller players have also engaged in prospecting and exploration activities across the world. These players
typically enter into joint ventures with the majors for developing their more promising projects.
Exploration efforts are underway in the following geographies:
Canada
Following the discovery of two large diamond deposits in the North-Western Territories, Canada (today known as
Ekati and Diavik, which put Canada on the diamond production map), has emerged as the most promising destination
for diamond exploration. A number of reports have cited facts and figures to support the above.
Different sources estimate that exploration expenditure on diamonds in Canada ranges anywhere between
USD 225 million and USD 300 million of the annual global spends.
Areas witnessing high levels of activity are Nanavut, Saskatchewan, Ontario, and Quebec.
Africa
Africa, is arguably the worlds most diamond rich-continent. It is still considered under explored by a number of
industry experts. Currently, diamond exploration is rampant in Africa mainly in parts of Central, Western, and
Southern Africa.
Madagascar, a key producer of a number of precious and semi-precious coloured gemstones is another highly
sought-after destination for diamond exploration. Earlier blocked out of the international diamond mining map, due
to local political considerations, Madagascar has only recently generated interest on account of the number of alluvial
diamond discoveries, signaling new possibilities. The geological history of the island also links it with Africa and
India, and it is now another key destination for diamond explorers.
Figure 25: Major exploration sites across the world

Brazil
Brazil was once upon a time a key production centre for diamonds, in an era where diamonds were mainly sought from
alluvial sources. Currently, smaller diamond exploration companies are exploring diamond deposits in various locations
in Brazil, such as Santo Antonio, Serra da Canastra, etc.
India
The Geological Survey of India (GSI) states that India has great potential for diamond deposits. Based on this and on
independent analysis, a number of diamond exploration companies have moved in, making India another target destination
for diamond exploration. GSI is currently conducting a number of surveys to assess the potential for diamond reserves
in Andhra Pradesh, Madhya Pradesh, Orissa, and Maharashtra.
34
Sources:
Diamond Facts 2005 Diamond Industry Report, Northwest Territories Canada Diamonds by Louis Perron Minerals and Metals Sector, Natural Resources Canada Gema and Jewellery Export Promotion Council of India
(GJEPC) MBendi Information Services (www.mbendi.co.za) World Exploration Trends, Metal Economics Group
35
Sourcing and trading of rough diamonds

The sourcing and trading stage of the diamond industry for ages has been a
discreet and non-transparent stage in the diamond value chain. Today, due to
adoption of more professional business practices, transparent financial reporting,
and increasing consolidation among players, this part of the industry is also
undergoing a change.
This stage of the value chain has seen the maximum number of changes over
the past few years and is likely to see more in the structure as well as business
models followed by players.
Centralised Distribution
Direct Selling
Structure of the rough sourcing and trading sub-segment of the industry
Designated
customers of
mining/sourcing
companies
Marketing arms of
mining companies
Mines
3
Rough Trading
Brokers
2
3
Open market/
actions/ tenders
Rough traders
Diamond Processing
(Cutting and
polishing) companies
Conglomerates with large presence in mining have their marketing

division/companies which work as seperate profit centres
Such marketing companies market their production usually through a
selected list of customers on a fixed price basis.
There are currently six main players in the diamond mining industry that
command over 90 per cent of this market in contrast to five years ago,
when there was a single dominant player with 70 per cent share.
Mining companies sell directly to processing companies through a sales network.

This model is preferred by some of the smaller mining companies.
The margins in this are lower than a centralised marketing network but
higher than those in trading.
Auctions and Tenders are emerging channels of distribution with a number
of mining companies
Rough traders play a very significant role in the industry. They buy from
various mining companies or from the government and market it to different
players viz. manufacturers, other dealers, and brokers.
Margins are the lowest, but given the smaller investments required and a
larger number of transactions, they are still viable. Typically, traders provide
flexible commercial terms and work predominantly on credit.
4
4
Brokerage
Brokers
Local in-house
processing
centres (local
beneficiation)
Illegal trade/
black market
Brokers act as commission agents for various dealers and mining companies.
Brokers typically earn a small commission on the sales made.
Snapshot of the global rough diamond trade
London, UK
Figure 26: The rough sourcing and trading channels

Source: Industry interviews, KPMG analysis
The current industry has four different types of channels where each player add
value in their own distinct manner:
36
Centralised distribution
Direct selling
Rough trading
Brokerage
Trading of rough diamonds is

geographically well distributed
and takes place in key
sourcing destinations as well
as other pure trading centres.
Antwerp, Belgium
New York, USA
Tel Aviv, Israel

Dubai
Mumbai, India
LEGEND
Mining country
Large Trading Centre
Trading zones
Figure 27: Key centres of rough diamond trade

Source: Report by the United States General Accounting Office on international trade and conflict
diamonds, June 2002, CNN fyi.com , KPMG interviews
37
Processing (cutting and polishing) of diamonds
IN FOCUS : Changes in diamond trading centres, trading channels5

Historically, the main centres of the diamond industry were concentrated in Western Europe and Israel. In recent times,
the industry has made a gradual move towards the east.
Dubai: Dubai is an emerging trade centre, attracting trade from various production centres mainly due to its tax-free
policy and its centralised location and geographical proximity to all major diamond hubs (Africa, India, Europe, and
Australia). A number of diamantaires have set-up trading offices in Dubai.
London: London is losing its significance as a major diamond hub mainly due to the declining market share of a large
diamond marketing company. This trend could be strengthened if several companies move their sorting and marketing
operations to Africa as expected by several analysts.
Israel and Antwerp: The market shifting eastward from these erstwhile centres can be attributed to the declining
share of secondary diamond trading segment in the value chain as increasingly, mining companies are dealing directly
with the diamond cutting and polishing players.
Emergence of tenders in rough diamond sales
The allocation to a designated customer has been, by far, the most predominant method of sourcing and trading of
rough. With the emergence of new diamond-sourcing companies and the resultant drop in the share of centralised
sourcing share of the overall pie, alternate forms of diamond distribution, such as tenders has been gathering steam.
Traditionally, one could participate in a tender only by invitation; however ,in recent times this model has seen a shift
towards an Open-Market arrangement. Main centres for tenders have been South Africa, Antwerp, Moscow (Russia),
Israel, and recently, Dubai.
The diamond cutting and

polishing industry is
currently characterised by
intense competition and is
estimated to be USD 19.3
billion (2005).
Processing or manufacturing diamond in essence refers to cutting and polishing

of rough diamonds. Cutting refers to operations which size the rough diamond
into shapes that maximise yield from the rough diamond, while ensuring that the
shape allows for maximum refraction of light. Polishing on the other hand refers
to the act of finishing various facets to ensure the requisite level of polish and
smoothness to enhance the brilliance of the stone.
The art is deemed to have originated in India and from thereon moved to
European destinations like Venice, Italy, and other parts of the world. Today, India
processes over half of the worlds stones (as shown in Figure 29, a large portion
of the pie is also processed by Israel, Russia, and now, China. Key prerequisites
for a successful polishing industry are the availability of requisite processing
skills, rough at competitive prices and cheap labour.
Once polished, most diamonds are sold and traded in the 24 registered diamond
bourses around the world, as well as in the open market.
Output of key diamond processing centres, in value terms (2005)
South Africa
4%
Russia
7%
Belgium
3%
US
4%
China
10%
Israel
15%
Dubai
Antwerp
Antwerp
Russia
Russia
The Dubai rough diamond market is currently estimated to be approximately USD 2 billion.
Coupled with the liberal taxation regime, this centre is likely to emerge as a significant player
in the rough trading landscape.
Antwerp has traditionally been the trading hub for diamonds. As popularity of tenders
increased, this centre was quick to take advantage of this trend. Typically, invitations are given
to select global and local clients to view the goods, after which each lot is sold to the top
bidder. Diamonds originating from multiple locations (Angola, Central African Republic, Congo,
Ghana, Guinea, Ivory Coast, Indonesia, Namibia, Sierra Leone and South Africa) are traded
through this route.
India
57%
World output: USD 19.3 bn
Figure 29: Market share of key diamond processing centres in terms of value (USD billion), 2005
Source: Rio Tinto Industry Report 2003, Diamond Facts 2005 Diamond Industry Report, Northwest
Territories Canada, KPMG analysis, IDEX Pipeline 2005
Tenders have always been a popular means of rough allocation in Russia. Currently, Russian
tenders are open only to Russian companies and they are mainly performance based i.e., based
on the past buying behaviour and consistency of the company.
Figure 28: A snapshot of key centres for tenders

Source: Rapaport news, Diamond Fields website (www.diamondfields.com)
38
5 Source:
The Source - Dubai Metals and Commodities centre Newsletter 2004, CNN,
Diamond Facts 2005 Diamond Industry Report, Northwest Territories Canada
39
The CPD industry today

In 2005, the global output of cut and polished diamonds stood at USD 19.3 billion,
a 7.4 per cent increase over the previous year.
3. Technology: Technology has yet not entirely replaced the human element in
diamond processing. However, employing state-of-the-art laser cutters and
polishing machines is a significant advantage. Developments on this front are
changing the nature of the industry in a big way.
In the recent years, the industry has witnessed a number of changes in its structure
and nature due to the emergence of newer processing centres and the diminishing
output from the older traditional centres. Different diamond-processing countries
vary on the basis of type of stones polished, nature of skills available, level of
technology used, etc. As a result, the value addition6 by different processing
centers also varies.
4. Availability of skilled labour: This particular factor has two elements

skilled labour i.e., labour trained in the fine art of cutting and polishing stones,
and availability of labour. Availability of labour is a function of total labour
supply in the country and relative local attractiveness of the industry as an
employer.
Critical success factors for the diamond-polishing business
Countrywise availability of skilled labour
1. Rough sourcing: Access to a regular supply of rough is attributable to

mutually beneficial relationships with governments of mining countries or
eminent rough sourcing companies. The recent past has witnessed a flurry of
activity in regard to this, with government aided trade associations and
individual players seeking to develop direct sourcing agreements with mining
countries.
Armenia
3,500
Thailand
USA
10,000
600
China
110,000
10,000
Russia
Comparative costs of processing a diamond

$120
Belgium
1,100
Israel
2,000
$100
$100
USD per carat
$80
$80
$70
S. Africa
3,000
India
1,000,000
$60
$40
$40
$40
$20
$30
$25
$20
$17
$10
Figure 31: Estimated number of diamond processors by country

Source: Diamond Facts 2005 Diamond Industry Report, Northwest Territories Canada, GJEPC,
interviews, KPMG research
S
CI
na
da
Ca
a
d
an
Yo
Ch
in
a
ss
i
Ru
rk
ia
en
ew
N
la
n
a
ric
d
Ar
m
ai
Th
el
Af
Is
ra
ut
h
So
Be
lg
di
iu
m
$0
In
Estimated number of processors
Figure 30: Cost of processing a diamond across countries

Source: Indian and Northern Affairs, Canada; Jewellery Association of China, KPMG research
5. Industry thrust and regulatory support: Political and operational support

provided by the government and by various trade associations is an added
competitive advantage enjoyed by players in a number of processing centres
today.
2. Labour costs: Being the largest cost component in diamond processing, the
availability of labour at competitive prices is a critical success factor. Labour
cost is also an indicator of the typical size of stones that are polished in a
country. As the price of a diamond increases disproportionately with increase
in size, only larger stones can absorb the high-labour costs offered by centres
like Israel and Belgium. Other stones are passed on to low-cost cutting
centres like India and China.
40
Value addition is defined as the ratio of the value of total output to the value of total input
41
IN FOCUS: Local beneficiation7
The challenge is more daunting than it seems
Mining countries are experiencing increasing political pressure locally, to promote in-house manufacturing of diamonds
in order to maximise the value added within the country, and augment the economic benefits brought by this natural
resource to their country. While Canada and Russia have always had in-house processing units, the trend is most
visible in African mining nations like Botswana and Angola, whose economies are highly dependent on diamond
exports. Given the quantum of rough originating from these countries, it is expected that this trend will have a
significant impact on the nature and structure of the diamond industry.
The African perspective
Beneficiation in South Africa driven by legislation: South Africa, through The Diamond Bill, is pushing for greater
value addition within the country, by proposing that a percentage of production be sold to a state diamond trader. The
exact quantum of rough is to be based on fluctuations in demand from local polishing companies. In 2005, around USD
575 million worth of rough was supplied to local cutting and polishing set-ups.
Botswana a centre of major change: Local beneficiation is also on the rise in Botswana, and a number of large
diamond processing players have established factories in and around Gaborone, a notable one being Antwerp-based
Eurostar, which established a factory in 2004.
The skills issue: Although most mining countries do not possess the requisite skills required for cutting and polishing
diamonds, these can be acquired through extensive training, as can be seen in other non-traditional cutting and polishing
centres like the Far East and Armenia.
Economic viability of cutting smaller stones: The economic viability of processing diamonds in any country is driven
by labour cost; a factor on which most mining countries compare unfavourably, especially since the average labour
costs are three to four times higher than those offered by low-cost cutting centres like India and China. Currently, only
high-value rough, which comprises around 5 per cent of global production is fit to be processed in these relatively
high-cost processing centres.
Social problems like AIDS: In African countries, the penetration of AIDS in the society is a serious problem, since it
raises questions on the long term sustainability of the work force engaged in diamond cutting and polishing.
AIDS penetration rate (15-49 yrs)
Country
AIDS
penetration
South Africa
18.8%
Namibia: The trend in Namibia started as early as 1998 with Namdeb, a joint venture between the government of the
Republic of Namibia and De Beers.
Botwana
24.1%
Nambia
19.6%
Angola and DRC joining the movement: Israeli diamond player LLD has established a diamond-polishing factory in
the Angolan capital Luanda. The unit is expected to cut and polish USD 20 million worth of Angolan rough gems per
month. Given that the amount of rough polished locally is expected to increase, Angolas output is likely to increase
over the next few years.
Angola
3.7%
Sierra Leone
1.6%
Congo, Democratic Republic
3.2%
The drive for accruing greater benefits in Canada and Russia

Russia: Historically, a significant amount of Russian rough has been polished in Russian cutting and polishing factories.
It is expected that the impending decrease in DTCs off-take from Alrosas, output by 2009, will further boost the local
diamond processing industry. However, given the relative unimportance of diamond cutting and polishing to Russian
GDP (less than 0.1 per cent), there is unlikely to be any political pressure (similar to that seen in African countries) to
support this move.
Canada: Local polishing in Canada is sustained by a government mandate stating that mining operations will be
permitted only if a part of the production is supplied to the local industry. The Canadian cutting and polishing industry
can only process high-value rough, as labour costs are among the highest of all processing centres.
42
Sources
BBC news online (news.bbc.co.uk) The Economist website (www.economist.com) The Namibian website
(www.namibian.com.na) Solitaire International December 2005 January 2006, Africas Diamonds
Professional Jeweler Magazine, September 2005 Mining Weekly websit e (www.miningweekly.co.za)
Antwerp Facets News Service (AFNS) Diamond Facts 2005 Diamond Industry Report, Northwest Territories
Canada Mining Review Africa, 2005 Gold Avenue website (www.goldavenue.com) Botswana Guardian
website (www.botswanaguardian.co.bw)
Figure 32: AIDS penetration rate in African countries

Source: UNAIDS Website (www.unaids.org)
Absence of a domestic consumer market: Another factor influencing the sustenance of a domestic industry, is the
absence of a vibrant domestic market. The market for diamond jewellery in African countries is almost negligible.
When compared to the global market, South Africa is the only one that is a significant jewellery market. Even though
there is a very strong demand for high-end, hand-crafted 18-carat yellow and white gold as well as platinum jewellery
pieces, the prospects for diamond jewellery have emerged only lately.
43
With trends such as

consolidation and backward
integration taking place
across the world, pure-play
polished traders are
losing out.
Polished diamond trading
Global demand for polished diamonds is witnessing an upward trend
In the past, the existence of a multitude of small diamond polishing companies

and the geographic spread of buyers of diamond necessitated the existence of
an intermediary that could match the demand with the supply. Polished diamond
traders emerged to fill this gap, leveraging their associations within this closelyknit industry, and providing buyers access to polished diamond from multiple
sources. In addition, they also provided value added services like extension of
credit, diamond bagging & fluting, and other pre-manufacturing operations.
Global sales of diamonds at polished wholesale prices (PWP) and diamond jewellery
have been witnessing a steady increase over the past five years with a year on
year growth rate of 6.3 and 5.0 per cent (CAGR 2000-05) respectively.
In 2005, most of the key diamond jewellery consuming markets witnessed a rise
in overall sales of diamond jewellery, a trend attributable to the growing
economies of these markets as well as the successful marketing campaigns
started by key players within the industry.
Polishing traders diminishing value preposition
United States: The United States , which is the largest market for diamonds,
recorded a total sales of USD 31.3 billion. worth of diamond jewellery in 2005
(constituting 45 per cent of the global pie) Given that the average price per
carat of PWP in the United States is significantly less than that of other
consumer market such as Japan, India, Italy and HK, it is estimated that
diamonds form about 25 per cent of the retail value of diamond jewellery.
Japan: Japan is the second largest market for diamond jewellery accounting
for almost 14 per cent share of the market in terms of value. The country is
currently witnessing a 0.5 per cent growth in diamond jewellery sales, after
experiencing a slump in overall jewellery sales for a number of years.
Diamond jewellery constitutes a major portion (77 per cent, in value terms) of
the jewellery industry and is almost five times that of the next category i.e.
metals.
Italy: Italy is the third largest market representing approximately 6 per cent of
the global diamond jewellery sales. In 2005, total diamond jewellery sales
have been estimated at USD 4.3 billion. The diamond jewellery sales have
witnessed a negative growth rate over the last six years. However, the last
four years have shown stagnating diamond jewellery sales in Italy. Diamonds
form about 27 per cent of the retail value of diamond jewellery in Italy.
United Kingdom: In the United Kingdom, growth in diamond jewellery has

outperformed the overall jewellery market and is becoming a bigger share of
the pie currently comprising an estimated 43 per cent in terms of value. In
the U.K., diamonds form 19 per cent of the total diamond jewellery value.
China: China is another major consumer of diamonds, forming an estimated

2 per cent of the global market. China is a growing market and hence the
jewellery market in China is growing at a faster rate than other economies.
Diamond jewellery is estimated at 10 per cent of the total jewellery market.
Strength of value proposition
Fo
r ce
Slow dem and growth,
so
f ch
shrinking m argins
an g
Globalization, reduced
e
need for intermediaries
Structural changes in
CPD segment
Difficulty in
Value proposition:
obtaining finance
Diversified sourcing
World sales of diamonds in PWP

(Polished wholesale price) terms (2005)
Longer credit periods

Leverage strong network
and associations within the
industry
Diminishing strength of
the value proposition
RoW
16%
China India
2% 6%Italy
5%
Japan
9%
Value added services
Turkey
2%
Time
Figure 33: Factors eroding the basic value proposition offered by polished trades
However, recent trends experienced by the Industry in the new millennium have
posed a threat to the value proposition that polished traders have offered in the
past.
The advent of globalisation, and with it improved access to players across the
world, has meant that the need for intermediaries to match demand and supply
has reduced. The same can now be achieved through global diamond bourses,
and partnerships with suppliers in different countries. A slow growth in demand
for diamond jewellery have aggravated the situation further with polished traders
fighting for trade volume. The ongoing and impending change in the structure of
CPD segment consolidation is likely to put even more pressure on the
polished traders as suppliers gain size and look to build independent relationships
with buyers, bypassing the polished traders in the process. The inability to access
finance, which is likely to continue in future also, has prevented the polished
traders from expanding and acquiring size, which is critical in a trading environment.
44
Middle East
12%
US
46%
UK
2%
World diamond sales (PWP,2005)

US D 17.6 Bn.
Figure 34: Share of world diamond sales in
PWP terms
Source: IDEX 2005, KPMG analysis
45
Global sales of polished

diamonds have grown
steadily at a CAGR of 6.3 per
cent over the last five years.
India: India is the fastest growing diamond jewellery market (growing at a

rate of 19 per cent in 2005) in retail value terms. In terms of PWP, India is the
third largest consumer after US and Japan. The value of diamonds in retail
sales of diamond jewellery is the highest in India (70 per cent).
Sale of cut and polished diamonds in PWP terms grows with the increase in retail
sales of Diamond Jewellery
CAGR
100
90
80
IN FOCUS: Diamond value addition at various stages

The diamond pipeline
Indicating the increment in value of a stone as it passes through various stages in the diamond value chain
Rough
Production
& Mine
Sales
Rough
Sales to
cutting
centres
Net rough
available for
local
production
Value of polished
from local
production
Value of diamond
content in retail
sales
Retail sales of
diamond jewellery
(2000-2005)
Dia m o nd J e we lle ry
P WP
0%
20%
40%
60%
80%
100%
USD billion
70
60
50
40
54.0
56.7
59.5
62.5
65.7
68.9
5%
Factors that determines the value of a diamond at various stages in the value chain
Grade Gem quality/ Near Gem/
Industrial
30
10
Cut
Ore
20
13.0
14.0
14.8
15.2
17.3
17.6
2000
2001
2002
2003
2004
2005
No/ Size of the diamond rough that can be

extracted from the ore carats per ton
6.3%
Figure 35: World Diamond sale in PWP terms and retail sale of Diamond Jewellery
Source: Diamond Facts Report taken from Tacy Diamond intelligence briefs
While considering actual sale of diamond jewellery, it is important to consider the

impact of the weakening U.S. dollar, as globally diamonds are traded in U.S. dollars
except at the retail stage. Consumers in countries where retail sales happen in
other currencies have in some way been cushioned against the rising prices of
diamonds.
Polished
Diamond
Colour
Size of the Rough (carat)
Clarity
Quality (4Cs) that can be extracted
Carat
Rough
Figure 36: The Diamond Pipeline, 2005

Source: Idex 2005 Diamond Pipeline, KPMG analysis
The journey of the diamond is often encapsulated in the Diamond Pipeline. The diamond pipeline is a simple and
popular way of representing the increase in the value (in terms of value-add and margins) of a diamond as it passes
through various stages in the diamond value chain, from mining to retail. The value of a diamond increases exponentially
as it passes through the various stages. The largest value addition is at the retail end, where the value of a polished
diamond increases by 392 per cent (on an average).
Diamond sourcing is beset with a number of trends

1. Consolidation pressure building up
The global diamond industry is undergoing a metamorphosis of sorts. The
need to fight shrinking margins and the need to realise more value from ones
business through horizontal and vertical integration is expected to drive
large-scale consolidation in the industry. The factors influencing consolidation
have been highlighted in the Figure 37:
46
47
3. Local beneficiation in African countries

Difficulty in
obtaining capital
Rising prices of
rough
Consistent
availability of
required rough
Mining
Sourcing
Shrinking
margins
Low demand
growth in key
markets
Overcapacity
and competition
Rough
trade
Polished
trade
Processing
High pressure zones of

the value chain
Jewellery
fabrication
Jewellery
retail
5. Marginalisation of pure-play polished traders
2. Rough prices on the rise

Rough prices for 10 years ending 2003, were fell slightly or were stable as
industry majors cleared their inventory stockpiles. But the direction of the
trend changed from 2003 onwards, post which rough prices have risen by
over 9 per cent year-on-year.
Upward movement of diamond rough price
140
CAGR
9.1%
130
133.2
121.6
120
103.7
100
90
100.9
95.5
4. Emergence of new cutting and polishing centres

With the emergence of China as another low-cost cutting and polishing centre
and the political pressure with regards to beneficiation, cutting and polishing
industry is changing. China has already captured an estimated 10 per cent of
the worlds diamond rough (by volume) for cutting and polishing and is likely
to increase its share. Belgium, U.S., Israel, India, and China are also likely to
experience a drop in volumes of rough available for cutting and polishing due
to beneficiation.
Inventory build
up
Figure 37: Factors causing consolidation; high pressure zones in the diamond value chain
110
As mentioned earlier, mining countries are experiencing increasing political

pressure to promote in-house manufacturing of diamonds to maximise value
and augment economic benefits brought by this natural resource to their
country. While Canada and Russia have always had in-house processing units,
the trend is most marked in African mining nations like Botswana and Angola,
whose economies are highly dependent on diamond exports.
102.7
103.0
95.9
The future for polished trading is under significant threat. Pure-play polished
traders operate on gross margins as low as 4 to 7 per cent and provide value
to jewellery manufacturers by quick turnaround of assortment needs as well
as providing consistent assortments. The trade is highly sensitive to fluctuations
in margins, inventory lock-up, and receivable build-up, because of which the
risk is the highest for this segment of the value chain. In addition, there is an
increasing trend towards disintermediation due to greater association of retailers
and diamond manufacturers for long-term programmes, allowing manufacturers
to plan in advance rendering the pure-play polished trader redundant.
6. Problem of conflict diamonds persists
While the KPCS has been largely successful in putting a lid on the illicit trade
of conflict diamonds, several sources in the industry indicate that the
scheme is not foolproof, and some stones of dubious antecedents enter the
legitimate trade. Estimates of illegal diamond trade, from various monitoring
bodies, range between 1 and 3 per cent of the world diamond output.
102.4
99.7
80
70
60
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Figure 38: Diamond Rough Price Index 1996-2005

Source: International Diamond Consultants
48
49
Tonnes
Worlds total supply of gold
4200
4150
4100
4050
4000
3950
3900
3850
3800
3750
3700
3650
4,153
4,036
3,975
3,887
3,846
2001
The jewellers favourite metal - Gold

The ages across the globe, gold has been synonymous with jewellery. Being
malleable and ductile, jewellers have found it relatively easy to work with and
developed intricate designs that have fascinated people across the world. The
following sub-section examines the sources of supply of gold and its demand for
jewellery fabrication.
With nearly two thirds of the

world supply of gold being
used for jewellery fabrication,
gold for several years has
World gold supply
maintained its position as the
The global supply of gold comes from two kinds of sources
jewellers favourite metal.
50
Mining: Mine production has been estimated to be hovering around 2,500

tonnes per annum for the last few years. The gold-mining industry today is a
global business, conducted in over 60 countries (of which seven have significant
output, accounting for over 65 per cent of the global production) and dominated
increasingly by a handful of international mining groups.
Above ground: Gold is virtually indestructible and as a result, nearly all the
gold that has ever been mined is available for recycling in some form. A
significant proportion of above-ground gold is stored in the form of bullion
with central banks across the globe. In 2005, net sales by central banks
contributed about 656 tonnes. Old gold scrap, i.e., gold recovered from recycled
jewellery and other forms contributed another 861 tonnes. Together, these
constituted about 38 per cent of the overall gold supply of about 4,036 tonnes
in 2005.
2002
2003
2004
2005
Figure 39: Worlds total supply of gold, tonnes

Source: GFMS Gold Survey 2006
Worlds supply of gold as per source (2005)
Central
Bank Sales
16.3%
Scrap
Recovery
21.3%
Mining
62.4%
2005 World Gold Supply: 4036 Tonnes

Figure 40: World gold supply by source, 2005
Source: Anglogold Web site (www.angologold.com), GFMS
51
Mine production has been

hovering around 2,500
tonnes per annum over the
last few years.
World supply of gold from primary sources
Gold supply from secondary sources central bank sales and scrap recovery
Production of gold from primary sources has doubled over the last 20 to 25
years. In 2005, world gold mining output stood at 2,519 tonnes. This figure is
moderately lower than the 2,591 tonnes of gold mined in 2000; however, it is
significantly higher than the 1,311 tonnes mined in 1980. Total historical production
has been estimated to be close to 155,500 tonnes (till the end of 2005).
Bank Sales: One of the key factors influencing the supply of gold is the freedom
Gold mining is split quite evenly among the seven large producers with South
Africa leading the way with 12 per cent of world output (in volume terms) in
2005, followed closely by the U.S. and Australia, each with 10 per cent. The
share of South Africa and the United States has decreased over time due to a
number of shafts closing out or reducing outputs.
Gold mining output has shown a downward trend over the last few years. With
mining companies not investing in new mines, production is likely to follow this
trend in the near future. This is seen as one of the factors contributing to the rise
in the price of gold.
Share of gold mining output in volume terms (2005)
of banks to sell gold in the open market, which is constrained by the Central
Bank Gold Agreement (CBGA)8. However, this has not deterred banks from taking
advantage of the upswing in gold prices. Since December 2000, central banks
have put in about 2,061 tonnes of gold in the market. Over 50 per cent of such
sales were effected by Switzerland, pumping in about 1,162 tonnes of gold in the
six-year period (annual average 232 tonnes). Other noticeable net selling banks
were the central banks of UK, Portugal, Netherlands, France, Austria, South
Africa, and Spain. Interestingly, banks from the rest of the world were small net
buyers of gold bullion during the same period.
Central bank net sales contributed to the world gold supply
RoW
Gold mining output over the years (tonnes)
2621
2600
United States
10%
RoW
37%
2591
2588
2592
51
South Africa
58
75
France
168
Netherlands
195
Portugal
200
2550
Indonesia
7%
Peru
8%
Russia
7%
Figure 41: Contribution to total gold output by key markets

Tonnes
2470
2450
200
400
600
Tonnes
800
1000
1200
1400
Figure 43: Central bank net gold sales between Dec 2000 and Dec 2005 in volume terms
Source: GFMS Gold Survey, 2006
2400
2350
2000
2001
2002
2003
Figure 42: Worlds total supply of gold, tonnes

2004
2005
Scrap sales: Gold is virtually indestructible; so, unless it has been lost, all the
gold ever mined still exists in some form. It is also easily recoverable from most
of its uses and capable of being melted down, re-refined and re-used. It follows
that the supply of recycled gold, or scrap, is an important part of the dynamics of
the gold market. In the last five years, scrap has contributed to about 21 per cent
of the overall gold supply to the world.
52
1162
Switzerland
2500
-200
China
9%
202
UK
2519
Australia
10%
Spain
Austria
2650
South Africa
12%
(48)
Note:
The new Central Bank Gold Agreement (CBGA), 2004, signed by the European Central Bank and 14 other central banks
limits the annual sale of gold by the signatories to 500 tonnes per year, and the overall sale over the five-year period of
the agreement to 2,500 tonnes.
53
Scrap is defined as gold that has been sourced from old fabricated products, and
refined back into bars. It does not include jewellery that has simply been traded
in and resold without being re-refined, or resold investment bars and coins. Most
recycled gold originates from jewellery. Smaller amounts come from recuperated
electronics components and, at times, from investment bars and coins.
Volume
3,500
3196
3,000
45
Value
3001
2753
2613
2477
2,500
40
2712
35
30
2,000
25
1,500
20
1000
900
USD billion
Gold scrap recovery accounted for 21 per cent of total gold supply in 2005
Decline in volume of gold used for jewellery fabrication
15
800
1,000
700
500
Tonnes
10
5
600
500
939
835
400
2000
834
200
100
0
2001
2002
2003
2004
2003
2004
2005
Figure 46: Gold used for jewellery fabrication, tonnes, 2000 - 2005.
609
2000
2002
841
708
300
2001
2005
Figure 44: World gold scrap sales, in tonnes (2000-05)

Source: GFMS Gold Survey. 2006
During the course of the study, KPMG analysed various factors likely to impact
gold prices. This was supplemented by meetings with gold analysts and other
industry sources. All of which seem to indicate that gold will continue on its current
bull run in the near future.
Gold price on the rise -again
World gold demand
700
Jewellery golds primary use
54
500
400
300
200
100
Other fabrication
14%
2006
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
1979
1977
1975
1973
1971
1969
Net producer
hedging
3%
1967
0
Bar hoarding
7%
1965
Gold is primarily used for

jewellery fabrication. Though
demand volumes for jewellery
fabrication have fallen by
over 15 per cent since 2000,
in value terms, gold used for
jewellery fabrication has seen
an increase of 35 per cent.
600
USD per Oz
The primary use of gold is jewellery fabrication. It accounted for more than
67 per cent of total gold demand (volume terms) in 2005. Although the actual
volume of gold consumed for jewellery fabrication has reduced from 3,196
tonnes in 2000 to 2,712 tonnes in 2005, the meteoric rise in gold prices has
ensured that the value of gold consumed has increased by more than 35 per cent.
Figure 47: Average annual gold price, USD per Oz

Source: GFMS Gold Survey, 2006, World Gold Council.
Implied net
investment
9%
67%
Gold usage (2005): 4,036 tonnes
Figure 45 World Gold demand by uses (volume), 2005

55
IN FOCUS: The No Dirty Gold campaign9

The No Dirty Gold campaign, launched in 2004, is a movement that has rapidly gained international recognition. The
campaign seeks to draw international attention on the potential environmental hazards as well as human rights violation,
associated with gold-mining operations.
The campaign is driven not only by social groups but also large retailers and brands. Since any consumer backlash can
significantly affect their fortunes, several key retail players have also lent their support to the campaign.
One of the objectives of the campaign is also to find out alternatives to gold mined using unsafe practices. With the
number of open pit mines diminishing and the rise in gold prices, it is expected that mining companies will have no
option but to explore some lower quality mining sites. Since mining lower quality sites requires greater effort, the
possibility of unsafe working conditions and environmental harm increases.
The campaign has identified key problems experienced by
various mining countries
Rosia Montana,
Romania
Western Shoreline
Homelands Severe
groundwater depletion
and damage to sacred
lands
Issyk-kul,
Kyrgyzstan
-
Proposed mine would

displace 2,000 people
Maqrinduque,
Philippines
200 milliontonnes of
mine waste dumped in
ocean over 16 years
Western Papua,
Indonesia
Choropampa, Peru
400 people poisoned by
mercury spill in 2000
Esquel , Argentina
Chemical spills, worker

injuries, and deaths at
World Bank financed
project
Tarkwa,
Ghana
, Ghana
More than 30,000
displaced by mining
between 1990 and 1998
Overwhelming local
opposition to proposed
gold mine near
Patagonian town and
natural areas
Mining company is
implicated in human
rights violation
Papua New Guinea
200,000tonnes of mine
waste dumped daily in
local rivers
Impact of gold mining as described by the No Dirty Gold campaign

Environmental impact
Contamination of water due to acid mine drainage, ocean dumping,
mercury dumping, release of toxic waste, problems such as tailing dam
failures. Generation of large amount of waste and displacement of large
piles of earth and rock. Air pollution caused by smelters and vehicles.
Threats to biodiversity, destruction of protected natural areas having high
conservation value.
Impact on local community

Loss of traditional livelihood, forced displacement, environmental damage
impacting economic and social activity, impact on public health, social
problems such as prostitution and substance abuse, increased
impoverishment of women and violation of the rights of indigenous
people.
Impact on miners and workmen

Mining is considered one of the worlds most dangerous professions and
characteristic ally involves unsafe working conditions involv ing heat
exhaustion, frequent accidents such as rock falls and fires, and exposure
to toxic chemic als . In addition there is rampant violation or undermining
of workmen's rights.
Adverse economic impact on mining country

Impact of environmental damage, social problems, poorly developed
industries (other than mining) due to government oversight and overemphasis and overdependence on one industry mining.
Figure 48: Key problems identified under the No Dirty Gold campaign
Source: No Dirty Gold Campaign website (www.nodirtygold.org)
56
Source:
No Dirty Gold Campaign website (www.nodirtygold.org)
the platinum metal demand-supply equilibrium. Extremely volatile prices have

impacted the investment value of the metal. For the very same reasons, demand
for the metal for jewellery fabrication has dropped considerably. The following
section presents a snapshot of these demand-supply dynamics that have shaped
up over the last five years.
World platinum supply

As with gold, supply of platinum comes from two types of sources - primary
(platinum producing mines) and secondary sources like scrap recovery and
liquidation of existing over-the-ground stocks. Metal from the primary sources
today accounts for over 90 per cent of the world supply.
Mining of platinum ore is concentrated in a limited number of geographies,
namely South Africa, Russia, and North America, with South Africa producing
over three-fourths of the worlds platinum. Mining companies are generally large
corporations, such as Implats, Anglo Platinum, etc., with a high degree of vertical
concentration.
Platinum, the new metal

Platinum belongs to Platinum Group of Metals (PGM) consisting of six types of
extremely rare metals, each one of them possessing unique qualities and
characteristics, lending them to a variety of applications across sectors
automotive, medicine and jewellery.
The last few years have witnesses several changes and trends that have tilted
Platinum supply by source
8000
CAGR
7000
530
6000
565
645
690
770
(2000-2005)
470
000 Oz
5000
10.4%
4000
3000
5,290
5,860
5,970
6,200
6,490
4.6%
1000
0
2001
Mine supply
2002
2003
2004
Russia
13%
South Africa
78%
North America
5%
Others
4%
Total platinum production - 6,630 thousand oz

(2005)
Volume
Value
2
1
0
Figure 50: Share of world platinum production in

terms of volume
Source: Platinum 2006 - Johnson Matthey
2000
2001
2
Rising platinum prices have caused the value
of platinum mined to increase at a 1CAGR of
15.6 per cent from 2000 to 2005.
0
2002
2003
2004
2005
Figure 51: Growth in platinum supply from primary sources in both value and volume terms
6,630
2000
2000
Platinum production by country in 2005
Million Oz
Platinum, the most commonly occurring PGM, yet 30-35 times rarer than gold,
has for long been an integral part of the gems and jewellery basket. Given that
the metal is almost indispensable in the industrial sector (particularly in the auto
catalyst industry) and is a valuable raw material for the medical sector (especially
in the development of cancer drugs), only a portion (38 per cent) of platinum is
utilized for jewellery (as in 2005).
The volume of platinum mined has remained

fairly constant at a CAGR of 4.6 per cent from
2000 to 2005.
USD billion
Platinum supply comes from

two types of sources
primary and secondary both
of which are seen to be
increasing.
Growth in platinum mine production
2005
The supply of platinum closed at 6.63 thousand ounces in 2005, improving by

just over 2 per cent compared to 6.49 thousand ounces in 2004. Out of the total
increase in supply for 2005, mine production contributed 80 per cent. The growth
in supply is expected to continue.
Scrap recovery
Figure 49: World supply of platinum, thousand Oz

58
59
However, the supply market for platinum may remain tight until at least 2007, as
there is little potential for significant new production outside South Africa till
then. Hence, the price of platinum is expected to remain strong.
Production output of key mining countries
mainly in three geographical locations, which produce 96 per cent of the total
world output of platinum.
However, as an outcome of
highly volatile prices, the
demand for platinum in
jewellery fabrication is
decreasing.
During 2000-05, the demand for platinum in the industrial segment seemed to be
stable. However, the demand for auto catalysts over the same period grew by
12.4 per cent (CAGR, 2000-2005) driven by the increase in the number of cars
produced utilising modern technology and catalytic converters using platinum.
Global demand for platinum jewellery on the other hand decreased sharply. This
can be attributed to extremely high and volatile prices, competition from other
precious metals, and a consequential dip in demand from China.
Changing platinum usage
South Africa: South Africa is the leading producer of platinum, accounting for 78
per cent of the total production. The countrys platinum production has been
increasing at CAGR of 6.1 per cent from 2000 to 2005.
6150
7175
7470
23%
19%
23%
100%
Industrial applications
90%
Jewellery
80%
Russia: Russia accounts for about 13 per cent of the global production of platinum.
Russias platinum production has been decreasing at a CAGR of 4.1 per cent
from 2000 to 2005.
North America: North America accounts for around 5 per cent of the global
production of platinum, and this has remained constant over the last five years.
Autocatalysts
70%
60%
46%
35%
26%
31%
46%
51%
2000
2003
2005
50%
40%
30%
20%
10%
0%
World platinum demand
The rise of platinum prices

1000
900
897
800
846
700
World demand for platinum
8
7
6.8
7.2
7.0
7.2
7.5
USD per Oz
Platinum is often the metal

of choice for high-end
precious jewellery in the
U.S., Europe, Japan, and
China.
Platinum is considered almost indispensable in the industrial and medical sectors.

The metal is used in the development of cancer drugs, nuclear resonance imaging,
raw material for ammunition, industrial machinery, and, most importantly, in
automobile catalytic converters (auto catalysts). Over the last six years, global
platinum demand has risen at a CAGR of 3.3 per cent to reach 7.5 million oz
in 2005.
Figure 53: Global demand for platinum, in 000 Oz.

691
600
500
544
400
529
540
2001
2002
300
6.2
200
100
Million Oz
2000
2004
2005
3
2
1
0
2000
2001
2002
2003
Figure 52: Global demand for platinum, in million Oz.

60
2003
Figure 54: Annual average platinum price, USD per Oz.

2004
2005
Over the last few years, platinum demand has exceeded the platinum supply
from mining and scrap recovery. The residual demand is met through above
ground movement of stocks (either through intra-industry trade or releasing of
stocks by financial institutions/investors. The magnitude of residual demand is
indicative of the pressure on finding new below-ground platinum and
consequently on the price of platinum.
61
The gap stood at 390,000 ounces in 2000 and reached a peak of 500,000 ounces
in 2002. Since then it has steadily decreased to 70,000 ounces in 2005, which is
reflected in the way platinum price has moved over the last few years.
While the supply of platinum is constrained by the discovery of metal underground
and the available processing capacity, the demand from some of the segments,
like auto-catalyst, and sub-segments like platinum bridal jewellery is inelastic.
With growth projected in the sale of diesel cars and stricter emission norms
across the globe, the demand from auto-catalyst segment is expected to be
strong. Similarly, in the jewellery segment, platinum still holds the elite tag
among other metals and even with rising prices the demand for bridal jewellery
is unlikely to disappear overnight.
Therefore, even though the demand for platinum in overall jewellery fabrication is
expected to ease off in future, an upward pressure on Platinum price is expected
to continue.
IN FOCUS: Rise of palladium as a metal for jewellery fabrication10

Palladium belongs to the platinum group of metals, and has been a relatively anonymous member of the gems and
jewellery family for years. Palladium has been used as a filler in the fabrication of gold and platinum jewellery to avoid
allergic skin reactions that may otherwise result from the consumer wearing white gold jewellery made with nickel as
an impurity.
Demand for jewellery made from palladium has picked up recently, mainly in non-traditional consumption centres like
China. The trend began in late 2000, when Chinese jewellery manufacturers looked for alternatives to platinum, the
prices of which had soared by over 10 per cent the previous year.
In 2005, demand for palladium (for jewellery fabrication) crossed over 1 million ounces for the first time in five years
due to high demand from China.
Supply from three major supply centres
10000
9000
8000
8580
7800
11%
South Africa
7320
31%
Russia
6450
7000
6000
000 Oz
3%
8390
North
America
5250
Others
5000
4000
3000
2000
1000
55%
0
2000
2001
2002
2003
2004
Total demand 8390

000 Oz (2005)
2005
Figure 55: Annual platinum supply

Source: Platinum 2006, Johnson Matthey,
Figure 56: Market Share as per 2005 figures

Apart from China, palladium jewellery has had mixed responses in key markets.
North America: Palladium jewellery also gained demand in North America, although in a modest way.
Europe: Demand in Europe stood still at 35,000 oz.
Japan: Demand for palladium for jewellery declined marginally.
The global gems and jewellery industry, so far, has mixed views about the future of palladium in jewellery markets.
Some segments of the industry talk about the metals position as an alternative to platinum (given its rising prices), and
some look at it more as a threat to rhodium-plated white gold.
10
62
Source:
Platinum 2006, Johnson Matthey, Stillwater Palladium (www.palladiumcoins.com),
China Daily (agencies via Xinhua, www.chinadaily.com.cn), LBMA - The Alchemist,
interview with Mr. Frank McAllister
63
Demand for palladium jewellery
Price movement of gold, platinum and palladium
1430
1,400
RoW (including China)
1,200
North America
1,000
800
Japan
930
Europe
1200
P a lla dium
1000
Price - USD/oz
'000 Oz
1,600
Demand for palladium

jewellery has picked up in
non-traditional centres
especially in China
Go ld
600
400
200
600
400
P la tinum
800
255
240
270
2000
260
2001
2002
2003
2004
2005
Figure 58: Comparative price movement of key metals 2000 - 2005

Source: GFMS Gold Survey 2006, Platinum 2006, Johnson Matthey
200
0
2001
2002
2003
2004
2005
Figure 57: Annual demand for palladium jewellery

Advantage palladium
The main competitive advantage palladium has over other precious metals is that of price. For instance, in 2005, palladium
was priced at USD 201.47 per oz (Prices converted as daily rates USD/oz.), while platinum and gold prices stood at
USD 997.02 per oz (Prices converted as daily rates USD/oz.) and USD 444.45 (London AM Fix, Annual Average
USD/oz), respectively. When the price difference is combined with the fact that palladium is about half the density of
platinum (12 g/cm3 vs. 21 g/cm3), which means that more jewellery can be made from palladium per dollar invested in
the metal, there is an obvious preference by the trade for palladium.
The chances of palladium emerging as a credible substitute for white gold is relatively higher, given that the price of the
metal is also favourably poised.
Demand for gold, platinum and palladium in China11
Increase in demand for
palladium jewellery wit nessed
alongside a dip in demand for
platinum jewellery
P a lla dium De m a nd
Palladium demand
P Platinum
la tinum De
m a nd
demand
Gold
demand
Go
ld De
m a nd
3000
1800
1600
2500
1400
2000
1200
1000
1500
800
1000
600
400
Volume - Tones
Palladium also possesses qualities that make it fit for jewellery fabrication. It has a natural white colour, reducing the
need for additional polishing. Its light weight makes it comfortable for the consumer to use on a daily basis. Palladium
does not oxidise at room temperature and does not require frequent polishing.
While the industry acknowledges the advent of palladium jewellery, the jury is still out on the possibility of palladium
jewellery cannibalising the market share for platinum. Most industry experts believe that palladium cannot replace the
essential value proposition of platinum in key markets that of being a highly coveted, rare, and expensive precious
metal.
Volume - Mn Oz
2000
500
200
0
2000
2001
2002
2003
2004
2005
Figure 59: Rising demand for palladium jewellery in China

Source: GFMS Gold Survey 2006, Platinum 2006- - Platinum Matthey, KPMG analysis
11
64
Note:
Data pertaining to Rest of World, excluding Europe, Japan and North America, China
being the largest consumer in the set.
65
IN FOCUS: The industry and the anti-money laundering legislation12
Industry has been tainted with allegations for a long time
The global diamond industry has for long been accused of involvement with crime such as money laundering, illegal
trade, and human exploitation. It is well known that diamonds at times have fueled civil war, for example, during the
Liberian civil war, diamonds were used to purchase arms and fund the conflict. The nature of the industry product is
such that it naturally lends itself to illicit trade diamonds are a highly fungible, concentrated form of wealth, and the
global diamond industry is historically insular and self-regulating. The illicit diamond trade exploits these factors. In
addition, the manner in which business is conducted (an outcome of the fact that the industry is an old, traditional and
unconventional industry) creates opportunity for crime to thrive.
To combat money laundering, legislations have been introduced at a global level. Besides, many countries have also
initiated action to regulate trade.
Financial Action Task Force (FATF): The mandate of the FATF is to curb money laundering through legislation. The
organization aids the development and promotion of national and international anti-money laundering policies. The
FATF has issued eight special recommendations on terrorist financing, outlining what governments should do to
combat terrorist financing.
US Patriot Act: The law is intended to prevent terrorist acts in the U.S., and is relevant to the jewellery industry in
its provisions to curb money laundering. It has introduced several mandates for various stakeholders of the global
gems and jewellery industry to name a few:
Increase vigilance on client activities and businesses.
Cap of USD 10,000 on cash transactions.
Belgium Money Laundering Law: This law prohibits the receipt of cash in any trade transaction exceeding Euro
15,000. It was amended in January 2004 to include traders in diamond within its purview and places specific
obligations on the diamond trade with regard to client and transaction information. As a response, Antwerp diamond
companies have had to appoint compliance officers and set internal rules to ensure the continued conduct of
business in a legal manner.
Notwithstanding changes in
demand patterns, preferences
and business models, the
global jewellery fabrication
industry has grown more
than 30 per cent over the last
five years, in value terms to
reach USD 79 billion in
2005 (6.5 per cent,
CAGR 2000-05).
Jewellery manufacturing or fabrication is, by far, one of the most important

stages in the gems and jewellery value chain. Jewellery fabricators play a key
role in bridging customer needs with the available mix of precious stones and
base metals.
Precious jewellery can be broadly categorised into two segments:
Precious plain metal jewellery Primary value is derived from the base metal
gold, platinum, silver, etc.
Precious gem-studded jewellery Primary value is derived from gemstones

rather than the base metals, i.e., diamonds and/or gemstones etc.
The jewellery fabrication industry has developed across the world and over time
has resulted in specific geographies specialising in different forms of jewellery.
Each country therefore, has a distinct identity based on design specialisation,
choice of fabrication material, use of technology, method of production (hand
made versus machine made), quality, finish of the final product, etc.
Growth in global jewellery fabrication
90
79
80
73
USD billion
70
60
59
57
60
63
50
40
30
20
10
0
2000
2001
2002
2003
2004
2005
Figure 60: Growth in global jewellery fabrication (2000 to 2005), value USD billion
12
66
Source
Diamond Intelligence Briefs, Tacy Ltd.
Diamond facts - Diamond Industry Reports - North Western Territories Canada
67
Jewellery production has seen a steady rise over the last few years, and our
estimates indicate that the total value of jewellery fabricated touched USD 79
billion in 2005.
India is the biggest fabrication centre in terms of volume of gold used for
jewellery fabrication. In 2005, it converted over 630 tonnes of gold into jewellery.
China, Italy, and Turkey are the other fabrication centres with substantial usage
of gold for jewellery fabrication.
Italy, which consumed over 500 tonnes of gold for jewellery fabrication in the
year 2000, has seen a steady decline in jewellery fabrication. In 2005, the Italian
industry is estimated to have converted less than 300 tonnes of gold into
jewellery. During the same period, the demand for gold for jewellery fabrication
from Turkey and China registered a strong positive trend, indicating a distinct
shift in manufacturing.
As a result of emerging technology, competitive labour costs, and changes in
regulation, a number of traditional manufacturing centres have been losing out to
newer players, thus changing the jewellery manufacturing landscape.
Brief profile of key manufacturing centres
Product profile
profile
Country
Italy
Italy
ITALY
INDIA
One of the world's largest jewellery producers, with about

8,200 factories in the country.
Jewellery-making in Italy is an art and Italian jewellery is

known for its imaginative and fashionable designs.
Thailand has been a major global supplier of quality

jewellery over the last two decades.
Thailand, like Hong Kong, was originally known as a

supplier of low-cost goods. The country has transformed
itself by building its manufacturing and design skills in
order to manufacture high-value jewellery.
THAILAND
US
CHINA
/HK
Emerging centres
The American jewellery market is geared to the taste of

the American customer, who wants pieces that can be
worn with any type of outfit.
While a growing number of American fabricators export
their goods around the world, the sheer size of the
domestic market keeps a large portion of the goods at
home.
China and Hong Kong produce a substantial portion of

the worlds jewellery.
Generally, Chinese jewellery is not highly imaginative in

design, but there is increasing effort among top
manufacturers to introduce more original designs and
high-fashion pieces.
India has emerged as a centre for jewellery

fabrication, riding on a number of advantages such as
cheap skilled labour, a large domestic demand for
jewellery (both gold and diamond), and the added
advantage of being the largest diamond polishing
centre in the world.
There are hundreds of small manufacturers

producing gold, diamond, and gemstone jewellery for
domestic and foreign consumption.
Diamond
jewellery
Gemstone
jewellery
labour
(number,
skills and
costs)
Superi
Superior
Easy
availability
or
Technology
design
skills
of raw material
design
skills
China
Hong Kong
United
States
Turkey

Differentiated
Technology
positioning or
brand

India

Figure 62: Comparision of traditional and emerging jewellery fabrication centres

Cost comparison of key manufacturing centres13
Average
workman's
wages per
month (USD)
Mediu m
USD 1,000
Low
USD 200
India
China
Thailand
HK
High
USD 2,500
Turkey
Italy
U.S.
Figure 63: Indicative labour costs for jewellery fabrication

Trends in jewellery fabrication

1. Consolidation
TURKEY
Turkey is fast becoming the preferred supplier for

international buyers of gold jewellery. It has
developed a reputation for high quality and innovative
design.
In addition, Turkey has emerged as a major trading

hub for jewellery.
As with other parts of the gems and jewellery value chain, the jewellery
fabrication industry too is passing through a consolidation phase. Historically,
this has been a highly fragmented sector. The consolidation is the result of the
following efforts to capture a greater share of the value:
Forward integration: Large diamantaires have started setting up jewellery
manufacturing units influenced, in some cases, by powerful compelling
programmes.
Backward integration: Upstream movement of retailers either through in-house
or outsourced manufacturing.
Figure 61: Snapshot of traditional as well as emerging jewellery fabrication centres

68
Large
High
domestic
domestic
demand
market
Thailand
Emergence of new fabrication centres
Traditional centres
Plain
jewellery
Comparative analysis
Comparative
analysis of
of strengths and weaknesses
13
Note
Data pertaining to average workman's wages per month
69
Besides enabling the manufacturer to reduce manufacturing time and cost,

technology has also enabled the fabrication of different types of jewellery,which
would have not been possible using traditional means.
Book-ends model: There have been instances of mining companies acquiring

or investing in manufacturing units and acquiring retail stores and retailers trying
to gain a presence in mining.
Another advantage to the manufacturer is the flexibility to quickly churn out new
designs in smaller batches to keep up with highly volatile design trends.
2. Increasing sophistication and professionalism

Players in this part of the value chain have been making significant amount of
investments in technology upgradation, sophistication of manufacturing
techniques, and building of managerial capabilities.
High-tech manufacturing is the need of the hour. Players in the manufacturing

space need to recognize the benefits and invest in technologyto sustain their
position in a highly competitive environment.
3. Growing importance of economies of scale
6. Changes at the retail end
Jewellery fabrication has also seen the emergence of volume producers who
use industrial production techniques to maximise efficiency as opposed to
techniques used by traditional artisans.
A number of trends in jewellery retail are likely to have an impact on the

fabrication industry. These changes have been summarised in figure 65.
4. Design and quality as the dominant base of competition
Besides enabling the manufacturer to reduce manufacturing time and cost,

technology has also enabled the fabrication of different types of jewellery,
which would have not been possible using traditional means.
One of the main concerns of any jewellery manufacturer is to give the consumer
the product he/ she wants, while ensuring that costs are under control and
the business is sustainable and profitable.
Another advantage to the manufacturer is the flexibility to quickly churn out

new designs in smaller batches to keep up with highly volatile design trends.
However, competition and slow growth in the industry have eroded margins.
The average consumer demands quality, finish, and innovative designs but at
reasonable prices.
Evidently, high-tech manufacturing is the need of the hour. Players in the

manufacturing space need to recognise the benefits and invest in technology
to sustain their position in a highly competitive environment.
5. Technology as the silver lining

Adopting the latest in technology today, and effective usage of information
technology, can provide a manufacturer a number of advantages, making
amarked difference to the companys bottom-line.
Current trendCurrent trend

Procurement
Globalisation has resulted in large jewellery chains setting up global

procurement teams willing to source from best-fit supplier located in any
country rather than in just the four traditional countries Italy, Thailand,
China/HK, and the U.S.
Jewellery suppliers have to increasingly compete in the global

arena. Hence, they have to provide better service levels while
adhering to world-class quality standards.
Consumers
Luxury consumers have become cosmopolitan. Consumers also travel

a lot and compare products across the world before buying.
The consumer has much greater choice, and hence, jewellery

suppliers need to adapt their made-to-stock designs to meet
changing customer preferences.
Changing
fashion
Changing consumer preferences and increasing influence of fashion in

jewellery has resulted in ever increasing pressure from retailers on
fabricators to reduce overall order fulfillment cycle-times.
Manufacturers need to reduce time-tomarket in order to meet

short-term demands. Accelerating cycles also require
manufacturers to develop more efficient design, production,
distribution, and inventory management processes.
Channels
Consumers are now spending more online, as a survey reveals that 20

per cent of online shoppers will purchase jewellery.
The Internet provides an opportunity for jewellery fabricators

to adopt B2B as well as B2C business models to access
customers regardless of geography. It is also a threat as
competition is no longer restricted to their own geography.
Competition
The traditional structure of small-to-middle-size, family-owned retailers

(independents) is now under pressure from large, international brands
such as Chanel, Dior or Jean-Paul Gaultier, Esprit, and Mont Blanc.
This has resulted in fewer customers with greater bargaining power. The need to satisfy and manage customer
needs has become a key requirement for all jewellery
manufacturers.
Technology can help address the ultimate needs of the consumer
Consumer need
Innovative designs
conforming to the
latest trends
Superior quality and
finish
Challenge for the

manu factur er
Maintain cost of
manufacturing,
minimise waste
Provide the latest
designs with a quick

turnaround time
Maintain adequate
Desirable product at
reasonable prices
levels of quality and

finish as well as
consistency
Solutions provided by
technology (indicative)
CAD/CAM and computer-
integrated machinery
Wax-casting machinery
Implications for
Implications
for jewellery
jewellery
fabrication centres
fabrication
centres
Laser-production technology
for metal cutting, rapid

proto typing, etching, and
fine intricate jewellery
Hollow tube processing
machines
Figure 64: Linkages between consumer needs and technological developments in the industry
Source: KPMG research, Solitaire International
Figure 65: Current trends in the industry and its impact on jewellery fabrication centres
70
71
7. Entry of synthetic diamonds

Technology has penetrated even areas like the manufacturing of
diamonds. Complex technology that has emerged over the last couple
of decades such as Chemical Vapour Deposition and the High PressureHigh Temperature (HPHT) technology have made lab-made or
synthetic diamonds a reality. These diamonds, although created
under simulated conditions possess the same chemical, thermal, and
optical properties of natural or mined diamonds.
Given the relatively high availability of diamonds (compared to natural
pearls), stakeholders feel that while synthetic diamonds pose a threat
(to the diamond industry as a whole), it is unlikely to give rise to a
survival issue.
The industry is conscious of the need to create safeguards to prevent
mixing of natural and synthetic stones. While for the first trade,
identification methods such as laser-encryptions will help in identification
and differentiation, players are concerned if the identification will be
available for secondary sales. Unscrupulous elements could mix
synthetic and natural stones, posing a very serious threat.
At present, the synthetic diamonds (cultured diamonds as the
manufacturers prefer to call them) have only a minor presence in the
market. Most consumers are not aware of their existence. All the
producers of synthetic diamonds have adopted a very cautious entry
strategy, and they are introducing their products very slowly, taking
care not to erode consumer confidence and establishing safeguards for
easy identification.
The general consumers, analysts, industry players, and trade bodies
believe that synthetic diamonds will create a new segment in the
market and will coexist along with natural diamonds.
IN FOCUS: Industry standards, certification and hallmarking

By and large, the jewellery industry has been indifferent to the adoption and establishment of formal or informal
industry standards. However, as the industry has grown and more and more businesses have started transacting on a
global basis, a need has arisen for establishing standards.
With jewellery fabrication becoming increasingly global, jewellery exported to developed markets necessarily has to
conform to the standards set by the customer. However, in some large emerging markets, the situation is different
today. For example, in India, one of the largest markets for precious jewellery, quality standards are conspicuous by
their absence. Hallmarking is restricted to a minor portion of sales, with the bulk of the consumers unaware of the
exact caratage of the jewellery they buy.
Industries that have adopted standards have experienced enhanced growth and competitiveness. These benefits
permeate to all stakeholders players, consumers, regulators, investors, bankers, and employees. Our analysis
indicates that, the industry will see an increasing level of adoption of hallmarking in gold and certification in gemstones,
particularly in emerging markets.
Current status of gemstone certification and jewellery hallmarking in the industry
Diamonds
Customers do not usually demand certification of small diamonds, as it is not cost-efficient. However, larger
stones are increasingly being sold along with certificates of authenticity.
Jewellery
Customers do not usually demand third-party hallmarking for low-end jewellery.
Customers in Europe are more insistent on hallmarking of jewellery than customers in the U.S.
Hallmarking certificates from different centres have different levels of acceptability in the global market.
Countries with independent
hallmarking systems
Austria
UK
Cyprus
India
Czech
Netherlands
Republic
Norway
Denmark
Portugal
Finland
Singapore
France
Spain
Hong Kong
Sweden
Ireland
Switzerland
Malaysia
Uzbekistan
Countries considering independent hallmarking systems
Abu Dhabi
Dubai
Saudi Arabia
South Africa
Jewellery-producing centres without an independent hallmarking system
Canada
Germany
Italy
Taiwan
Thailand
United States
Figure 66: Current status of gemstone certification and jewellery hallmarking

72
73
Jewellery retail
IN FOCUS: Changes in the U.S. GSP likely to impact players like India, Turkey and Thailand14
The U.S. Generalised System of Preferences (GSP), a programme designed to promote economic growth in the
developing world, provides preferential duty-free entry for more than 4,650 products from 144 designated beneficiary
countries and territories. The GSP programme was instituted on January 1, 1976, and authorised under the Trade Act of
1974 for a 10-year period which is reviewed periodically.
The U.S. plans to withdraw GSP for 13 countries - Argentina, Brazil, Croatia, India, Indonesia, Kazakhstan, the
Philippines, Romania, Russia, South Africa, Thailand, Turkey and Venezuela. Among these, India, Indonesia, Brazil, and
Thailand account for 70 per cent of the GSP benefits. Jewellery and electrical appliances are among the most active
export sectors currently enjoying GSP benefits. Beneficiary players in the jewellery space are India, Turkey, Thailand,
Peru, Brazil, Argentina, and Malaysia with India being the biggest player.
For example, jewellery exports from India were worth USD 4 billion in 2005, more than 30 per cent of which were to
the U.S. The withdrawal of the GSP will raise the import tariff into the U.S. market from 0 to 6.5 per cent. This would
have an impact on costs, and could reduce cost effectiveness especially for the lower end, mass market jewellery, thus
negatively impacting the Indian, Thai, and Turkish gems and jewellery industry. Players in the gems and jewellery space
with significant exports to the U.S. need to factor this into their business plan.
This could lead to the following outcomes:
Cost for fabricators/exporters could increase and margins could be reduced
Jewellery could get traded through other locations like HongKong which are not covered
China may attract new jewellery investments compare to India and Turkey.
Global retail sales of jewellery are estimated to have grown at a steady CAGR of
5.2 per cent, over the last five years, to reach USD 146 billion in 2005.
World jewellery consumption

in 2005 stood at USD 146
billion, a 7.6 per cent
increase over the last year.
The market was marked by intense competition between diamond and plain gold
jewellery for a share of the consumers wallet. While gold regained its share
from a low of 37 per cent in 2001 to 42 per cent in 2005, diamond increased its
penetration in traditional gold markets but suffered because of platinum
jewellery.
Plain platinum jewellery managed a high of 7.3 per cent of the total market share
in 2003, but since then slipped back to close to 6 per cent.
World jewellery sales grew at a steady pace
CAGR
200
(2000-2005)
Others
Plain platinum jewellery
160
136
USD billion
Diamond jewellery
120
80
5.2%
146
Plain gold jewellery
113
111
5.4
7.3
5.3
7.1
118
5.6
8.0
124
5.9
9.1
6.5
9.5
54.0
7.3
9.0
6.4%
4.4%
60.7
5.5%
46.4
41.5
44.4
46.3
54.0
56.7
59.5
62.5
65.7
68.9
2000
2001
2002
2003
2004
2005
40
5%
Figure 67: Growth in global jewellery retail sales (USD billion 2000 -2005)
74
14
Source:
United Nations Conference on Trade and Developement (UNCTD), Diamond World
75
The U.S. continues to be the worlds largest market for jewellery and accounted
for 31 per cent of all jewellery sales in 2005. Japan, another key jewellery market
of yesteryears, has seen a steady decline from 10 per cent in 2000 to 8 per cent
in 2005. During the same period China has steadily increased its share in the
market, and today accounts for 9 per cent of global jewellery sales, in value
terms.
The Indian consumers increasing penchant for diamond jewellery and the rekindling
of her affair with plain gold jewellery meant that its share in the world
market went up to 8 per cent from a low of 5.5 per cent in 2002.
Eight key markets accounted for the majority of global jewellery sales
Rest of the
World
23.7%
China
8.9%
Strength of jewellery tradition in the country: India, China, and Turkey are the traditional jewellery markets
where jewellery buying for investment and adornment has a long history. This is reflected in the consistently higher
JAF values for these markets.
Consumer sophistication: Demand for any product is dependent on what needs it fulfills for a consumer. Varying
degrees of consumer sophistication but similar value proposition of jewellery across markets implies that sales in
markets must vary depending on the number of consumers in that particular need state.
Extent of market organisation: Organised retailing and manufacturing bring with it the power of branding,
marketing, R&D, and analysis of consumer needs. Therefore, relative organisation of the market compared to other
luxury goods will influence jewellerys share of consumers wallet.
India
8.3%
Italy
5.0%
Japan
8.3%
Turkey
2.9%
US
30.8%
Analysis of JAF values for eight key markets clearly showed its movement in a narrow band (as shown in Figure 69),
and at the same time accounted for differences in jewellery consumption in various markets. This has led us to believe
that JAF could be used as a suitable surrogate measure for a countrys affinity for jewellery. Subsequent analysis
revealed that JAF for a country is driven by three key drivers:
UK
3.1%
JAF for a country is unlikely to change dramatically from one year to the next. However, over the long term, as these
countries develop, and consumer preferences change (more for developing economies), the JAF value will also change,
implying that assessment of future JAF values could directly determine future jewellery consumption in each market.
We also believe that JAF could function as an early warning system for markets-at-risk because of structural changes
impacting them.
JAF values are stable in the short run
Middle East
8.9%
18
Figure 68: Global jewellery consumption (2005)

16
India
14
12
IN FOCUS Introducing Jewellery Affinity Factor (JAF)
10
Turkey
Given that spending on jewellery is discretionary in nature, it can be intuitively assumed that a persons spend on jewellery
must be related to his/ her income. With a rise in income, one can expect spending on luxury goods, including jewellery,
to increase.
= (Jewellery sales per capita, current year)/(GDP per capita, current year)
76
Italy
U.S.
World
Japan
2
0
2000
Several analysts have pointed to the possible correlations between GDP growth and jewellery sales. Our subsequent
analysis of per capita jewellery sales and GDP for key global markets showed that for individual countries, they did
move together in a narrow band in the medium term.
Based on this analysis, we defined a factor to capture this relationship, and calculated what we call Jewellery Affinity
Factor (JAF). For each country, JAF for a particular year was defined as:
China
U.K.
2001
2002
2003
2004
2005
Figure 69: JAF for key markets, 2000-2005

Explaining Middle East

The JAF values for the Middle East come out to be extremely high as compared to all the other markets. The figures
fluctuate within a range but are significantly higher than those for traditional jewellery markets like India. Our analysis
indicates that there could be two possible reasons for this anomaly:
Jewellery sales to foreign tourists, which should ideally be captured as re-exports, are captured as jewellery sales to locals.
A greater portion of the disposable income of consumers in the Middle East is spent on jewellery as compared to
markets like India.
77
Diamond jewellery
Plain gold jewellery
World diamond jewellery sales in 2005 were estimated at USD 69 billion. The
market for diamond jewellery has registered a year-on-year growth of 5 per cent
over the last five years. Contrast this with the global luxury goods market, where
the U.S. alone accounts for USD 400 billion and the global market is expected to
grow in excess of 15 per cent annually. Growth in diamond jewellery is
attributable to two factors:
Diamond jewellery has been

growing at a steady rate of 5
per cent over the last five
years.
Strong economic growth in key diamond jewellery consuming nations.
Aggressive marketing effort by large diamond marketing companies.
Retail sales of plain gold

jewellery, in value terms
have grown at 5.5 per cent
(year-on-year) since 2000.
Demand for plain gold jewellery in value terms has taken off since 2001 when
the global retail sales stood at USD 41.5 billion. In 2005, the total retail sales of
plain gold jewellery were estimated to be USD 60.7 billion. This meteoric rise in
the sales of plain gold jewellery is directly linked to the rise in gold prices, which
have grown at a CAGR of close to 13 per cent since 2001. Therefore, even
though the total gold consumed as plain gold jewellery (volume) decreased, sales
have notched a positive growth in value terms.
Plain gold jewellery sales have grown on the back of gold prices
Plain Gold Jewellery
80
Diamond jewellery grew in line with the total market
CAGR
56.7
59.5
400
363
60
5%
310
USD billion
54.0
68.9
500
279
273
300
40
54.1
54.0
40
46.6
46.4
20
41.7
41.5
44.6
44.4
60.7
200
USD per Oz
60
65.7
444
409
(2000-2005)
80
62.5
Gold Price
46.4
46.3
100
20
The U.S. accounts for a majority of the

global diamond jewellery sales
0
0
C hina
2%
RoW
16%
2000
India
Ita ly
2%
6%
J a pa n
14%
Turke y
1%
M iddle Ea s t
11%
US
45%
UK
3%
Global diamond jewellery sales - USD 69

billion
Figure 71: Market share of global diamond
jewellery sales, 2005
2001
2002
2003
2004
2005
Figure 70: Global diamond jewellery sales, 2000 2006, USD billion
The U.S. constitutes the largest market for diamond jewellery (45 per cent in
terms of value) and clocked an estimated USD 31 billion in diamond jewellery
sales. Japans consumption of diamond jewellery has dropped sharply following
the countrys economic condition. Today, Japan constitutes 14 per cent of the
global sales of diamond jewellery.
The most impressive growth has been recorded in Asia with India and China
leading the way. India, which has mainly been a plain gold consuming nation,
reported a remarkable growth in sale of diamond jewellery (estimated at
USD 1.51 billion) in 2005. According to our estimates, this market is likely to
grow to USD 1.65 billion in 2006. Demand for diamond jewellery has been seen
to rise in the Middle East as well.
U.S. and India together account for more

than 1/3rd of global consumption
RoW
36%
U.S.
18%
Italy
4%
2001
2002
2003
2004
2005
Figure 72: Global plain gold jewellery retail sales, USD billion
Even though the demand for plain gold jewellery is supported by consumption in
developing economies, its share of the total jewellery market is increasingly
under threat from studded jewellery. Alternate forms of gold like white gold too
are under threat from other precious metals like platinum and palladium.
The U.S. and India continue to be the largest markets for plain gold jewellery (by
value) consuming over USD 10.8 and USD 10 billion worth of jewellery, respectively
in 2005.
Japan
1%
U.K.
4%
India
17%
Turkey Middle east Middle East
9%
5%
8%
Global plain gold jewellery sales - USD

60.7 billion
Figure 73: Share of key world markets of global
plain gold jewellery sales, 2005
78
0
2000
However, in volume terms, India is by far the largest consumer of gold in the
form of plain gold jewellery. This apparent contradiction is on account of two factors:
US consumes lower carat jewellery (9-14 carat) as compared to India

(18 - 24 carat); and
Retail margins in the U.S. are much higher than in India.
79
Plain platinum jewellery

Rapidly rising metal prices
have resulted in a decline in
the overall consumption of
platinum. However, demand
for the metal for high-end
goods has reportedly
remained the same.
IN FOCUS: Gold souks15
After growing at a good pace, plain platinum jewellery sales have stabilised over
the last few years. This sudden dampening of the growth in platinum jewellery
sales is a direct result of the increase in the price of platinum (pricing the
jewellery out of range for some consumers) and the reluctance of retailers and
wholesalers to carry inventory due to the higher cost.
Platinum prices have skyrocketed over the last few years and have grown at a
CAGR of 10.4 per cent for the 2000-05 period. In December 2005, prices rose to
USD 1,012 per oz, the highest in almost 25 years.
Plain platinum jewellery sales have tapered off in the last few years
10
9.1
9.5
9.0
8.0
USD billion
7.3
7.1
UK
US 1%
7%
0
2000
2001
2002
2003
2004
Japans share of the world market has declined in the recent past. It is estimated
that it now accounts for only 13 per cent of global sales.
China
75%
Global platinum jewellery sales USD 9 billion

Figure 75: Global sales of plain platinum jewellery,
in value terms (2005)
80
For consumers
Access to reputed regional and national retailers, domestic and international brands, and a variety of popular
products in one place.
Majority of retailers with establishments in a gold souk adhere to international hallmarking and certification
standards, assuring quality products to consumers. Several gold souks even have internal criteria (related to product
quality) for selecting retailers.
Overall retail experience of an international standard shopping mall with modern amenities.
Purchase of jewellery in a secure and discreet destination.
Added benefits such as frequent discount and buy-back schemes.
State-of-the-art infrastructure and amenities meeting international standards, strategic/ close proximity to major
consumer shopping hubs.
Set up assistance such as infrastructure establishment, recruitment, training of staff, etc.
Tighter security than traditional jewellery trading zones. High conversion rate as opposed to that obtained in a
non-specialty commercial trading place.
Aggressive marketing to attract consumers on an ongoing basis as well as during special seasons. For example, the
Dubai Gold Souk is actively promoted during the Dubai Shopping Festival and Dubai Summer Surprises.
An avenue for networking with other players in the industry. Tighter security than traditional jewellery trading zones.
2005
China is the worlds largest consuming market for plain platinum jewellery. It
accounts for more than 75 per cent of the world-wide sales of platinum jewellery.
Japan
13%
A common market place or souk for the trade of jewellery promises a range of benefits to both retailers and
consumers.
For retailers
Figure 74: Global sales of plain platinum jewellery

Row
4%
Largely promoted by World Gold Council (WGC), this format is now also being replicated in other nations, India being
the most notable example with the development of the Gold Souk, Gurgaon, in 2004.
China is the largest market for plain

platinum jewellery
Dedicated souks for various products and commodities (literally meaning market place or bazaar) have always been
a part of Arabic culture. Today, the Middle East has a number of souks dedicated to gems and jewellery such as the
Gold Souk in Deira, Dubai, housing over 300 jewellers, the innumerable gold souks of Kuwait and the Gold City in Bahrain.
Lately, palladium has emerged as an alternative to platinum and has made

significant inroads into platinum jewellery. Demand for palladium for jewellery
has multiplied 5.5 times since 2003 (from 260 tonnes to 1430 tonnes) a
whopping 54 per cent in 2005 mainly due to increased demand for the metal in
China.
However, platinum still retains its elite image and its sales in the high-end
luxury segments have not declined.
15
Source:
www.goldsouks.com, KPMG interviews
81
Globally, jewellery markets are witnessing new trends in

consumer preferences
5. Branding has assumed significance

The industry has seen two distinct branding waves one at a company level
(in an effort to maximise margins and tap target markets); and the other at an
industry level (pushed by large upstream players for market expansion and
demand generation).
1. Fashion gains precedence As long as I get the look right

Today, consumers in major markets are more design and fashion
conscious than ever before. The historical distinction between precious and
non-precious or expensive or non-expensive jewellery is fading in major
markets for fashion and adornment jewellery. This trend is more pronounced
in the urban markets. Consumers are wearing a mix of various metals and
stones, their main objective being getting the look right. Jewellery is now
being manufactured with stones that would previously have been unfit to be
set in precious jewellery. Also, non-conventional metals such as copper and
steel are also being used as a base for diamonds. These trends, though not
very significant in terms of impact at the moment, could be harbingers of
more permanent changes in consumer behaviour.
2. More of stone, less of metal
The rising cost of gold and platinum, primary metals for precious jewellery,
has in some way provided a boost for gemstones, including diamonds. This
trend, coupled with the aggressive marketing by the diamond industry is
establishing a foundation for the growth of the diamond industry. In consumer
segments with a lower purchasing power, diamond jewellery with smaller
stones (melee or cluster or pave form) is making waves.
IN FOCUS: Jewellery branding and marketing16

While marketing and branding has provided a backbone for almost all luxury products, active marketing and branding of
gems and jewellery began only recently. This trend has developed in the last few years as industry players are beginning
to realise that the unique advantage that jewellery had enjoyed over other luxury products its ties with traditional
expression and emotions - is now fading out and hence, cannot be taken for granted anymore.
The branding mandate
War against other luxury products: The jewellery industry is facing competition from other luxury goods such as
watches, high-end electronics like cell phones/ music players, and high-end holidays and vacations, which have
historically been substantially well-marketed and brand-driven categories.
Maximise the potential of the U.S. consumer market: The need for branding and marketing of jewellery is more
critical in the U.S., the worlds largest consumer market for jewellery.
3. White wave continues

The demand for white metals continues to move upwards to occupy a larger
share of the market. White metals (rhodium polished gold and platinum
towards the higher end) are generally preferred for diamond-studded jewellery
in the Western markets (however, demand for yellow gold is increasing in the
U.K. because of marketing campaigns) and in the Far East which houses the
largest consuming centres for platinum jewellery. In China, demand for palladium
jewellery has picked up mainly as an alternative for platinum. In India, white
gold is typically preferred by urban women, associating it with Western fashion.
Yellow gold still dominates the traditional bridal segment.
4. More buying for oneself
In almost all key jewellery consuming markets, women are increasingly
purchasing jewellery for themselves. Most of these are seen to be impulse
purchases, generally falling in the low-to-medium value range. This trend has
been seen across large markets from traditional and conservative markets
like India to more mature and developed markets like the U.S. and U.K.
82
What the consumer wants: Branding becomes a must when one takes a closer look at what influences consumer
decisions to purchase jewellery
Status: Owning a premium brand is taken as a mark of status.
Fashion statement: A brand in many ways makes a statement about the person who chooses it. The consumer
identifies with the brand personality.
Value added services such as exchange and buy-back programmes.
Assured quality: Branding assures a certain level of quality, (through certifications and/ or guarantees) playing the
role of an extinguisher of the increasing consumer skepticism.
Development of brands at the industry level

Large suppliers of precious raw materials have tied up with trade associations to form trade bodies for market expansion
and demand generation. These organisations work closely with players a cross segments to create awareness and
pull for their respective precious metals/ gemstones.
16Antwerp
Facets News, Antwerp Diamond Conference newsletter, National Jeweler
83
This has been observed in diamonds where leading upstream players have been a dominant force behind the branding
movement in the diamond jewellery segment; These companies which work previously just dominant suppliers of
rough diamonds, have now assumed responsibility for promoting diamond products in key consumer markets. Their
strategy encourages diamond CPD companies to spend on marketing and branding initiatives in their respective markets,
driving diamond jewellery sales upwards.
Industry bodies promoting precious metals, such as the World Gold Council (WGC) and Platinum Guild International
(PGI), have also played pivotal roles in the branding movement, by undertaking or supporting international jewellery
brands and campaigns.
In the last few years, WGC has aggressively promoted gold jewellery demand in various markets by launching global
as well as region-specific promotion campaigns, most notable ones being the Speak Gold campaign in the U.S. and
the K-gold campaign in the Far East.
PGI too has launched a world-wide platinum-branding initiative, with the help of brand consultants Interbrand, with a
brand line Pure-Rare-Eternal and a logo emphasising the metals intrinsic values, while maintaining a modern
contemporary image.
IN FOCUS: The e-retailing success story17

In the last few years, the Internet has emerged as a growing channel for jewellery retail in major markets.
United States: In 2005, the worlds largest market for jewellery saw a 25 per cent growth in retail sales through the
internet. Total online sales touched USD 2.1 billion.
India: According to the Internet and Mobile Association of India, online jewellery sales accounted for 4 per cent of all
Web-based transactions, pegging a total sales figure of USD 9.55 million. This trend is expected to grow since the
number of shoppers purchasing jewellery online is expected to increase by 15 to 18 per cent in 2006-07.
China: According to a report released by the National Bureau of Statistics, Chinas online retailing of jewellery grew by
29.5 per cent.
Per cent
penetration
Per cent
of world
users
Per cent
growth
2000- 2005
2.6
2.3
423.9
Asia
10.4
36.5
232.8
Europe
36.4
28.2
179.8
Companies enter the branding movement

Companies with varied backgrounds (presence in diamonds, jewellery or with ornamental luxury product legacy) have
spearheaded the branding movement and created brands specific to their companies. The diamond industry has risen
to the challenge and has invested significant capital in marketing and branding initiatives, some run of the mill, some
innovative. These includes alliances between mining companies, trading companies, CPD players and designers.
Players with presence in gold and platinum jewellery manufacturing and retailing, with the help of retail support provided
by industry organisations such as PGI and WGC, have launched regional campaigns promoting a number of products
and the metal itself. Efforts to build brands and promote jewellery through well-planned and executed marketing campaigns
have increased markedly in the last few years. However, the industry now needs to acknowledge the increasing need
to take a wider integrated view and initiate marketing at an overall industry level, developing precious jewellery as a
desirable brand.
The benefits of Branding
84
Africa
Middle East
9.6
1.7
454.2
North America
68.6
21.8
110.4
Latin America
14.7
7.8
358.5
Australia/Oceania
52.6
1.7
134.6
Figure 76: Internet penetration, June 2006

Source: Internet usage world stats (www.internetworldstats.com)
Internet penetration
Secure payment system
Jewellery certification
Impact on consumer confidence branding fulfills the necessary function of demystifying the process of
purchasing jewellery including quality parameters to watch out for.
Efficient backend product delivery chain
Availability of jewellery across price points
Impact on retail margins-given that the added value of brands in other luxury goods categories (such as watches
and perfumes) ranges between a whopping 70-90 per cent, the jewellery industry has a lot to catch up.
Competitive prices
Increasing awareness and interest in the minds of consumers towards jewellery as a whole.
Preventing commoditisation branding could guard against the erosion of the cardinal value proposition of
jewellery its linkages with traditional values and emotional expression.
We dding o r e nga ge m e nt
gifts
1%
Annive rs a ry gift
Othe r
2%
4%
Gift fo r s o m e o ne
32%
S e lf purc ha s e
61%
Figure 77: Fraction of respondents, 2005

Source: Jewelry Consumer Opinion Council (JCOC)
Drivers for online purchases
Analysis of online purchases in the U.S.
Growth in penetration of the Internet across various

geogrophies: Potential for e-retail
17
Internet retailer website, diamond views website, Idex online, Datamonitor e-retail 2006 report, Financial Times
85
Predicting the future
KPMG analysed various existing and

emerging trends, detailed in the
earlier section, that could have a
significant influence on the industry in
the future. This section takes a
birds-eye view of various trends,
combining multiple trends under
possible scenarios. Scenarios are
accounts of how the future may unfold
if existing patterns and events
continue uninterrupted. KPMG has
analysed the impact of these scenarios
to predict a realistic end-state for the
industry in 2010 and 2015.
Specifically for each scenario:
Forces shaping the future - trends compelling industry-wide transformation

Competition and overcapacity
in traditional centres
Diamond supply controlled by

few having high bargaining power
Israel and Belgium

losing market share
Steady supply of diamonds

emergence of new mines,
mining companies

rough procurement difficult
Local beneficiation in
African countries
SOURCES OF PRECIOUS STONES AND METALS
Shrinking margins
Stagnating demand in
the U.S. the largest
market
Shortening fashion
cycles
Emerging consumption
centres linked with
economic growth
JEWELLERY FABRICATION JEWELLERY RETAIL

Consumer demand
for quality,
hallmarking gaining
importance
Diamond
mining
Increasing
rough prices
Declining
market share
of large
diamond
marketing
companies
Gemstone
processing
Coloured
gemstone
mining
Creation of store
and product
brands
Jewellery design
& fabrication
Gold
mining
Platinum
mining
Ore processing
& scrap
recovery
Jewellery
retail
Recovery of
silver
High cost of financing

stock due to volatile
prices
Gold price bull run

High debt levels in
traditional centres
High and volatile

platinum prices
Technological
developments reducing
labour and skill intensity
Intense competition in
the export markets
Changing retail
channels
Competition from
other luxury items
increasing
Increasing consumer
sophistication
Aggressive marketing to
boost demand
Figure 78: Snapshot of key trends shaping the industry

Each scenario has been built by grouping events that are likely to occur
simultaneously, based on our assessment of the key driving forces behind them.
KPMG has identified eight scenarios that individually have the potential to alter
the face of the industry in the next decade. The analysis of each scenario
includes combining our industry knowledge with anecdotal evidence from
industry sources, followed by qualitative assessment and quantitative modelling
using industry data.
88
The key features have been identified
The factors that will drive the conversion of the scenario into reality have
been examined
Impact on the industry has been analysed and quantified.
In reality, these scenarios are unlikely to operate in isolation; they are likely to
interact with other industry trends giving rise to various outcomes. However, in
order to facillitate analysis of influencing factors as well as emergent outcomes,
each scenario has been analysed individually.
Subsequently, all the scenarios have been assumed to act simultaneously, and
the impact on the industry has been identified by predicting the shape and size of
the industry till 2015.
These trends are interdependent, combining to give various possible scenarios
Jewellery s
declining value
proposition
Bullion
trading
Changes impacting one segment of the gems and jewellery value chain are likely
to have a ripple effect across the industry, impacting players and segments
across the board. KPMG has identified several changes that are sweeping
through the value chain some with limited independent impact, but significant
when combined with other changes, and some strong enough to have
substantial impact on their own. Most of these trends are interconnected, and
often the intensity of impact increases as they feed off each other.
For instance, Local beneficiation in South Africa is a trend that has the potential
to change the industry on its own, with substantial social, economic, and political
impact on players across nations, and therefore, it has been analysed as an
independent scenario. On the other hand, a continuing increase in diamond rough
prices will put pressure on the diamond cutting and polishing players as their
inventory stocks pile up, and they are unable to pass on the price increase to the
jewellery fabricator. At the same time, it will also affect fabrication players, by
pushing the risk on to and increasing their cost of stock. This, combined with
intense competition in the export markets, and the resultant downward pressure
on polished diamond prices is likely to force consolidation in the industry. These
multiple trends across the value chain have, therefore, been combined under the
Consolidation in the industry scenario.
The decreasing market share of large diamond marketing companies and the
emergence of new mines and mining companies were interpreted and analysed
as decreasing dominance of centralised sourcing, while volatile platinum prices
and competition from other luxury goods were seen as the emergence of
substitutes in the market. The gold price bull run, excessive reliance on the U.S.
market, new substitutes fighting for consumers share of the wallet, and jewellery
losing its investment value were all ultimately seen as a part of jewellery losing attraction.
89
Scenario 1
Local beneficiation intensifies
The emergence of new centres - in retail, jewellery fabrication, cutting and
polishing of diamonds is expected to alter the geographic spread of this
industry again. While the emergence of new consumption centres is likely to
positively impact global jewellery sales, the emergence of new fabrication
centres is likely to have an economic and social impact on all nations involved.
As consumers in emerging markets like China and India become more
sophisticated, it is expected that jewellery retailing would become more
organised. Consumer demand for quality, hallmarking and certification would
gain importance, and one can expect greater penetration of branded goods with
new store and jewellery brands in these markets pushing up sales. Emergence
of alternative retail channels like the Internet, will also have a positive impact
on global jewellery sales.
These trends are interdependent and combine to give various possible scenarios
TRENDS IN SOURCING
TRENDS IN FABRICATION
Local beneficiation in African

countries
Shrinking margins
Steady supply of diamonds,

emergence of new mines, mining
company's
High cost of financing stock due to

volatile prices
Declining market share of DTC
Increasing rough pric es
High debt levels in traditional

centres
TRENDS IN RETAIL
Dominance of centralised
distribution decreases
Diamond value chain consolidates
Emergence of new gems and

jewellery centres
Intense competition in export markets
Competition and overcapacity in

traditional centres
Emerging consumption centres

linked with economic growth
Increasing consumer sophis tication
Competition from other luxury

items increasing
Technological developments
changing nature of industry to be
less labour skill-dependent
Accelerating fashion cycle
Stagnation in the U.S. worlds

largest market
High and vola tile platinum prices
Aggressive marketing to boost

demand
Jewellerys declining value

proposition
Gold price bull run
Consumer demand for quality, hallmarking gaining importance
Political instability in resource-ric h

countries
Creation of store and product brands
5 Synthetic diamonds enter the industry
Plain gold jewellery loses attraction
Jewellery retail organisesin

emerging markets
Changing retail channels

Increasing consumer
sophistication
Figure 79: Various trends combine to give rise to distinct outcomes or scenarios
90
1
Improvements in technology for
production of synthetic diamonds

procurement diffic ult
No Dirty Gold campaign and

Kimberley process
African countries are likely to see increasing political pressure to ensure more of
the countrys rough is polished within their respective borders. New cut and
polished diamond (CPD) centres will emerge as more sourcing companies are
expected to promote local beneficiation in return for discounted or preferential
access to rough from mining nations. However, we believe that local
beneficiation will be restricted to high-end rough, which will be able to absorb the
relatively high per labour costs within the boundaries of the producer nation.
Smaller stones are still expected to be polished in low-cost cutting centres like
India and China, and it is expected that both these nations will take proactive
steps in establishing direct links with mining countries bypassing sourcing
companies and rough traders in order to defend their local industry from
shortages of rough diamonds.
Beneficiation is not expected to take off in Canada and Russia mainly due to the
higher cost of labour and relative insignificance of the diamond processing
industry to the economy in these countries.
The case for local beneficiation
Israel and Belgium losing market

share
Diamond supply controlled by few

having high bargaining power
SCENARIOS
Local beneficiation compels a large percentage of diamond cutting to move

out of traditional processing centres
Emergence of gold-backed
investment funds
Jewellery loses share to other spend

8 attractors
Today, African countries produce over 60 per cent of the worlds rough in terms
of value and over 50 per cent in terms of volume. This dominance in the industry
gives these countries considerable bargaining power. Historically, these countries
were colonies of western nations, and as a result their natural reserves were
exploited mainly by foreign companies, and the benefits rarely passed on to the
local population. However, post independence with increasing political stability
and peace on the civil front, the scenario has changed dramatically and these
nations are now exerting political clout on various industries controlled by foreign
companies to promote local beneficiation and socio-economic development.
Unlike the economies of Russia, Canada, and Australia (the three diamondproducing majors outside the African continent) a majority of the African
diamond-producing countries are heavily dependent on their diamond exports,
which contribute a significant proportion to their GDP. Therefore, even a marginal
increase in their share of the global diamond pipeline is likely to have a significant
positive economic impact for these countries. By polishing the stones locally,
African economies will be able to corner the incremental margin associated with
diamond cutting and polishing.
The short and long-term social impact of beneficiation on African countries is also
difficult to ignore. The unemployment rate in South Africa was as high as 26 per
cent in 2005. In other diamond-producing nations, this is even higher, and
therefore, local beneficiation holds the promise of stable employment for the
people of these nations.
91
African countries disproportionate share of mining and processing
African
countries
4%
RoW
39%
Beneficiation is not expected to take off in Canada and Russia mainly due to the
higher cost of labour and relative insignificance of the diamond processing
industry to the economy in these countries.
African
Countries
61%
RoW 96%
The impact of local beneficiation
Global CPD output

(2005) USD 15 bn.
Figure 80: Africas share of diamond mining, by value and volume (2005)
Source: IDEX 2005 pipeline, KPMG analysis
Economic importance of diamonds to key mining countries
Unemployment
Rate
26.6%
23.8% (2004)
Namibia
13%
35% (1998)
Angola
12%
50% approximately
Not available
CPD centres in African countries is expected to generate employment
7%*
Not available
opportunities for the local populace. CPD centres in these countries will have a
20,000
2011-2015
2006-2010
15,000
8,910
10,000
4,773
10,709
5,000
To
a
ric
So
ut
Af
ib
N
am
ta
1,840
ia
o
ng
a
Bo
1,393
214
322
1,963
Co
1,308
5,128
1,221
1,457
An
African countries are likely to see increasing political pressure to ensure more of
the countrys rough is polished within their respective borders. New cut and
polished diamond (CPD) centres will emerge as more sourcing companies are
expected to promote local beneficiation in return for discounted or preferential
access to rough from mining nations. However, we believe that local
beneficiation will be restricted to high-end rough, which will be able to absorb the
relatively high per labour costs within the boundaries of the producer nation.
Incremental employment generation in African countries
an
The movement has the backing of a majority of stakeholders. Governments in

producer countries have expressed willingness to invest in training and
technology to support the industry and balance lack of skills. Large diamond
companies promoting the movement have already established training schools,
employing master-cutters from traditional centres like Antwerp and Israel to
impart skills to the local workforce.
significant share of good quality rough in their total rough allocation.
Figure 81: Minings contribution to GDP and unemployment rate in African countries
Source: OECD, IMF, DFID, EITI, CIA World Fact Book,KPMG research
ts
Congo, Democratic Republic
African countries marginal social and economic benefit: Establishment of
20%*
la
Sierra Leone
go
South Africa
Botswana
Contribution
to GDP
6.5%*
37.6%
18
Our analysis indicates that close to 10 per cent of the worlds rough, by value,
will be polished in African countries by 2015, as an outcome of local
beneficiation. Given the relatively higher labour cost (between USD 30 and 50 per
carat) in African countries, mining companies would allocate only gem quality
rough to these CPD centres (polishing near gem quality rough is unlikely to be
economical in the African countries). The best quality rough, however, is still
expected to go to Israel, Belgium, and the U.S. As shown in Figure 82, around
9,000 new jobs can be created in African countries in 2006-10, while another
11,000 could be added in 2011-15. China and India will still be the centres for
processing the cheaper quality rough.
No. of jobs
Global mining output

(2005) USD 12.7 bn.
Country
Country
Smaller stones are still expected to be polished in low-cost cutting centres like
India and China, and it is expected that both these nations will take proactive
steps in establishing direct links with mining countries bypassing sourcing
companies and rough traders in order to defend their local industry from
shortages of rough diamonds.
Figure 82: Expected number of new jobs created as a result of beneficiation

92
18
Note:
The figures marked with * show the total mining sector contribution to GDP.
93
While the African countries are expected to get some of the best quality rough,
their relative inexperience would imply that they will not be able to command a
high premium for the quality of cut. Also, their labour costs are expected to be
significantly higher than India and China. Taking this into consideration, it is
expected that only Angola, Namibia, and South Africa are likely to be profitable in
the short run. Congo is unlikely to be a profitable CPD centre as it is expected
that the quality of its rough will not be sufficiently high to cover its processing
costs.
As discussed earlier, our analysis indicates that around 9,000 and 11,000
incremental jobs are likely to be created on account of local beneficiation.
This is based on the assumption that not more than half of all the gem-quality
rough produced in these nations will be available for local CPD centres.
Key assumptions for estimating employment
generation and profitability assessment
A maximum of 50 per cent (by value) of all gem - quality

rough produced in a country to be beneficiated locally.
Productivity (carats/person) similar to existing polishing
centres in Africa.
Marginal improvements in productivity over the years.
labour cost per carat in line with existing centres.
Wages to rise in line with inflation.
Profitability of these new CPD centres not taken into
account.
Polished inventories are proportionate to the share of
global polished output.
Traditional centres substantial negative social impact: As larger rough will

start getting retained in the mining countries for polishing, most workers in Asia
(India and China) will be forced to work with only smaller stones and poor quality
rough. As a result, the productivity of a worker (measured as rough carats
polished per person) will decline.
Even though this reduction in rough and existing over-capacity will result in a
downward pressure on wages in traditional centres, a decrease in productivity
will imply that processing costs (USD per carat) will still rise. Consequently, the
margins in diamond cutting and polishing in these traditional centres will be
under additional pressure. A number of centres surviving on wafer-thin margins
will then have to close business, causing job losses in India and China.
However, even with 5 per cent of the worlds rough available for polishing,
Botswana is likely to generate only slightly more than 10,000 new jobs by 2015.
With a current population of 1.6 million and a current labour force of close to
300,000, the impact of these incremental jobs will be minimal. The impact will be
even lesser in Angola and South Africa, which will only be able to provide
employment to 2,700 and 3,200 new employees, respectively.
This analysis does not take into account the expected profitability of CPD centres
in these countries. The profitability of any CPD centre is a function of quality of
cut, quality of rough, and labour cost.
KPMG has analysed the impact on employment by examining the employment

capability of CPD centres over the years. Employment capability has been used
as a metric to calculate the ability of a CPD centre to employ people, taking in to
account breakeven cost of operations.
Decreasing employment capability
Profitability of some of the new CPD centres is suspect

No. of ppl/million oarats
18000
200
Profit = value of rough available * value addition % wage costs inventory costs
100
Quality of cut
Productivity,
cost per carat
USD Mn
Quality of rough
Defining employment capability
16665
China
16000
India
12775
14000
12000
11303
9503
10000
10569
8625
Employment capability
8000
6000
= (Value addition %) * Average price of rough * 10^6

Average wage rates
4000
2000
Employment capability has been defined as the number of

people a centre could employ per million carats of rough it
polishes, if it were to just break-even. In other words,
0
2005
Angola
-100
Namibia
-200
2005
2015
Figure 84: Maximum number of people the industry will be able to

employ profitably per million carats of rough
Botswana
Congo
Share of global
polished output
2010
South Africa
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Figure 83: Expected profitability of African CPD centres

94
95
Scenario 2
For India, this number will drop from over 11,000 today to 9,500 by 2010 and
close to 8,600 per million carats by 2015. Figure 84, shows the expected
changes in employment capabilities of these two markets over the years.
With close to 1 million people currently employed in this sector, it is estimated
that India may experience a loss of up to 200,000 jobs by 2015. China will also
experience this drop, as its employment capability will decrease from over
16,000 to 10,500 per million carat.
Key outcomes
The economic impact of local beneficiation is likely to be over-shadowed by the social impact the initiative will have on
countries on either side of the fence. Here is a summary of the key outcomes of this scenario:
9.4 per cent of the worlds rough diamonds are likely to be processed locally by mining countries.
Angola, Namibia, South Africa, and Botswana will emerge as profitable cutting and polishing centres. Congo will be
an unprofitable cutting and polishing centre.
Close to 20,000 jobs are expected to be created in African countries because of beneficiation.
Local beneficiation will have a greater negative impact on China than on India.
Processing costs in India and China will rise, and as a result margins will reduce.
India and China will experience job losses in the diamond cutting and polishing industry.
World average margin in CPD is expected to go down as workers in new countries take time to acquire skills.
Current dominance of centralised distribution of rough diamonds changes

in favour of alternative models
In the past, the long-winding global diamond pipeline lent itself easily to a selling
mechanism where a central body sourced diamond rough from multiple mines,
mixed and sorted them, and provided the required mix to customers. The control
of diamond sources in a few hands meant that the process made things easy for
most players and was efficient. Such a selling mechanism ensured a steady
supply of rough to diamond polishers and an assurance of consistent quality . It
also allowed polishers to orient their machines, infrastructure and people towards
polishing a particular type of rough and therefore, develop skills and acquire scale.
However, with the emergence of new diamond mining companies and the
discovery of new mines, the value added by such a mechanism has declined.
This is reflected in the performance of some of the large diamond marketing
companies, who have seen their share of the rough diamond sales reduce over
the past few years.
Centralised distribution, once the dominant channel of rough allocation will see a
decrease in its market share. During the same period, with the fragmentation of
supply of rough diamonds, independent traders will gain share of the diamond
rough pie. Diamond-processing countries are expected to set up special task
forces to form direct strategic alliances with diamond-mining countries, while
large diamond-mining companies explore the tender/auction route to maximise
gains as the fight for rough intensifies.
We believe that it is likely that local beneficiation will continue and gather steam over the next few years.
The fragmentation of supply
Likelihood of occurrence
Low
Mediu m
High
The last 20 years have seen the emergence of several diamond mining giants. At
the same time, large rough traders have established their presence across the
value chain. The discovery of two large deposits in Canada has reduced the
market share of South African countries, and more importantly lowered the
number of mines under the control of some of the traditional rough sellers.
Canada has become the most sought after destination for diamond exploration,
accounting for 50 per cent of the global exploration budgets, pointing towards
greater fragmentation of diamond rough supply in the future.
With the fragmentation of rough diamond supply sources, the ability of a group of
companies to control the price of diamonds has weakened - making the hoarding
of diamonds more expensive, thus forcing companies to deplete stockpiles.
Governments today are increasingly forming direct links with processing centres.
At the same time, a host of mining countries are looking at promoting and
building in-house cutting and polishing facilities, thus bypassing trading
companies.
96
97
With multiple supply sources coming up, and more and more mining companies
taking it upon themselves to sell their own rough, one can expect the traditional
dominance of centralised distribution to decline in the future.
The natural choice of the industry would be firstly to go by the prices set by
current rough selling companies, having no established standard for the same,
and taking those forward, to build logical indices.
DTCs declining market share over the years
Our analysis indicates that rough trading will become attractive. However, the
impact of this scenario needs to be analysed in the context of consolidation that
is likely at the demand side as well.
120%
DTC
Others
% market share
100%
80%
34%
32%
32%
Expected change in the structure of the rough sales segment

41% 43%
42%
45%
52%
52%
53%
60%
USD 13.2
bn.
100%
1.5%
USD 16.6
bn.
10.1%
40%
66%
68%
68%
58%
59%
57%
55%
20%
48%
47%
0%
56.6%
45.5%
37%
Direct selling
2001 2002 2003 2004 2005
Figure 85: DTCs share of total rough sourcing, in value terms

Source: Polished Prices (www.polishedprices.com)
40%
6.2%
7.7%
8%
20%
35.8%
36.3%
38%
2005
2010
2015
The emergence of new channels

As mining becomes more fragmented, the volume and value of rough sold
through the centralised distribution route is expected to drop significantly.
Consequently, rough diamond will have to be sourced by the polisher himself (by
appointing buyers who scout the world) or by independent polished traders for a
small fee (by sourcing from multiple mines). A higher percentage of rough,
therefore, is likely to be sold through the open market and through competitive
tenders which are more reflective of the demand side. We expect the company
sales and trade channel to gain at the expense of centralised distribution.
As a result of this change in channel split, rough prices are expected to fall, as
the margins in the trading and auction route are significantly lower than those in
centralised distribution.
It is also expected that as the industry becomes increasingly demand-driven
rather than supply-controlled, the need for independent objective indices for the
pricing of rough diamonds would emerge.
Trade
Figure 86: Channels share of total rough trade, in value terms

Expected increase in value addition in rough sales

3.0
USD 2.4 bn.

2.5
USD billion
There are likely to be more instances of companies which start off as a junior
and then sell its diamonds through its own network instead of opting for the preestablished sales network of one of the big players.
Non-Trade
0%
USD 1.9 bn.
98
18%
80%
48%
60%
1996 1997 1998 1999 2000
USD 20.1
bn.
2.0
USD 1.7 bn.
0.14
Non-Trade
0.11
Direct selling
Trade
0.03
1.5
1.84
1.54
1.0
1.34
0.5
0.33
0.40
0.49
2005
2010
2015
0.0
Figure 87: Value addition by different channels (USD billion)

99
Scenario 3
Diamond value chain
consolidates
Key outcomes
With the emergence of new mining companies, and the discovery of new mines, the foundations for a change in the
industry are already in place. KPMG believes that the likelihood of the occurrence of this scenario is high and would lead
to the following key outcomes:
The share of centralised distribution (by value) will reduce to around 45 per cent by 2010 and 37 per cent by 2015.
The rough sellings industry will become more susceptible to market forces as more mining companies go for the
tender/auction route.
Overall margin in rough selling will shrink as more trade is carried out through low-margin sales channels like traders,
brokers, and direct company sales.
The need to maximise value in the era of decreasing margins and a need to
increase ones span of influence drives consolidation in the diamond
industry
Diamond rough prices have shown significant appreciation over the last few
years. During the same period, polished diamond prices have not exhibited a
similar kind of growth. This has squeezed the margins in the intermediate stages
of the diamond pipeline, where players already operate on thin margins and have
a limited ability to absorb a rise in raw material prices or a drop in product selling
prices. For the purpose of analysing this scenario, it has been assumed that
rough prices will not fall sharply over the next couple of years.
Overcapacity is likely to increase in diamond cutting and polishing, as new
factories come up in China and factories in India continue to operate. Intense
competition will lower the price of polished diamonds even further.
Low
Mediu m
High
Working on wafer-thin margins, high rough prices, bloated inventory levels, and
in a tough financing environment, smaller players are likely to find it unprofitable
to operate. Cutting and polishing centres are likely to experience the maximum
pressure to reduce debt levels, clear inventory, lower their labour costs, reduce
their cost of capital, and consequently, improve their margins.
Under all these pressures, the industry will enter a consolidation phase and
instances of both vertical and horizontal integration are likely to be seen.
Consolidation has already started
The global gems and jewellery industry has already shown signs of consolidation
as the industry value chain is slowly collapsing into fewer segments and industry
players are merging, integrating, or even exiting the industry due to diminishing
margins and rising industry debt levels. Consolidation and integration in the
industry is of two types one is more of a proactive effort taken by large giants
to maximise their span of influence and enhance value addition by clubbing two
or more consecutive stages in the value chain, the other is more remedial in
nature, where the main driver is shrinking margins, which have reduced the
economic viability of the business.
Low demand growth at the retail end and rising prices of rough from the supply
end have in the last few years caused ripples across the value chain. Most of
which seem to impact the diamond polishing stage where it is estimated that
inventory worth USD 3.6 billion has built up over the last few years. Rising
industry debt levels (estimated to be approximately USD 10 billion) and
subsequent difficulty in obtaining financial support can be seen as precursors to
an impending shake-out.
100
101
A number of primary and secondary factors are influencing consolidation across the industry value chain
Forward and backward integration
Difficulty in
obtaining capital
Rising prices of
rough
Mining
Difficulty in
sourcing rough
Sourcing
Shrinking
margins
Over-capacity
and competition
Rough trade
This scenario is likely to have two distinct outcomes
Low demand
growth
Polished
trade
Processing
Jewellery
manufacture
Jewellery
retail
Inventory build
up
High pressure zones of the

value chain
To a large extent, forward integration has been driven by actions taken by

large upstream players who have compelled their customers (cutting and
polishing industry players) to further integrate into jewellery manufacturing,
thus exerting an impact further downstream to end consumer demand.
Backward integration has been witnessed only in small pockets either in the
form of sight holders acquiring stakes in mines or retail giants trying to
manufacture products domestically.
Reduction in the number of players
Figure 88: Factors causing consolidation; high-pressure zones in the diamond value chain
Reducing margins, piling up of inventories, and rising debt levels are forcing
smaller players to consolidate or exit. This trend will be most evident in the
diamond processing and jewellery fabrication sub segments.
IN FOCUS: Consolidation in the global steel industry19

The steel industry is a prime example of the effects of global consolidation.Traditionally, the global steel industry has
been highly fragmented with 95 players producing more than 2 million tonnes of steel per annum and the top player
producing only 5 per cent of the total world production.
In the last few years, the industry has seen several steps towards increased consolidation. Within a span of five years,
the industry landscape has changed considerably with the emergence of large consolidated entities at the regional and
global level. Today, the top 10 companies occupy around 26 per cent of the global production pie.
Main factors driving consolidation:
Market share of the top 10
producers (2006)
5%
4%
2006: Top 10 producers

account for 26.6 per cent
of the global production
Mittal
3%
3%
3%
2%
2%
2%
2%
Arcelor
Privatisation: More and more state-owned

companies become privately owned.
Shareholder pressures to maximise return on

capital.
Advantages of scale in raw material sourcing

and servicing large customers.
Nippon
The evidence of consolidation across the value chain is already visible, forwardlooking players have realised the benefit of straddling the chain. For example,
there are instances of cutting and polishing players as well as rough trading
companies having obtained mining licenses and/or equity stakes in mining
companies in Canada, Russia, and Sierra Leone.
Forward and backward integration is also occurring at the other end of the chain,
with jewellery retailers setting up their own manufacturing unit and processing
rough on their own. This part of the chain has also seen players from the
jewellery fabrication segment expand into jewellery retailing.
Integration across the value chain
Miners forward integrating into processing
Posco
JFE
Baosteel
US Steel
2%
Mining, processing
Polished
trade
Jewellery
fabrication
Jewellery
retail
Additional value realized
Corus
Riva
Nucor
72%
Others
The global steel industry is expected to

consolidate further over the next several years.
Processing centers forward integrating into jewellery manufacture and retail
Mining
Figure 89: Market share of the top 10 producers in the global steel industry.
Source: WR International -Overview of Global Steel Industry,2006, Salman Anwar ,
Mittal Steel web site (www.arcelormittal.com)
19
102
Source:
WR International -Overview of Global Steel Industry,2006, Salman
Anwar , Mittal Steel web site (www.arcelormittal.com)
Sourcing
Rough
trading
Processing, jewellery fabrication and retailing
Additional value realized
Figure 90: New emerging business models along the value chain
103
Inventory build-up will result in the industrys financial health deteriorating from barely positive margins to negative
margins by 2015 20
3000
1500
Israel
China
India
South Africa
0
-11.00
-5.00
1.00
7.00
Russia, US
Margin, USD million
Large diamond-processing houses are forward integrating into jewellery

fabrication, and in a large number of cases, further into jewellery retail. This trend
is more evident in the case of players belonging to countries that already have an
established jewellery-fabrication industry and growing domestic demand like
India and China. There are also a few players that have established presence at
the two ends of the value chain mining and retailing.
Margins, USD million
3000
1500
Israel
South Africa
-11.00
-1500
ROCE = Margin / Capital employed

Capital employed = Receivables +
Inventory + Capital invested in fixed
assets
The processing centre stage of the industry today is balanced precariously it

works on very thin margins and is already operating under high debt levels.
These centres are expected to continue building up polished inventory in light of
rising rough prices and slower-than-expected offtake. If the industry continues to
operate in a similar manner, we believe it will start destroying value post 2007
because of extremely high inventory levels. Quantitative simulation shows that if
this is the only force acting on the industry, inventory levels would build up to
extremely high levels, as shown in Figure 91.
Figure 92 and Figure 93 represent the state of the industry in 2005 and in 2015
as well, where the size of the bubble is representative of the value of CPD
output of that particular country. As is evident from Figure 92, the CPD industry
in most markets works on small margins and employs significant capital. A
continuation of the current trend will see the two key centres, India and China,
move into negative margins by 2015.
However, it is unlikely that industry dynamics will allow this to continue
uninterrupted, and we believe consolidation will emerge as the most likely solution
as well as the outcome, as some players merge and others go out of business.
Build-up of polished inventory and breakdown levels
Actual inventory levels
20
Sustainable inventory levels
Value destruction zone
USD billion
16
-3000
-5.00
1.00
Russia,US
7.00
China
-1500
Consolidation is inevitable
Value creation = (ROCE - Cost of
capital) x Capital employed
India
Capital Employed, USD billion
Figure 92: State of the industry, 2005 with no consolidation

-3000
Figure 93: State of the industry, 2015 with no consolidation

Consolidation will improve the state of the industry

Assuming that the industry takes corrective action and consolidation activities
start increasing post-2008, benefits should be evident almost immediately. While
the industry will still go through a period of value destruction, over time it is
expected to lower its wage costs, negotiate a better rough price, lower its cost
of capital, and remove some debt from its balance sheet. Figure 94, shows how
the post consolidation industry will be able to sustain greater inventory levels
without destroying value. At the same time, it will be able to reduce its actual
polished inventory. All this, without taking into consideration an improved
demand scenario for diamond jewellery.
Figure 95 shows the end-state of the industry (2015) under this consolidation
scenario. It is evident that all markets will be able to sustain positive margins.
Naturally, India and China will be the two markets that will profit the most from
consolidation in the CPD segment, as most of the worlds rough will still be
polished in these countries. Although the capital employed in each of these
markets will rise from 2005, it will be lower than that in the case of no
consolidation and will be on a downward slope, as centres will reduce polished
inventory even further over time.
12
As a natural outcome of this scenario, we expect CPD players to discount

polished prices to clear huge stocks of polished inventory. This will, in turn, lower
the value addition in CPD temporarily.
0
2005
2006
2007
2008
2009
2010
2011 2012
2013
2014
2015
Figure 91: Global polished inventory levels before consolidation, USD billion
104
20
Note:
Size of bubble represents CPD output
105
Build-up of polished inventory and breakdown levels
Key outcomes
16
Mounting pressure will force the diamond industry to consolidate in order to survive. Key outcomes of such a scenario
are given below:
Consolidation Zone
USD billion
12
4
Actual inventory levels
Sustainable inventory levels
Polished inventory levels will become unsustainable by 2008.
This combined with decreasing margins will force the diamond industry to consolidate. This consolidation will have
the maximum impact on diamond processing. Smaller players will be acquired or will go out of business.
Industry will reduce its debt levels, lower its labour costs, and its cost of capital, post-consolidation. These
improvements will allow it to carry much more inventory without destroying value.
Several CPD players will enter jewellery manufacturing.
CPD players will discount polished prices in a bid to clear inventory.
0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Figure 94: Global polished inventory levels post -consolidation, USD billion.
2015
Low
Industry financial health post-consolidation, in 2015
Mediu m
High
Margins, USD million
3000
1500
India
China
Israel
South Africa
0
(11.00)
(5.00)
Russia, 1.00
US
7.00
-1500
-3000
Figure 95: State of the industry, 2015, post consolidation

106
107
Scenario 4
jewellery centres
Traditional centres give way to emergence of new centres
Tomorrows markets China and India

China & India
17%
For years, the global jewellery map has remained almost static with a handful of
countries dominating the scene at various stages in the value chain. However, in
line with other industries, with increasing globalisation, the gems and jewellery
industry too is moving towards greater geographical dispersion aimed at
capturing either economies of scale or targeting emerging markets. And as this
trend takes off in a big way, the industry map is expected to change
considerably.
Accelerating economic growth and rising income levels in India and China are
likely to translate into higher spend on jewellery, thus establishing these markets
at par with the U.S. retail market. Rising domestic consumption in India and
China, available factor conditions for production, as well as supportive
government legislation will also see the emergence of these countries as
jewellery fabrication centers. Turkey is expected to be another major jewellery
fabrication player, as it cannibalises Italys share of the global market.
Changes are expected in the diamond pipeline too, as India is likely to position
itself as a major hub for polished diamond trading, mainly leveraging its position
as the worlds largest CPD producing nation. Diamond rough trading is expected
to make a dramatic move eastwards towards India and Dubai, while London
further loses significance as the worlds major diamond hub due to DTCs
declining share of existing incumbents and the growing share of Asian countries
in jewellery fabrication and retail. Meanwhile, China is expected to strengthen its
position as the worlds second largest diamond cutting and polishing centre after
India, riding mainly on the advantage of cheaper, highly productive skilled labour
and supportive regulatory environment.
Geographical shift in the industry centres
Traditionally, the global jewellery retail market has been dominated by the U.S.,
with none of the other countries individually accounting for more than 10 per
cent of global sales. Similarly, jewellery fabrication has been dominated by Italy
and the U.S., and to a lesser extent by India. And while India, Belgium, and Israel
have accounted for most of the worlds polishing of rough diamonds, Europe has
been the epicentre of diamond trade for quite some time. KPMG analysis
indicates that these traditional centres will fade in favour of new centres.
108
RoW
83 %
2005 Global jewellery sales =

USD 146 billion
Figure 96: Share of global jewellery sales,
USD billion
Emerging centres of fabrication Turkey,

China, and India
Turkey, China and
India
31 %
RoW
69%
2005 Global jewellery sales =

USD 146 billion
Figure 97: Share of global usage of gold for
jewellery fabrication, tonnes
Source: KPMG analysis, GFMS Gold Survey 2006
Consumerism in India and China

With consumerism taking off in the last few years in both India and China, the
impact is visible on jewellery sales in these markets. Traditionally, strong
jewellery markets, India and China together have grown at a CAGR of 9.6 per
cent over the last five years, while global jewellery sales have grown at a CAGR
of 5.3 per cent over the same period.
As income levels rise further in these two countries, jewellery consumption is
also expected to rise and so is their share of global jewellery sales. As shown in
Figure 96, their combined share of global jewellery sales was estimated to be 17
per cent. This market share is expected to increase, and it is estimated that by
2015, together they will rival the U.S. as the leading jewellery retail market in the
world. During the same period, the dominance of some of the current centers of
jewellery retail, like Japan and Italy, is expected to diminish. It is estimated that
Japans share of the global jewellery sales has fallen from 10.3 per cent in 2000
to 8.3 per cent in 2005. This trend is expected to continue.
Low cost jewellery fabrication taking hold
Further up the value chain, jewellery fabrication, an art restricted to small
segments in select countries and dominated by traditional centres like Italy is
undergoing tremendous change with the emergence of new players and the
slow exit of existing ones. India has emerged as one of the largest jewellerymanufacturing countries in the world (particularly gold jewellery) due to the
advantage of low cost skilled labour. Indias annual jewellery exports exceed
USD 4 billion in 2005. At the same time Turkey, one of the oldest jewellery
markets has also capitalised on the export scenario by developing into a key
jewellery fabricating country. Turkeys exports of jewellery by September 2005
stood at USD 772 million, a 17 per cent increase over the previous year.
In 2005, India, China, and Turkey accounted for about 31 per cent of the global
usage of gold for jewellery fabrication.
China, India, and Turkey are likely to be the manufacturing centres of the future.
They have steadily been increasing their share over the last few years. This trend
is likely to accelerate as more fabrication units move to low-cost locations.
Primarily for cost reasons, Italy, which was the largest manufacturer of jewellery
for many decades, has started losing out to manufacturing destinations like India,
Mainland China, and Turkey (for gold jewellery). Today, Italy's jewellery exports
are on a rapid decline (almost to the tune of -10 per cent).
109
Changing face of the diamond trade
Diamond polishing becomes more fragmented
The dominance of large diamond marketing companies has decreased over the
years, and as a result diamond trade has moved out of traditional centres like
London and Antwerp and is heading eastwards towards Dubai, China, and India.
As discussed in the Scenario-1, diamond polishing is also expected to see the

emergence of new centres. While India, the U.S., Belgium, and Israel will lose
their market share (in value terms), African countries like Angola, and Namibia are
expected to gain. China is expected to be a net gainer after experiencing the
negative pressure of beneficiation and the positive impetus of higher labour
productivity and a conducive regulatory environment. It will, therefore, more than
double its share of the value of rough diamonds over the next decade.
For instance, a number of industrial bodies have been working hard to establish
their respective countries as trading hubs. The Gem and Jewellery Export
Promotion Council of India aims at making India a major trading hub for gems and
jewellery. It has embarked on a number of initiatives like setting up research,
training and development facilities, bringing about reforms on the tax and
regulatory front, and establishing Special Economic Zones (SEZs) for jewellery
trade.
Rough allocation to countries changes

South
Africa
4%
600
510
474
412
Tonnes
400
324
China
10%
US
1%
Angola
3%
Belgium Botswana
5%
1%
Russia
7%
Namibia
2%
Israel
4%
Israel
15%
China
22%
India
50%
India
57%
Global diamond rough for cutting and

polishing(2005) USD 14.9 billion
Global diamond rough for cutting and

polishing(2015) USD 17.7 billion
Figure 99: Share of rough allocated to countries, by value and volume

Key outcomes
The gems and jewellery value chain is expected to witness several geographical changes over the next few years.
Changes are expected in each segment of the value chain. The key outcomes of this scenario are given below:
Italys decreasing demand for gold for fabrication
500
Belgium
3%
Russia
7%
Dubai, located close to Africa, Europe, and India, has emerged as a major centre
for the trade of rough diamonds, taking over from traditional centres like Antwerp
and Israel. Besides the clear tax advantages, Dubai has another strong advantage
it allows profitable companies to quickly build their equity, something which the
business environment in Antwerp, wrought with legislation on various grounds,
does not permit. In 2005, Dubai recorded total rough diamond exports of USD
3.7 billion, a 46.3 per cent jump over the previous year (USD 2.6 billion; 2004).
In recent years, China too has created a position for itself in the diamond
polishing industry. The Shanghai Diamond Exchange is one of the newest
members of the World Federation of Diamond Bourses and diamond exports
from China in 2005 (January to November) are estimated to be over USD 1.2
billion.
US
4%
South
Africa
5%
305
300
275
Emergence of China and India as new focus markets for jewellery sales.
Establishment of India, China, and Turkey as the new manufacturing hubs for jewellery.
Dubai to be the new rough trading hub, while China and India will emerge as new centers for polished diamond trading.
China to increase its share of diamond cutting and polishing, and new CPD centres start getting established in
African countries.
200
100
Low
0
2000
2001
2002
2003
2004
Mediu m
High
2005
Figure 98: Usage of gold for jewellery fabrication, tonnes (2000 - 2005)
110
111
Scenario 5
Synthetic diamonds enter the
industry
Synthetic or lab-made diamonds erode a significant share of natural
diamonds going forward
IN FOCUS: The Hongkong and China dual advantages21

Synergy between the Hong Kong - Mainland China manufacturing industry
Favorable economic
environment
Legacy
Historical export-orientation of
precious jewellery industry
HK and Chinese diaspora
network in key markets,
particularly in the U.S.
Laissez faire economy seat of

Asian capitalism
Business freedom
Identification of niches
Developing capabilities in niches
Gradual brand building through
sustained quality of produce
Extrapolation of brand to other
products
Prominence on the
international scene
Trading and dis tribution centre
Touris t destina tion
The cost advantage
Other advantages
Access to cost-competitive
manufacturing bases in
mainland China
Supported by the overarching
ambition of current Chinese
administration to dominate
world trade
Structured support from trade

development bodies
Opportunity to experim ent
easy access to one of the most
promising jewellery markets
As with many of Hong Kong's manufacturing industries, a large percentage of jewellery manufacturing is moving to Mainland China.
60 per cent of Hong Kongs total exports are manufactured in

Mainland China (2005 data)
in October 2005 to further liberalise
Synthetic diamonds, currently, struggling to gain acceptance in the industry, are

expected to cross that barrier through aggressive marketing by producers,
increasing consumer awareness, and changing consumer attitudes. Being priced
significantly below natural diamonds, synthetic diamonds will start establishing a
value proposition primarily on the basis of price differential and are expected to
make greater in-roads into the natural diamonds market.
What are synthetic diamonds?
Figure 100: Advantages of the economic relations between China and Hong Kong
The Mainland and Hong Kong agreed
The emergence of synthetic diamonds as a commercially viable alternative has

posed a new challenge for the worlds diamond industry. This scenario assumes
that as the prices for rough natural diamonds continue their upward journey, large
ripples will be created in the downstream pipeline, affecting margins at the
processing stage and prices at the retail end. It is expected that consumer
demand for diamond jewellery at low price points will pick up as jewellery for
fashion and adornment gains precedence over jewellery for traditional investment
purposes in the growing markets.
Synthetic, artificial or cultured diamonds are laboratory-created diamonds that have

the same chemical, optical, and physical characteristics as mined diamonds. The
two are indistinguishable to the naked eye.
Although synthetic diamonds for industrial purposes have now been produced
for quite a few years, it is only recently that technology has progressed to a
level where it is possible to produce gem-quality colourless or near-colourless
diamonds that are big enough to cut and polish for use in studded jewellery.
the mainland market for Hong Kong

companies under the third phase of the
The threat of synthetic diamonds
Hong Kong
Mainland and Hong Kong Closer
Mainland China
40%
Economic Partnership Arrangement

(CEPA III). Along with other products
60%
of Hong Kong origin, the Mainland
The issue of synthetic or lab-made diamonds poses a double threat to the

existing natural diamond industry by:
Substitution of natural diamonds with relatively cheaper lab-made diamonds and

potential errosion of customer confidence on account of inability to differntiate
between natural and synthetic diamonds.
Changing consumer preferences, resulting in synthetic diamonds legitimately

taking over a sizeable share of the market.
agreed to give all products of Hong

Kong origin, including jewellery,
tariff-free treatment starting from
January 1, 2006.
Figure 101: Manufacturing locations for Hong Kongs exports (2005)
Source: Hong Kong Trade Development Counsil
- Hong Kong Trade Development

Council
112
21
Source:
Hong Kong Trade Development Council, KPMG interviews
While the outcome of the first threat would depend on the custodians of both
industries and the trade as well, it is the second that has shaken up the industry.
113
Threa t of
substitution
and
deception
impacting
consumer
confidence
SYNTHETIC
DIAMONDS
Dual threat to
the natural
diamond
industry
Threa t of
changing
consumer
preference
Strong value proposition: The process of manufacturing synthetic stones

provides the freedom to create stones of various colours and sizes, enabling
designers to create jewellery that would have been impossible or prohibitively
expensive with mined diamonds. This, combined with the competitive pricing
of synthetic diamonds, is expected to present a strong value proposition to
customers across the globe.
Jewellery at low price points is popular in markets like the U.S.
Figure 102: Synthetic diamonds double threat to the natural diamond industry
Majority of the purchases

made in the <100 USD
category
400
Industry views
S
S
If companies produce what nature does not, it benefits the industry the
most. Leading diamond industry focused bank
There will be initial upheaval. This will be followed by awareness

programmes, proactive action on the part of the industry. Will
work the same way as it did for pearls. Diamond mining major
The intrinsic value of a diamond is critical to the consumer. Secondly,

retailers will not accept it - will not stock the stones as it would 'hit his
reputation. Diamond mining major
The precise time when synthetics will enter would depend on the
producer marketing strategy. Market for real and cultured diamonds
are different. However, natural diamonds will always have a premium
price. Rough diamond broker
Synthetics and natural diamonds can exist in harmony provided there is

transparency in the industry - synthetics are not being sold as real - see
the case of cultured pearls. Industry analyst
Artificial diamonds not expected to come in a big way unless a big

leap in technology happens. Also they are expensive to manufacture.
An international diamond grading and certification institute
Source: Interviews
Factors enabling synthetic diamond penetration

Even in the face of stiff opposition from the existing diamond industry, there are
several factors that are working in favour of increased penetration by synthetic
Number of purchases
350
2005
300
250
200
150
100
50
0
100$ or less
101 - 200$
201 - 300$
301 - 400$
401 - 500$
> 500$
Figure 103: Number of jewellery purchases under various price bands (US, 2005)
Source: Jewellery Consumers Opinion Council (JCOC)
In addition, increasing awareness about issues like conflict diamonds could lead
to the socially conscious consumer to select synthetic diamonds over mined
diamonds as in the case of cultured pearls.
Changing consumer attributes: An inclination towards diamond jewellery
bought for fashion/ adornment over that bought for its intrinsic value could
potentially open opportunities for synthetic stones. Competition from other
discretionary spend attractors like electronics could reduce the jeweller's
share of pocket, making jewellery demand more price sensitive, and therefore,
giving a boost to synthetics that offer quality at a lower price.
Gaining industry acceptance: Despite stiff opposition, synthetic stones are
gradually gaining acceptance as a legitimate part of the gems and jewellery
industry. Synthetic stones are now identified and accepted by the Gemological
Institute of America.
The synthetic stones processing industry has also started actively promoting
synthetic stones in jewellery. This trend could gather steam as this part of
the industry consolidates further and diamond-processing companies forward
integrate into jewellery fabrication.
diamonds.
114
115
Scenario 6
Plain gold jewellery loses
attraction
Projected share of the diamond pie for
synthetic diamonds at the wholesale
level, 2015
Synthetic
7%
Natural
93%
Figure 104: Projected sale of synthetic and natural
diamonds at wholesale
Synthetics coming of age
Demand for plain gold jewellery declines
Over the next decade, as technology improves further, we expect synthetic

diamonds to cannibalise a small portion of the existing market for natural
diamonds while simultaneously creating a market for itself by 2015. At the
wholesale level, synthetic diamonds are likely to account for slightly less than 7
per cent of the market. KPMG has estimated the current value of synthetics at
wholesale to be close to 50 million, and expects the market to grow at a CAGR
of 45 per cent over the next 10 years.
Gold has been a dominant vehicle of investment in many markets for long,
investment in gold used to be in the form of bullion (coins and bars) as well as
jewellery. However, the future of the metal for use in jewellery is in question
under the combined effect of rising prices, increasing variety of financial
products, and growing consumer sophistication.
Synthetic diamonds are expected to make greater in-roads in under-developed

and developed economies largely because of their price advantage. Social and
fashion-conscious consumers are expected to drive the growth of synthetics in
developed economies.
Given the current situation, we expect the sale of synthetic diamond jewellery to
cross USD 2 billion by 2015 at wholesale. This is equivalent to approximately USD
6 billion worth of natural diamond jewellery sales. Synthetics, however, have a
huge potential to tap into price sensitive markets like India and China and the size
of the market could increase manifold if it is able to bring in new consumers (at low
price points).
Key outcomes
The threat from synthetic diamonds is real and cannot be ignored. However, the intensity of impact on the industry
is dependent on the aggressiveness of synthetic diamond players and their ability to come up with a comprehensive
market-penetration strategy for individual markets. we expect that:
synthetic diamonds will emerge as real competition to natural diamonds.
synthetic diamonds will gain acceptability both in the consumer market and the trade.
these diamonds will target studded jewellery buyers at lower price points.
synthetics will have sales of close to USD 2 billion at wholesale price by 2015, and will eat into approximately
USD 6 billion of natural diamond jewellery sales at the retail level.
Going forward, availability of gold based financial products, which mirror actual
investment in gold, could potentially eat into investment based purchases of gold
jewellery. In addition to this competition from other base metals like palladium
could also exert downward pressure.
For instance palladium could eat into the retail sales of white gold and platinum
jewellery, thus negatively affecting the amount of gold used in jewellery
fabrication.
Gold jewellery investment demand in question
In a number of markets, one of the primary reasons for plain gold jewellery
purchase is investment. Also, historically, gold has maintained its value an
instrument for investment, being a physical asset, second only to real estate.
However, with gold prices rising exponentially in the last couple of years,
consumers are no longer certain of the ability of prices to stay high and hence
the future investment based demand for gold jewellery is under threat.
Where is the investment demand for gold headed?
40%
30%
20%
10%
0%
-10%
-20%
Low
Mediu m
High
70
19
72 974 976 978 980 982 984 986 988 990 92 994 996 98 00 02 04
1
1
1
1
1
19
1
1
1
1
1
1
19
19 20 20 20
Figure 105: Historical five-year return on gold

Source: World Gold Council, KPMG analysis
116
117
Figure 105, shows the five-year returns on gold over the last 30 years. It is evident
that returns are again on the rise; however, the more the prices rise, the greater
the concern over the chances of super-normal returns on investment in gold.
That need has already been met by purchase of plain gold jewellery, however,
there is a new threat on the horizon these days gold-backed investment products.
The simplest of these products are gold bars and coins. Worldwide, typical making
charges for plain gold jewellery range between 10 and 50 per cent. A consumer
looking at purchasing gold purely for investment is likely to consider investing in
gold bars and coins which appreciate in line with market prices, if a strong
secondary market develops. In addtion to these, financial institutions have now
started offering gold labelled financial products. Sophisticated consumers are likely
to opt for gold-backed investment products that have none of the transaction
costs, and do not require the handling effort associated with physical gold.
Such gold-backed investment products are likely to achieve greater penetration in
developed markets, relatively lower in developing markets and lowest in underdeveloped economies. That this trend is catching up is evident from Figure 106,
which shows that an estimated additional 200 tonnes of gold was consumed as
backing for Exchange-Traded Funds (ETFs), in 2005.
IN FOCUS: Rise of gold ETFs23

Gold ETFs are a recent endeavour of a few nations, who through this system have made it possible to replace the trading,
buying, and selling of real physical gold, with certificates backed by gold. These ETFs or gold-linked shares are traded on
large bourses like NYSE, American Stock Exchange and the like. Gold ETFs, in essence, make gold trade similar to that of
other commodities except that these shares are backed by real gold, usually in the form of stored 400 oz London Gold
Delivery bars.
This system has made it possible for investors to participate in the gold bullion market without physically purchasing
the metal in various forms. Trading has become more convenient as it is carried out under the aegis of a regulated
stock exchange. ETFs have supposedly lowered several barriers to investing in gold such as access, custody,
transaction costs, etc., which have previously discouraged investors.
At the end of 2005, there were five active gold ETFs and two other similarly structured products. The overall holdings
of these instruments grew by 203 tonnes in 2005. The WGC-backed, NYSE listed streetTRACKS Gold Shares (GLD) is
so far the most successful gold ETF with total holdings pegged at 263 tonnes at the end of 2005.
Though the market for ETFs has been growing in the last couple of years, there is still much dispute on whether ETFs
can adequately substitute investment in and physical acquisition of real gold, largely because of the following reasons:
Ability to track and keep in line with underlying asset price: Some analysts have argued that real gold has its
own unique supply-and-demand profile that is independent from that of the ETF supply-and-demand dynamics.
Additional costs: Gold ETFs are subject to the added costs of broker fees for buying as well as selling and the
possibility of additional taxes, which are not applicable in the acquisition of real gold.
Demand of gold for investment purposes

10000
9000
ETFs and similar products
8000
2907
USD million
7000
1745
5000
386
4000
3000
460
298
527
1721
1497
3,263
3824
2003
2004
Figure 106: Global gold investment demand, tonnes22

Source: World Gold Council, GFMS
22
GBS (LSE)
17%
GLD (JSE)
1%
GTU (TSE)
1%
GOLD (ASX)
3%
IAU (AMEX)
5%
GLD (NYSE)
66%
2078
118
Bar hoarding
CEF (TSX)
7%
1246
2000
1000
Medals/imitation coin
Official coin
6000
GLD dominates gold ETFs
2005 figures are provisional (p)
2005p
Total assets under management (2005) 8,565,265 oz

Figure 107: Volume share of total gold under ETF management
Source: World Gold Council
23 Source :
GFMS Gold Survey, 2006, World Gold Council, Gold Price (www.goldprice.org),
ICICI Direct (www.icicidirect.com)
119
Gold is not the white metal

The increasing proportion of white metal jewellery sales in total jewellery purchases
is reflective of the increasing popularity of certain new metals over the last few
years. Plain platinum jewellery sales are estimated to have grown at a CAGR of
4.4 per cent (2000-2005). Markets like France and North America have witnessed an
increase in the demand for silver. At the same time, China and India witnessed a
spurt in demand for silver, logging growth rates of 20.0 and 8.5 per cent, respectively,
and in Italy and Germany, steel jewellery found takers.
Industry views
Although, gold fought back through white gold (rhodium-coated gold), it faced
stiff competition from the pure white metal platinum.
While most of the platinum consumption for jewellery was in China, platinum did
make its presence felt in large jewellery markets like the U.S. and Japan.
Golds declining share of the market due

to competition from palladium and goldbacked investment products
The emergence of palladium is likely to accelerate the move away from gold.
Palladium is cheaper than both platinum and gold (at current prices), it is white,
lighter than gold and platinum (38 per cent and 44 per cent, respectively) and is
malleable and ductile enough to be converted into jewellery. In addition, it has
solicited a good response in traditional platinum jewellery markets in recent
years.
Gold jewellery will suffer under the dual impact
100%
90%
5.0%
0.3 %
6 .2%
4.8%
2.1%
6 .4%
41.5%
41.2%
80%
70%
6 0%
4.8%
5.7%
6 .9%
3 7.7%
50%
Plain gold jewellery demand will suffer as a result of the penetration of gold-backed
investment products and other metals like palladium. While the former will draw
away consumers whose primary reason for gold jewellery purchase is investment,
palladium will pull the more fashion-conscious consumer.
40%
3 0%
20%
47.1%
45.5%
45.0%
10%
0%
2005
Diamond Jewellery
Plain Palladium
2010
Plain Gold
Others
There is no future for gold jewellery though diamonds will survive. Gold
will cross the USD 700 mark. Industry analyst
S
S
Gold consumption will reduce. It will be replaced with a higher consumption

of diamonds. Industry player
In emerging markets like India and China although total offtake of gold for
jewellery is seen to be increasing, per capita consumption is decreasing.
More buyers are entering the segment. In that case, demand will continue.
Industry analyst
The price factor, coupled with the threat posed by other luxury
goods/services, could spell trouble for the industry. Industry player
Source: KPMG interviews
Key outcomes
While the jury is still out on whether ETFs will be able to corner most of the investment demand for gold, there is very
little uncertainty about the emergence of palladium as the white metal of choice. Both these trends will have a negative
impact on the demand for plain gold jewellery. It is expected that
Gold-backed investment products and palladium will cause plain gold jewellerys market share to shrink by
almost four percentage points by 2015.
Palladium jewellery is expected to increase its share of the market to 5.7 per cent over the next 10 years.
The absolute value of gold required for jewellery fabrication will still rise with the increase in overall global jewellery
demand and rising gold prices.
2015
Plain Platinum
Figure 108: Changing share of global jewellery

sales under a declining gold jewellery demand
scenario
120
If these trends are realised, we estimate plain gold jewellerys share of the
total jewellery sales to decrease from 41.5 per cent today to less than
38 per cent by 2015.
S
S
During the same period, we expect palladiums share to grow from a miniscule
0.3 per cent at present to 5.7 per cent by 2015.
Low
Mediu m
High
121
Scenario 7
Jewellery retail organises in
emerging markets
Jewellery retailing becomes organised in key emerging markets like India
and China
The retail industry in India and Chine is on a growth track..
India and China are two of the fastest-growing economies, most populous
countries and hence, the largest emerging markets for a number of consumer
goods.
45
The Indian retail industry, growing at a CAGR of 9.2 per cent was pegged at
USD 200 billion in 200524.
30
The Chinese retail industry, growing at a rate of 6.1 per cent, is expected to
reach USD 725 billion by 200724.
Retail growth spurred by growing incomes and changing consumer preferences, has
had an impact on the structure of retail in both countries. In recent years, the retail
landscape in both nations has been subject to large - scale transformation with the
emergence of malls, supermarkets and hypermarkets, e-commerce and other
modern formats of organised retail. Clearly, this is only the beginning. Organised
retail (forming 17 per cent and 2.5 per cent in China and India, respectively) is
expected to gather momentum in the years to come. Naturally, this would have
several implications for the jewellery retail industry in these countries.
Organised retail in India and China is comparatively low
2.5
India
20
P o land
ndo nes ia
30
Brazil
35
Thailand
40
Malays ia
55
Taiwan
75
0
20
40
60
80
% Organized Retail
Figure 109: Comparative penetration of Organised retail (modern format retailing as a percentage
of total retailing)
Source: Jumbo Retail Organised retail in India gets hyper, May 2005, HSBC Global Research,
122
24
% Growth
30.3
25
21.4
20
15
9.7
10
5
30.5
Top 5 Retailers
20.9
19.2
13.2
13.2
6.1
9.2
6.8
10
11.1
0.9
0
Japan
China
India
Thailand
Singapore
Figure 110: Retail growth across Asian countries

Source: KPMG FICCI Report on the Indian Retail Industry, 2005
Factors influencing penetration of organised retail

Increased organised penetration and consolidation will be an outcome of the
interplay between a number of factors.
Alternative retail market exceptional demand forecasts : The retail market
for jewellery in India and China is currently valued at USD 12.2 and 13.1 billion,
respectively.
Likely influx of overseas players in the retail arena : This high demand growth
will attract multinational retail chains and brands, who will bring with them modern
business practices, further fuelling this trend. Currently, the duty structures in
both countries discourage import of jewellery and try to protect domestic producers.
However, many jewellery majors may evaluate joint ventures as an option for
entry. Easing of trade restrictions due to international pressure is also likely.
17
China
Largest Retailer
35
Growing disposable incomes, increasing organised retail penetration, influx of

overseas retailers, growing urbanisation and development of the hinterland have
made the Chinese and Indian markets for jewellery one of the fastest-growing
markets in the world, with latent potential for all forms of jewellery products.
Retail Industry
39.4
40
Source:
KPMG- FICCI report: Indian retail on the fast track
Increasing consumer sophistication : Increasing consumer sophistication

brought about by increased income, education, and a greater exposure to consumer
products at various levels will bring with it demand for superior quality and finish,
hallmarking, and certification of jewellery and stones. Another factor driving
change in a big way will be the desire of the consumer for a heightened retail
experience when purchasing something precious like jewellery.
Rampant Brand Rage : Increased preference for branded jewellery is another
offshoot of the growing consumer sophistication. For example, the branded
jewellery market in India is expected to touch USD 2.28 billion by 2010.25
25
Source:
KPMG - IBEF report on the gems and jewellery industry
123
Technology-induced change : E-retail has given rise to the possibility of making

virtual purchases from anywhere across the world. In India and China, the outlook
for internet retailing of jewellery is strong.
Development of IT-enabled/integrated systems has made it possible to manage
large multi-chain stores boosting operational efficiency.
The Indian retail landscape
Currently, the Indian retail

jewellery market is highly
fragmented and dominated
by family jewellers.
Large in-house jewellery manufacturing industry focussing on the domestic

market : India and China together accounted for over USD 26.6 billion worth of
jewellery produced in 2005 (approximately 34 per cent of the overall industry
production). Recognising this latent demand, large manufacturers operating in the
exports arena have also turned to the domestic markets. This trend is also being
driven by the large-scale horizontal integration taking place in the diamond
industry between CPD processors, jewellery manufacturers, and retailers.
The Indian jewellery retail market is highly fragmented
% Market Share
Growing number of HNIs in India
90
80
Million Households
Market Maturity
60
40
20
96
300,000 traditional
retailers or Family
jewellers who are
dispersed and have a
single -town / cluster
focus
Figure 112: Level of organisation (percentage) in the Indian jewellery retail industry
Source: Insight, KPMG research
14.9
70
12.3
60
50
40
30
5.5
30.4
33.9
22.1
20
23
28.7
31
0
1996
Lo w Inc o m e
Rapid population growth

Growing income
Geographic focused
largely
80
10
Fragmentation
Organised Retail
100
Supply higher than

demand
Intense competition
Reduced Margins
Defined customer
segments
Slow growth through

improved income
Growing population
Unorganised Retail Sector
120
Maturity
Consolidation
The Indian jewellery market is currently very fragmented and unorganised with
organised players forming only 4 per cent of the overall market. Today, rapid
growth in the overall retail industry, growing output from jewellery manufacturing
bases, rapidly emerging alternative retail channels, and dynamic consumer
attributes are fast driving consolidation and formalisation in the industry. Various
analyst report indicate that organised retail in India is likely to grow at the rate of
25-30 per cent each year, touching about INR 1,00,000 billion by 2010.
2002
M a s s Afflue nts
2005
High Inc o m e Gro ups
Figure 113: A representation of rising income

levels in India
Source: KPMG FICCI Report on the Indian Retail
Industry, 2005
Growth of e-retail : e-Retail is on the fast track in India which has a retail
penetration of 5.4 per cent. As per the Internet and Mobile Association of India
(IAMAI), most online jewellery purchasers fall in the 18-35 year age group. Not
surprisingly, 71 per cent of the purchases made online are made by males. Delhi
has the highest number of Internet jewellery purchasers as per IAMAI.
Brands making their way : Increasing disposable incomes and the rising number
of affluent/high net worth individuals (HNIs) in the country have opened up the
market for high-end premium brands. Indian consumers are becoming brand
conscious and are willing to pay significant premiums for purchasing branded
products. Large-scale marketing and branding campaigns in the diamond
jewellery space by large upstream diamond marketing companies and industry
associations have created brands (like Nakshatra,Gold Expression and
Sangini) that in many ways kick started the branding trend in the country.
Time
Figure 111: Jewellery markets: Stages of maturity
124
125
International branded retail stores making headway : In addition, the Indian

governments decision to allow 51 per cent FDI in single brand retail stores has
led to a number of international branded stores actively considering an entry into
the Indian jewellery retail market.
Growing mall culture : Indian metros and mini-metros have witnessed the
mushrooming of a large number of malls in the last few years. In Mumbai and
Delhi itself, over 100 large-size malls have emerged in the last few years.
Investment in developing world-class infrastructure for the growth of retail is
expected to be close to INR 150 billion. This trend has resulted in increasing
number of consumers spending time at malls, thus increasing potential for
impulse purchases of branded jewellery.
A turning point for Indian family jewellers : The rapidly transforming industry
landscape is exerting pressure on various players to take stock of their strategic
positions.
Family jewellers, constituting the largest share of the market are likely to be the
most impacted group of players in the industry. For these players, opportunities
brought in by the overwhelming boom in consumer spend and demand for
jewellery are likely to be countered by issues such as unavailability of finance
at competitive rates, inability to keep up with changing consumer trends and
the competitive pressures brought in by the entry of large global players. Leading
family jewellers will also face challenges on account of changing economic
environment.
They could respond to these by expanding regionally and usurping market share
of the smaller unorganised players, thereby increasing their overall market share
and by increasing value addition through backward integration.
The Chinese retail industry
The retail industry in China too is largely fragmented, with the top five retailers
making up only 4.5-5 per cent of the total market. The implementation of the
open door policy in 1979 and the subsequent accession to the WTO in 2001 has
resulted in a host of opportunities for the development of the retail sector. The
recent years have seen retail formats in China changing. The total number of
retail outlets in China have grown by 36 per cent between 1998 and 2004.
Growing consumer demand for cheaper and a more transparent shopping
environment has promoted and sustained the development of shopping malls
and convenience stores.
126
Growth in Chinese retail market
24
Retail sales (RMB trillion)

Annual growth (per cent)
Retail sales
(RMB trillion)
25
14
13
Annual growth
(per cent)
0
1997
1998
1999
2000
2001
2002
2003
2004
Figure 114: Growth in overall retail sales (1997 2004) in China

Source: China Statistical Abstract, China Retail Outlook 2005, KPMG
The age of hypermarkets and convenience stores : With the emergence of

hypermarkets (combination of a department store and a supermarket) the
Chinese retail landscape has transformed radically in the last few years. The
convenience store is another modern format that has emerged in a big way since
2002 (mainly due to increase in FDI) and has moved out beyond the borders of
Beijing, Guangzhou, and Shanghai into other hinterland cities.
e-Retail, direct selling and TV shopping: Penetration of banking and credit
cards have made alternative sales channels like television sales and Internet
sales highly viable options for retailers. Although Internet penetration in China is
only 10.4 per cent (2006 figures), this figure makes up for users over three times
that of the UK. As per industry sources, this figure is expected to double by
2007, matching, if not surpassing, the U.S.'s Internet population today.
Consumer transactions in 2004 were estimated to be USD 1.2 billion, which is
expected to quadruple in the next four years. According to China Business
Weekly, global Internet giants such as eBay, Yahoo, and Amazon are investing a
combined sum of USD 375 million to acquire domestic start-ups in China.
Direct selling has made headway in the last few months itself following the lifting of
the seven year ban on direct selling in 2005 by the state council. Consumer product
companies like Avon and Mary Kay, having successfully met targets, are now
gearing for increasing their scale of operations in the country.
127
Scenario 8
Jewellery loses share to other
spend attractors
Entry and growth of multi-national retailers : In the last decade, multi-national
retail groups have made a beeline for Chinese markets following the economic
boom. Leading the fray are players like Carrefour SA (estimated to be the fifth
largest retailer in China and the largest foreign retailer in the country in the first
half of 2005 as per the Chinese Ministry of Commerce (MOFCOM)) and WalMart, the worlds largest retailer. Large players like these are now planning a
foray into the second and third-tier cities.
Key outcomes
Retail organisation will enhance the sales of jewellery in markets like India and China. World jewellery sales will be
positively impacted because of this change.
Experimentation with new retail formats, Increased emphasis on branding and marketing will ensure that the JAF for
key growth markets will experience an increase or will at least maintain its current level
Value addition in jewellery will increase due to penetration of brands
With greater share of the world jewellery sales happening in China and India (traditionally low retail margin markets),
overall value addition at the jewellery retail stage will decline.
Low
Mediu m
High
Jewellery loses share to other competing discretionary spend attractors

Affinity for jewellery is hardwired into the human psyche by virtue of culture,
social rites/rituals, and traditional human expression. However, this affinity is
under pressure, as jewellerys value proposition is now being challenged by other
discretionary spend items and luxury goods.
The jewellery market is changing, largely impacted by changing consumer
preferences such as a growing demand for high-end consumer electronics.
However, the jewellery industry has had a relatively reactive stance, as far as
marketing and demand generation is concerned. In the light of the above, our
analysis indicates that going forward, jewellerys share of the consumers
discretionary spend budget will be under pressure.
This scenario assumes that jewellery consumption as a fraction of disposable
income declines significantly in all key world markets.
Jewellerys weakening value proposition
Jewellerys value proposition has not changed much over these years it still fulfills a
persons need for social status and differentiation. Mainly driven by tradition and
having the advantage of being a physical asset, jewellery has always occupied a
sizeable share of the consumers wallet for many years, across markets. This has
instilled a false sense of security among players, which has resulted in players
taking the existence and continuation of demand for jewellery for granted. KPMG
has alnalysed jewellerys value proposition in context of changing consumer
needs as well as its role as a luxury products.
Jewellery is a luxury product : A true assessment of the evolution of the industry
can be made if one were to consider jewellery as a part of the global luxury
goods market. Contrary to what most players in the industry would like to
believe, jewellery is very much a luxury product it is not a necessity and has
limited utilitarian value. Not surprisingly, consumers tend to spend on jewellery
after they have spent on necessities and basic comforts.
So far, jewellery has managed to attract a significant portion of the consumers
discretionary spend in markets across the globe. However, revolution in technology,
increase the number of alternatives, and increased globalisation in the last 20
years has brought about a significant change in the way people utilise their
disposable incomes to gratify their needs. Today, in almost all markets across
the world, luxury goods (excluding jewellery), electronic entertainment gadgets,
and travel are all competing with jewellery, for a share of the consumers wallet.
128
129
Demand for luxury products is elastic : The democratisation of luxury, made

possible due to consumers trading-up and innovative financing options, has
meant that luxury consumers today are less brand loyal than ever before. Also,
while they are willing to pay high prices, their expectation for quality has gone up
considerably. Therefore, category owners in various segments of the highly
demand-elastic luxury goods industry constantly need to innovate, distribute, and
market in order to keep consumers interested. The opening up of Pradas USD
40 million shop in Manhattan, Spanish clothier Zaras decision not to keep any
Product innovation and

changing consumer
behaviour is expected to
push up sales of luxury
goods in both developed and
developing markets.
Fashion brands rule the luxury segment

No
product in its store for more than a month, Jil Sanders 10,000 square feet store
in London, and Armani Groups network of over 300 stores across 40 countries
are all examples of the extensive marketing efforts required to counter the elastic
Brand
Parent
Value in USD
Mn .
Louis Vuitton
LVMH
19,479
Chanel
Chanel SA
6,499
Cartier
Compagnie
Richemont
Rolex
Montres
Rolex S.A.
4,925
Hermes
Hermes International
4,830
Gucci
Gucci Group
4,370
Financiere
SA
5,548
Hennessy
LVMH
4,191
Moet & Chandon
LVMH
3,729
Jewellery has lacked the innovation required : Compared to other luxury
Fendi
LVMH
3,542
goods, jewellery has lacked innovation in product development, consumer
10
Armani
Giorgio Armani SpA
3,535
nature of the demand for their products26.
finance, and even basic market research. Its marketing and branding efforts are
still in a nascent stage and its value proposition has not changed over the years.
Interestingly, the impetus for marketing has come from players that are farthest
away from the consumers the mining company. Industry fragmentation at
various stages has also meant that the industrys influence on demand is limited.
Contrast this with the overall luxury goods industry, where players are spending
on shortening product cycles, innovative product designs, and market research.
Therefore, today, on the one hand, a consumer has a variety of options, or
objects of desire, to choose from (each one offering a unique proposition and
fulfilling a different need), and on the other hand, the validity of the basic value
proposition of jewellery is being questioned due to the rising prices of precious
metals.
Luxury goods as competition
The world market of luxury goods today is estimated to be between USD 800
billion to 1 trillion and is expected to touch USD 2 trillion by 2010. Of this, luxury
fashion brands account for close to USD 55 billion. Japan, the U.S. and China are
the three biggest markets for luxury brands today, with Japan alone accounting
for an estimated 41 per cent of world sales.
Several changes are taking place in the luxury goods market, all adding up to a
greater share of the income spend on luxury goods.
Figure 115: Global top 10 most valuable brands in luxury goods

Source: BRANDZTM TOP 100 Power Brands 2006, Millward Brown Optimor
Developed markets select luxury goods consumption : Changes in

consumption behaviour, marketing efforts by luxury brands, and availability of
multiple options in developed markets like the U.S. and Japan have driven sales
of luxury goods.
The increasing desire of consumers in these markets to consume more luxury
products, has led to the emergence of two important trends:
Trading-up, trading down: Consumers substituting several middle-of-the-range

products for cheap products to spend more on select luxury items.
Time-share: Option to own partial stake in select, very expensive luxury

goods and services, for example, NetJets.
These trends mean that the basket of luxury goods within a consumers reach
has expanded in developed markets.
Developing markets enjoy now : India, Brazil, China, and Russia are considered
the emerging markets for luxury goods consumption. Purchases by residents of
China already account for 11 per cent of world sales (although only 2 per cent is
consumed within Chinas border, and rest by Chinese residents travelling
overseas). Chinese residents are expected to account for one fourth of the
global spend on luxury goods by 2011, and China is expected to become the
worlds largest luxury goods market by 2015.
130
26
Source:
The Economist Every cloud has a satin lining, March 21, 2002
131
Global sales of mobile phones expected to cross one billion in 2009

1200
1000
Jewellerys share of income spend in emerging markets is under threat
415 413 427
400
295
4%
09
20
20
0
6
20
07
20
0
20
05
03
20
04
20
20
01
20
02
97
19
98
7%
108
200
19
Food and Grocery

Clothing
Consum er Durables
Jewelleryand Watches
Home decor and furnishing
Medical care and health services
Footwear
Books, Music and Gifts
Other health and beauty care
176
4%
914
1042
520
600
00
2%
847
980
674
20
2% 1%1%
Million Uni
3%
779
800
19
9
Another emerging market, India, has an estimated one million consumers in the
luxury goods segment, a figure that is expected to treble by 2010. The upscale
market for clothing, watches, and accessories is growing at 25 to 30 per cent
year-on-year. There is a large market for plasma televisions, home theatre systems,
etc., that is growing at 30 to 40 per cent per annum.
Figure 117: Global sales of mobile phones, million units

Source: Gartner Dataquest, 2005
Fine art: Emerging investment option

76%
Figure 116: Share of income spend on various products and services for emerging markets
Source: Consumer Brands and Retail Report ,May 2005, HSBC Global Research
It is estimated that on an average, jewellery accounts for only 4 per cent of

income spend in an emerging market.
Fine art has emerged as a new money attractor in a number of markets, both as
a means of displaying good taste and fashion, and as an instrument of
investment. The global turnover at fine art auctions was estimated in 2005 to be
around USD 4.15 billion, which was an increase of more than 15 per cent over
the previous year.
Art has emerged as a popular investment option across markets
Technology: Transcending age and income segments : Technology has

emerged as the other major income spend attractor across economies. Mobile
phones, MP3 players, hand-held video games, game consoles, and laptops have
emerged as must-have products, especially for the youth.
It is estimated that mobile phones could go on to become the most common
consumer electronics device, with a total of 2.6 billion mobile phones likely to be
in use by the end of 2009, with annual unit sales exceeding a billion. Apple has
claimed to have shipped more than 30 million iPods since it launched the first
member of its MP3 player family in November 2001. At the same time, world-wide
plasma TV shipments rose by 109 per cent year-on-year in the fourth quarter of
2005, reaching a record of 2.7million units.
4%
9%
2%
28%
4%
UK
4%
US
F ra nc e
Ita ly
7%
Ge rm a ny
S witze rla nd
HK
Othe rs
42%
Figure 118: Share of global fine art auction sales, 2005
Note: Above pie is based on the annual turnover at fine arts auctions in 2005 in various locations
Source: Tendances du march de l'art 2005 - Art Market Trends, Art Price
132
133
While UK and the U.S. still accounted for more than 60 per cent of total auction
value in 2005, Hong Kong, France, Italy, and Germany also exhibited a strong
performance.
The developing markets, though small, have also exhibited a healthy appetite for
fine art in the recent years. For example, in the Indian fine art market, it is
estimated that prices, on individual art pieces, have risen 20 times since 2000.
With Indian fine art expected to double its 2005 sales of USD 200 million in a
year, art is seriously being considered an investment option by the nouveau
riche.
Travel : There is a growing trend among the affluent towards luxury travel travel
consisting of exotic locations and unique experiences that average consumers cannot
afford. The U.S., UK, and Europe are leading the trend with the highest number of
affluent households opting for travel. In India, growth in the domestic travel industry,
Threat to jewellery
With so many goods and services clamouring for the consumers share of the
wallet, the threat to jewellery is very much evident. With these other sectors
being more organised than the gems and jewellery sector, the damage to overall
sales of jewellery could be significant and irreparable. As discussed earlier, the
Jewellery Affinity Factor (JAF) would change based on these changes in the
business environment.
Figure 119 shows the sensitivity of markets to JAF by estimating the negative
impact on future market sizes for a 10 per cent drop in JAF value for each
market. (Current growth rate, and impact on expected market size form the two
axis, while the size of the circle denotes the current size of each market).
Identifying sensitive markets
coupled with rising incomes, has resulted in a travel and tourism boom. Increasingly,
16%
High growth low

impact
Turkey
percentage of their disposable incomes on family travel to foreign/domestic

destinations. In the other emerging market of China, more than 28 million people
travelled abroad, and according to UK-based Economist Intelligence Unit, this number
is likely to rise to 100 million by 2015.
Automobiles: India and China are also the fastest-growing markets for automobiles.
Chinas car sales are expected to touch five million units by 2010, overtaking Japan
as the second largest car market in the world after the U.S. The car market in India is
also expected to grow exponentially, especially after the reduction of excise duty
from 24 to 16 per cent for small cars the largest segment in India. Indias
Current Growth, 2000-2002
families (mainly in the middle class and above) are looking at spending a higher
India 11%
High growth high

impact
China
Middle East
US
6%
UK
Japan
Italy
1%
Low growth
low impact -4%
Low growth high

impact
Im pa c t o n e xpe c te d m a rke t s ize , US D B n
consumption of cars is expected to double to two million by 2010.

Other lifestyle goods and services: A number of other discretionary spend
attractors such as luxury housing, premium club memberships, premium spas,
beauty treatments, plastic surgeries, and gymnasiums have emerged in the
recent years. Although these industries are currently in a very nascent stage (in
terms of penetration, size), given aggressive economic growth and changing
consumer attributes such as experience over material and affluent lifestyle
needs could potentially make these industries noteworthy in size and share in
the years to come, and more importantly cannibalise share from jewellery.
134
Figure 119: Negative impact on jewellery sales for 10 per cent drop in JAF
Source : KPMG analysis
The U.S., the worlds biggest jewellery market is extremely sensitive to any drop in
JAF. Any drop in JAF for the U.S. market will adversely affect the world market
naturally. For instance, every 10 per cent drop in JAF for the U.S. shall result in
USD 7 billion worth of potential jewellery market in 2015 getting eroded.
China, India, Turkey, and the Middle East are high growth markets of significant
sizes and a 10 per cent drop in JAF could risk upto USD 4 billion worth of
potential jewellery market in each of these countries. Going forward, these are
the key growth markets for global jewellery sales, and a growth in JAF for any of
these markets has the potential to swing the fortunes of global gems and jewellery
industry.
135
Italy, UK, and Japan are slow growth markets, and a 10 degree drop in JAF in
these markets has a similar impact to that in India or Turkey, but in these markets
JAF is expected to decline because of more fundamental reasons, and hence will
be more difficult to arrest.
Key outcomes
Jewellery is expected to face significant competition, for a share of consumer spend, from different quarters over the next
decade. Even with extensive marketing and branding efforts, we expect JAF in most markets to face a downward
pressure. Given the advent of technology and fast-changing consumer buying habits, we expect significant downward
pressure on jewellery sales in the U.S., India, and China.
Global jewellery sales will be negatively impacted by more than USD 25 billion because of discretionary spend
attractors.
Declining in JAF in the U.S., India, and China will contribute the maximum to this drop.
136
Mediu m
Our analysis of various scenarios shows that the gems and jewellery industry is
likely to go through tumultuous times in the next few years. Each of the scenarios
have significant impact in different segments of the value chain, affecting different
stakeholders across the value chain in multiple ways. Figure 120, summarises the
impact of the eight scenarios analysed earlier and categorises them as per social,
economic, and political impact on the global gems and jewellery value chains.
The economic impact of the scenarios analysed and how various stakeholders
tackle them, will determine the growth prospects of the industry. It is evident
from the analysis presented so far that the times of high profit margins, and
disregard for the demand and supply situation are not likely to return.
The biggest impact of these scenarios on various countries from a social point of
view would be on employment creation and handling loss of employment. While the
countries where employment would be created will have to spend time and money
in providing the right skills to their workforce, the governments of countries where
employment is likely to reduce will have to spend on re-training their workforce.
Low
These scenarios have economic, social, and political

implications for the industry and various stakeholders
High
The political scene is also likely to heat up in the future, as the desired of national
governments to drive the growth of key industries would drive their approach to
bilateral and multilateral trade negotiations.
137
Realistic view of the future

As mentioned earlier, KPMG used Scenario Analysis to create a laboratory like
environment for analysis, which helped isolate the impact of different trends
impacting the industry, thus helping us predict the future of the industry under
different situations. However, for the purpose of industry-level modeling, we
need to simulate the collective impact of these isolated scenarios. We believe
that a true account of the future depend on the interaction of these scenarios
which we have termed as the realistic case. Our realistic case combines the
findings from our scenario analysis with simultaneous occurrence of all seven
scenarios (moderated by the relative probability of occurence to arrive at the
most likely state of the industry in 2010 and 2015. To quantify the overall impact
on the industry, KPMG developed a detailed financial model (based on historical
data) consisting of a host of variables that takes into account the
interdependencies of these scenarios by establishing linkages and determining
sensitivities between different segments of the value chain.
These trends are interdependent and combine to give various possible scenarios
SOURCING
FABRICATION
Mine margins will shrink
RETAIL
Traditional centres will face

difficulty in procuring rough
PWP will decrease
New markets will emerge in

line with economic growth
CPD split will change
New players will emerge in

fabrication
Retail margins will go up
Demand for jewellery products

will fall
These products will eat into

jewellery sales
Absolute value of gold for

jewellery fabrication will rise
Jewellery consumption will

increase
Trade through tenders and

independent rough traders will
increase
Overall margins in rough trade
will dwindle
Economic
Polished inventory burden will
decrease
Rough prices will fall
Rough and precious metal
prices will be affected
SCENARIOS
Diamond value chain consolidates

jewellery centres
Synthetic diamonds enter the industry
Plain gold jewellery loses attraction
Jewellery retail organisesin

emerging markets
Industry will be required to spend increasingly on jewellery promotion
Social
Employment will be generated

in mining countries at the
There will be job losses across the chain
expense of traditional centres
Several CPD players will go ba nkrupt or
get taken ov er
Ther e will be j ob l osses i n the industry
Political
Countries will move up the

value chain
Other governments will be

under pressure to implement
beneficiation programme
Bilateral trade agreements will

be signed
Relationships with
governments will weaken
sourcing task forces will be

established by countries
Employment will increase
The role for pla yers like India and China will increase
The following section takes a realistic view of what the industry end state will be, under the premise that all these
scenarios will act simultaneously
Jewellery loses share to other spend

8 attractors
1
Scenario
building
Scenario 1
Scenario 2
Scenario 3
Figure 120: Economic, social, and political impact of various scenarios

Source : KPMG analysis
Scenario 4
Scenario 5
Scenario 6
Likelihood and Impact

assessment of individual
scenarios
High likelihood
Medium likelihood
Low likelihood
Combined
impact of high
impact high
likelihood
scenarios
to derive industry
projec tions
Impact on
various
segments of
the industry
Realistic
prediction of
industry end
state 2010
and 2015
Scenario 7
Scenario 8
Figure 121: Methodology for arriving at the realistic case
Limitations
The output of this effort is obviously limited by the fact that this is a data-scarce
industry where quantitative information is limited and, if available, could be
conflicting at times. Wherever data was not available, assumptions were made
based on our industry knowledge and stakeholder interviews. In case of
conflicting sets of information, cross-validation and our experience in working
with industry was used to determine the most trust-worthy source. The analysis
that follows is subject to these limitations.
138
139
Some of the key assumptions were as follows:
4. Diamond industry will see consolidation post 2008.
Diamond rough prices continue their rise over the next couple of years.
Global polished diamond inventory is distributed across CPD centres in line

with their share of global CPD output.
5. Structure of diamond-processing industry will change radically with African

countries accounting for 10 per cent of the worlds rough (in value terms)
by 2015.
Value of diamond content in diamond jewellery for specific market is not likely
to change substantially from its present state.
6. Rough diamond selling will become more fragmented, making the industry
more demand sensitive.
Industry has access to finance to execute its consolidation plans.
Pricing discounts in lieu of beneficiation is similar across countries and will be

available only to African countries procuring rough under the programme.
All CPD centres are able to achieve similar savings in diamond polishing cost
per carat post-consolidation.
7. New strategic positions will emerge and as a result the industry will see the
emergence of six-seven large conglomerates with presence across the
jewellery value chain.
These seven conclusions will change the face of the industry as we know it
today. Each of these conclusions have been explained in detail in the remaining
part of this section along with the quantitative implications on various segments
of the value chain.
Productivity of new CPD centres is similar to existing CPD centres in Africa.
Under beneficiation a maximum of 50 per cent of gem and near-gem quality

rough of that country is allocated to the respective African countries.
Value addition by African countries in CPD is similar to the global average.
Forecasting the future: Realistic case
Fabrication value addition does not change for a country over the next
10 years.
Global jewellery sales will grow at a CAGR of 4.6 per cent to USD 185
billion in 2010 and USD 230 billion in 2015
Distribution of platinum consumption within EU countries is in line with their

share of the EU GDP.
Sluggish growth for global jewellery

market
Growth in global jewellery sales will be sluggish at a CAGR of 4.6 per cent over
the next 10 years to touch USD 230 billion.
CAGR
(2005-2015)
On the basis of our understanding of the industry and its dynamics and using financial
modelling techniques, we have built a detailed financial model, to predict what
we believe is a realistic image of the industry going forward. We have termed
this the realistic case and following are the key conclusions:
USD billion
Presenting the realistic case
250
230
200
10.9
12.8
17.1
150
185
146
7.0
0.4
9.0
Synthetic diamonds will gain acceptance and capture approximately 7 per

cent of the polished diamond wholesale market by 2015.
Availability of gold-backed investment products and penetration by palladium

will lower gold consumption.
93.8
4.4%
95.0
3.3%
60.7
68.9
42%
6.7%
78.3
100
50
1. Jewellery sales growth will be sluggish at a CAGR of 4.6 per cent over the
next 10 years
8.8
4.0
11.9
4.6%
4.6%
81.6
0
2005
2010
2015
Dia m o nd J P la in Go ld P la in P la tinum P la in P a lla dium Othe rs
Figure 122: Projected growth in global jewellery

sales 2005 -2010 -2015, Value USD billion
Diamond jewellery will be the slowest growing segment at a CAGR of 3.3 per
cent and will attain a size of USD 95 billion by 2015. Gold jewellery will ride on
demand from traditional markets like India, Turkey, and China to touch USD 94
billion by 2015. Over the next 10 years, palladium is also expected to establish
itself as an alternative base metal for jewellery fabrication and plain palladium
jewellery sales will reach USD 12.8 billion across the world.
Accelerating economic growth in Asian countries like China and India will
enhance the market potential for jewellery, and the two countries together will
emerge as an equivalent to the U.S. market by 2015. The Middle East will be
another large market with close to 9 per cent of global jewellery sales in 2015.
2. Jewellery fabrication will move to low-cost locations like India and China.
3. Value addition in intermediate stages of jewellery pipeline will increase
significantly.
140
141
Key consumption markets for jewellery in 2010 and 2015
Demand for polished diamonds increases at a faster rate than that for diamond jewellery
C hina
11.1%
R OW
28.4%
India
9.9%
India
12.3%
Ita ly
2.7%
Turke y
3.2%
UK
2.6%
90
J a pa n
3.7%
US
25.6%
Turke y
3.2%
UK
2.1%
70
60
58
4.3
9.3%
64.6
5.2%
26.5
4.2%
2.5
1.8
50
40
5.1%
76
80
J a pa n
4.9%
M iddle Ea s t
9.1%
95
100
Ita ly
3.7%
US
29.3%
(2005-2015)
USD billion
R OW
26.2%
CAGR
C hina
13.4%
52.0
38.8
30
M iddle Ea s t
8.7%
20
Estimated global jewellery consumption, 2010: USD 185 billion
10
Estimated global jewellery consumption, 2015: USD 230 billion
17.6
21.8
Figure 123: Share of key markets in global jewellery sales, by value, 2010
Figure 124: Share of key markets in global jewellery sales, by value, 2015
Jewellery fabrication will feel the pressure of sluggish demand and will
move to new centres
Slow growth in jewellery sales will affect the fabrication segment, with global
fabrication output growing at a CAGR of 5.1 per cent to reach USD 95 billion by
2015.
Demand for polished diamonds will grow at a CAGR of 4.2 per cent, which will
be higher than the growth rate of diamond jewellery primarily due to increased
sales in markets with high diamond content value in studded jewellery (like India
and China).
A strong demand for plain gold jewellery will mean that gold demand for
jewellery fabrication will continue to grow at a respectable rate and will reach
USD 65 billion by 2015. Meanwhile, platinum demand for jewellery will see a
strong rise as platinum penetrates new markets and maintains its hold on its
biggest market, China.
China and India will be the new centres of studded jewellery fabrication, as the
U.S. share declines. Turkey will take over a significant share of the gold jewellery
fabrication market from Italy.
142
2005
2010
Dia m o nd C o nte nt Go ld
2015
P la tinum
Figure 125: Estimate of diamond, gold, and platinum used in jewellery fabrication, in
USD billion, 2006-2015 27
Value addition in the intermediate stages of the jewellery pipeline will

increase significantly, largely due to the fall in rough prices
The intermediate stages of the jewellery pipeline will benefit the most from
consolidation, and the total value addition in these stages will see an increase,
primarily on the back of lower diamond rough prices.
Total value of rough produced is expected to increase marginally from USD 12.7
billion in 2005 to USD 13.2 billion in 2010. As rough prices start rising again, this
is expected to reach USD 15.5 billion in 2015.
Value addition in CPD centres will rise to USD 6.5 billion in 2010 and USD 7.6 billion
in 2015, as they enjoy the benefits of lower rough prices, lesser cost of capital, and
a reduced debt burden. Polished inventory accumulation will be at a minimum in
these centres. As a result, the total value addition in all intermediate stages
between rough production and diamond jewellery retail sales is expected to reach
USD 68.5 billion or 519 per cent (over the rough production value) in 2010. The
value addition is expected to rise to almost USD 80 billion in 2015.
The fabrication/retail stage will still account for the highest value addition,
accounting for 275 per cent in 2010 and 258 per cent in 2015. The fall in value
addition at this stage will be on account of increased sales in countries like India
and China, where the value of diamond content in diamond jewellery is lower
than other markets, due to higher caratage of base metals used.
27
Does not include USD 2 billion worth of synthetic diamonds
143
The diamond pipeline will witness consolidation
Projected jewellery pipeline - 2010

0
50
13.2
Diamond mine sales
0.5
Diamond rough trade
1.6
CPD output
6.5
(0.8)
0.8

prices
Precious metals
21.8
100
USD billion
150
200
250
300
Decreasing margins and increasing debt levels will force the diamond industry to
consolidate. Smaller players in CPD will be acquired or will exit the business as
large players expand their presence within the CPD segment or players from
jewellery fabrication integrate backwards. Shrinking margins as well as the need
to maximise value-add will push some diamond-processing companies to forward
integrate into diamond jewellery fabrication.
With fabrication moving to low-cost locations, and retailing picking up in emerging
markets like India and China, an increasing number of jewellery fabricators in
these markets will forward integrate into retailing.
54.6
Jewellery
As a result, the industry will witness the emergence of a number of large integrated gems
and jewellery players with presence in diamond processing through jewellery retail.
26.7
Jewellery retail
81.9
185
Polished inventory builds up over the next few years

14
Annual
Figure 126: Value of diamond rough, diamond jewellery retail sale value of diamonds and value add
expected at intermediate steps, in USD billion for 2010
Cumulative
10
Projected jewellery pipeline - 2015

0
50
15.5
Diamond mine sales
0.6
Diamond rough trade
1.6
100
USD billion
150
200
250
300
3.1
3.5
2.4
2
0.7
CPD output
7.7
0.4
0.7

prices
Precious metals
26.5
Jewellery
0.7
0.3
-0.1
-0.4
-0.4
-2
2005
2006 2007
2008
2009
2010
2011 2012
2013 2014
2015
Figure 128: Annual and cumulative polished inventory in the pipeline, USD billion.
69.2
34.3
Jewellery retail
100
230
Figure 127: Value of diamond rough, diamond jewellery retail sale value of diamonds and value add
expected at intermediate steps, in USD billion for 2015
144
1.0
0.0
For the next couple of years, CPD centres will accumulate inventory at a
rapid pace till it reaches unsustainable levels in 2007.
Polished inventory is expected to cross USD 10 billion in 2007 from its current
levels of USD 3.65 billion.
Pressure to build polished inventory and consolidation post 2008 will lower
rough prices.
At best, in certain years, CPD centres will be able to clear small amounts
of accumulated inventory.
Amongst all value chain stages the benefit of falling rough prices will have
the maximum positive impact on CPD players As a result value addition by
CPD centres will rise to USD 6.5 billion in 2010 and USD 7.6 billion in 2015.
145
The structure of the diamond processing industry will change radically

The diamond processing segment of the industry will be the epicenter of changes
that will sweep the industry. This segment will see changes in rough allocation to
countries, emergence of strong players, and folding up of weaker ones.
India and China will be the high volume cutting and polishing centres of the
future, polishing about 87.6 per cent of the global rough by volume. While Israel
and Belgium will continue to be the high-value centres of the future, their share
of the global rough processed will decrease to 5.4 per cent by 2015 (in value
terms). The share of African countries in diamond polishing will increase to 15.5
per cent of the global market by value.
India's share of CPD (by volume and value) will decrease significantly over the
next 10 years. Allocation of high quality rough to African mining countries will
result in several CPD centres in India becoming unprofitable and going out of
business. Some large Indian players are expected to move factories from India to
China and Africa. Overall, Indias share of rough for diamond processing will fall
to 61.7 per cent, by volume and 49.3 per cent by value.
China will grow to acquire a higher share of the processing pie, growing to
25.9 per cent of global share (by volume). However, growth will be dampened by
beneficiation in African countries.
Around 9.4 per cent of the world's diamonds by volume will be processed locally
by African mining countries by 2015, with Angola, Namibia, and Botswana emerging
as profitable CPD centres in Africa. South Africa will continue to be a profitable
CPD centre, and will corner 5.5 per cent of the global rough value for polishing.
The cutting and polishing industry in Israel, the U.S., and Belgium will shrink to
marginal levels and put together they will be polishing only 0.6 per cent of the
global rough by volume and 6.8 per cent by value, in 2015.
New face of diamond processing, 2015, by volume
China
25.9%
Israel
0.4%
Other
38.3%
Namibia
0.3%
India
61.7%
Russia
2.5%
Botswana
4.8%
South Africa
3.0%
Belgium
0.1%
Total rough supply to polishing centres, 2015= 178 million carats
Angola
1.3%
Market share of key diamond-processing centres in 2010 and 2015

Angola
Russia South Africa
7.1%
US 1.7%
4.9%
Namibia
2.8%
0.8%
Belgium
1.6%
Botswana
2.8%
China
15.8%
Israel
9.5%
India
52.9%
Total rough supply to polishing centres, 2010 = USD 15.3 billion
Russia
7.1%
Namibia
1.5%
Israel
4.7%
Angola
South Africa
US 3.2%
5.5%
1.4%
Belgium
0.7%
Botswana
5.3%
China
21.3%
India
49.3%
Total rough supply to polishing centres, 2015= USD 17.7 billion
Figure 130: Share of global rough, by value (2010 & 2015)

Fragmentation of supply sources and slow diamond jewellery growth will

make the rough diamond selling industry more demand sensitive
The rough diamond selling industry will experience changes on the demand and
supply side over the next decade. The increasing contribution of Botswana and
Angola and the commencement of operations at new mines in other parts of the
world will make supply more fragmented. On the demand side, consolidation will
lower ability of mining companies to push rough at any price.
At the same time, rough sourcing will also become more fragmented with the
share of centralised distribution expected to drop to less than 40 per cent from
current 55 per cent (by value). As more rough is channelled through traders, the
total value addition in diamond trading will fall from the current 12.9 per cent to
11.6 per cent in 2010 and 9.9 per cent in 2015. All these changes will make the
rough sourcing industry more susceptible to market forces.
US
0.1%
Figure 129: Share of global rough, by volume (2015)

146
147
Diamond rough prices will be under pressure
This change in demand-supply dynamics, coupled with slow diamond jewellery

demand growth, sluggish polished prices, and build up of huge inventories at cutting
and polishing centres in the next few years, will exert a downward pressure on
rough prices. Rough-sourcing companies will be forced to lower the price of
rough by 15-20 per cent to ensure the survival of the downstream industry.
Downward pressure on rough prices
Rough Price Index
140
Any price decrease at the CPD level is likely to be passed on to mining companies,
thus impacting the total value of rough output. Rough diamond output, in value
terms, will, therefore, experience an absolute fall in the 2008-09 period, even as
the volume of rough produced remains stable.
120
100
80
60
40
20
2010
NonTrade
4%
NonTrade
5%
Direct selling
14%
Trade
34%
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
07
20
06
20
05
20
20
03
20
04
02
20
A number of distinct business models will emerge along the value chain by 2015
Direct selling
12%
A combination of internal and external forces having a strong bearing on the

industry will result in large-scale changes in industry composition and in the market
share of various types of players along the value chain. By 2015, following
consolidation, growth, and decline in various markets and segments, 16 distinct
business models or player types will emerge.
Centralised
distribution 39%
Value of rough (2015) USD 16.1 billion
Value of rough (2010) USD 13.7 billion
01
Figure 133: Expected movement of diamond rough prices

2015
Trade
45%
Centralised
distribution 47%
20
20
Changing rough selling channels, by value
20
00
Structure of the industry in 2006

Figure 131: Value of rough by different channels, 2010 and 2015

Mid-sized
Jewellery
Fabricators
Diamond supply becomes fragmented
18
USD Bn
14
12
0.8
1.6
10
8
6
4
2
0
2.2
0.7
0.8
1.4
3.2
1.7
1.4
1.5
0.7
0.7
1.0
3.5
2.7
R OW
1.6
1.0
0.9
0.7
0.7
S o uth Afric a
4.6
C a na da
0.3
0.5
1.5
0.3
2.4
3.0
2005
2010
2015
Figure 132: Value of rough produced, USD billion

Niche
Jewellery
Fabricators
13.2
12.7
Jewellery
Brands
e-tailers
MNC Jewellery
Chains
15.5
16
Multi-product
Retailers
(Global and
National)
R us s ia
Relative
scale of
operation
Niche CPD
players
Small
Jewellery
Fabricators
Na m ibia
National
Jewellery
Retailers
Regional Jewellery
Chains
C o ngo
B o ts wa na
Aus tra lia
Ango la
Junior Mining
Companies
Mining
Upstream
Pure Play
Rough
Traders
Sourcing
Small and
Mid-sized
CPD Players
Diamond
Processing
Value Chain
Jewellery
Fabrication
Jewellery
Retail
Downstream
Figure 134: Structure of the gems and jewelry industry (various business models and their illustrative market
share) in 2006
148
149
Our analysis indicates that these business models are defensible strategic
positions for players in each segment of the jewellery value chain. Existing
players will gravitate towards one of the positions depending on capabilities
that they may develop over time.
Nature and structure of the industry by 2015
So, can a more proactive approach change the future?

An important assumption made while arriving at these conclusions is the reactive nature of the industry. KPMG
believes that many of the negative outcomes and setbacks that the industry is likely to face can be evaded or averted
by proactive action (individual as well as collective) on the part of the industry. In the next chapter we recommend the
proactive actions that the industry needs to take to improve its future.
Integrated Industry Majors

Multi-product
Retailers
(Global and
National)
Jewellery
Brands
Mass
Jewellery
Fabricators
Relative
scale of
operation
Niche CPD
players
Niche
Jewellery
Fabricators
Junior Mining
Companies
Regional Jewellery
Chains
Backward Integrated Retailers

Upstream
MNC Jewellery
Chains
National Jewellery
Retailers
Pure Play
Rough
Traders
Mining
e-tailers
Sourcing
Diamond
Processing
Jewellery
Fabrication
Value Chain
Jewellery
Retail
Downstream
Figure 135: Sustainable business models of the future (2015)

Realistic case Cause for concern?

The realistic case is a result of the combined impact of all scenarios. The folloing can be observed from the realistic
case:
The industry is extremely sensitive to even minor changes in its environment.
Fair amount of activity (restructuring, relocation, consolidation, etc.) can be expected in the next few years.
The impact on stakeholders will be a mixed bag. The negatives (shake-out, flattening of employment growth) will be
balanced by the positive consequences (greater demand sensitivity, retail organisation, and more stable strategic
postures).
While the negative outcomes will force the industry to wake up and change, this change will be for the better as
industry and player fundamentals will become stronger.
150
151
The preceding section has brought to light the entire

spectrum of changes taking place in the industry and
the far-reaching transformation that is expected in the
years to come. This picture of tomorrow has been built
given a certain set of premises, the most ardent one
being the role of the industry and the various
stakeholders being held constant; that is - as it stands
today.
A time for
collective action
Undoubtedly, the industry is at a juncture where it

needs to reassess and take a more proactive role in
shaping its own future. It is in the interest of industry
players, local governments, trade-promotion bodies,
precious metal groups and investors (current and
future) that the industry takes a hard look at itself and
reorient to a world where change is fast and
inevitable. While actions by individual players are likely
to assist this transformation, it is unlikely that a few
disconnected efforts will help the industry achieve its
true potential. KPMG believes that concerted action by
all stakeholders can lead to a more optimistic future.
The following section describes an aspirational case a projection of what the industry can achieve and
therefore, needs to aspire towards. KPMG has also
made recommendations for various industry
stakeholders, which if implemented, will help the
industry achieve its potential.
A roadmap for the future

This aspirational vision of 2010-15 clearly marks out two important things:
Firstly, the Industry needs to take some radical steps towards the growth of the
jewellery market as a whole. Our analysis indicates that the industry is extremely
sensitive to any changes in demand. For instance, demand growth by even 5 to
10 per cent over and above what has been estimated as per the current situation
would naturally trickle down to individual players, creating room for almost
everyone to thrive and flourish. Clearly, the industry has to move on from being
reactive to consumer demand and trends, to being more proactive in determining
its own future.
The following section outlines our recommendations for addressing the

challenges faced by the industry and realising industry aspirations.
Growing the jewellery market

Achieving aspirational vision for the industry requires a combined effort from all
stakeholders. We strongly believe that the industry can accomplish this by using
a combination of efforts at the consumer end and the industry end.
Growing the jewellery market involves undertaking initiatives at a consumer and industry level
Secondly, the industry (large players and industry bodies) needs to build internal
capabilities to manage and sustain this growth. We believe that in this process of
taming and conquering these waves of change, the industry will sift out leaders
from the laggards.
1
Promote jewellery
as a category
Enhance image of
the industry
Time for collective action
5
Enhance
talent supply
Strategic
Capabilities
rprise c apab
ent e
ilit i
ild
es
u
B
Operational
Capabilities
Identify new products

and consumer
segments
Consumer
Demand
Pull
end
rprise c a
p
a
b
iliti
ente
es
ild
Bu
Financial
Capabilities
Manage a portfolio
of markets
Professionalize and transform

family owned businesses
Figure 137: Recommendations for growing world jewellery demand
Supporting
Capabilities
Figure 136: KPMGs two-fold approach for realising projected industry potential
Figure 136 shows the linkage between the two objectives. Proactive marketing
and promotion efforts directed at specific markets could lead to demand growth
and the realisation of the now-dormant potential. Individual players need to build
internal capabilities to harness this potential, maximise individual returns, and
manage the overall growth process as effectively as possible. .
154
Industry
Supply
Push
end
Reduce
financing cost
3
Grow the
jewellery
market
Grow the
jewellery
market
At the consumer end, players individually, and collectively, need to establish pull
for jewellery demand globally, by gaining consumer confidence through quality
assurance, increasing transparency, and product consistency. Such pull is critical
in developed markets, where jewellery needs to come up with new value
propositions through marketing innovation and by continuously developing
products that consumers demand.
It is equally important that the industry sees itself as a part of the global luxury
goods industry. Consequently, it needs to promote jewellery as a whole vis-vis selective metals or stones. The industry also needs to influence global
policies on international trade, ensuring a level playing field with competing
luxury goods. Special efforts need to be put in, to capture and boost demand in
emerging markets like India and China. The industry also needs to undertake
ongoing research to identify new markets for jewellery. The efforts in these
emerging markets need to be partially funded through lower financing costs for
players.
155
In addition to these, the industry also needs to initiate efforts internally, working
towards more professional work practices, building consumer confidence by
increasing transparency, attract managerial talent similar to other luxury goods and
increase competitiveness by increasing access to competitive finance for growth.
Each of these initiatives have been elaborated in the section that follows
1. Promote jewellery as a category instead of distinct metals and stones
So far, various constituents of the industry (diamonds, gold, platinum, coloured
gemstones, and silver) have been operating as separate sub-industries
developing markets and promoting their products through individual efforts and in
many ways, competing with one another for a bigger slice of a limited pie. The
industry at this point needs to recognise two things:
WJF could also take on the role of the industry custodian where quality and
certification is concerned by institutionalising a uniform global gem certification
and jewellery hallmarking standard. It could also propose legislation/voluntary
codes of conduct for ensuring adherence to the same.
The body could also provide industry players with an enabling environment for
building internal capabilities by:
Creating a centralised base for industry standards covering professional work

practices, employee safety, health management, and environment
management.
Presenting an industry wide prespective to various government and trade

bodies to ensure fair treatment of gems and jewellery from a point of view of
trade barriers and incentives.
As a first step, a unified body such as World Jewellery Federation (WJF)

representing and governing the entire gems and jewellery industry needs to be
created to define a clear value proposition for and promote jewellery as a
whole, through marketing and demand-building campaigns.
Undertaking research and development in the area of technology, production

methodology, design, new product development as well as consumer-related
research to understand changing consumer trends and buying behaviour. The
WJF could also track industries that compete with gems and jewellery to keep
abreast of the latest developments that could potentially threaten jewellery
demand.
Objective: The WJF would be an alliance of the various industry stakeholders

across segments and stages of the value chain with a single purpose
increasing world-wide demand for jewellery and jewellery products through
collective demand generation initiatives undertaken at a global level.
Creating and maintaining a centralised knowledge repository and a central

database for all industry-related information. This would be of prime importance,
given the dearth of reliable data in the industry and the need for the same as a
prerequisite to any strategy and planning process.
The WJF could also take on the role of an industry representative or spokesperson
at various forums and drive large-scale planned change.
The real threat to the jewellery industry is not from within the various subsegments of the jewellery industry but from other luxury products and
services trying to grab a bigger share of the consumers wallet. With this in
mind, clearly, various sub-segments of the industry need to come together to
promote jewellery.
Although consumers seek and purchase distinct jewellery products, the
image or the value proposition of jewellery in the minds of the consumer is
unified. In other words, whether a consumer is buying a diamond bracelet or
a gold chain in his mind he is still buying some piece of jewellery.
Constituents: Given the global nature envisaged, The WJF must consist of large
and small players of the industry, across segments, products, and markets
coming together at a common forum with a single mission of developing the
jewellery market. To that extent, it is expected that WJF will consist of two types
of members:
156
Activities: The WJF should initiate marketing and promotion campaigns for
jewellery and jewellery products at a global level. It could achieve this by acting
as a nodal body for guiding the efforts of individual sub-segment and
undertaking initiatives independently.
Industry associations: existing associations and bodies working towards

promotion of jewellery made from a single metal or gemstone, or promoting
jewellery made in a single country.
Individual members: large and small industry constituents across various

segments of the value chain.
2. Identify new product and consumer segments

Jewellery has limited itself to marketing to the same group of consumers and
with a positioning that has not changed much over the years. So far, the intrinsic
value of the product and the consumers ingrained fascination with jewellery has
meant that the industry has invested little on even basic marketing techniques
like customer and product segmentation.
157
While there have been efforts in this direction by industry bodies involved in
promoting diamond, gold and platinum jewellery, there clearly exists huge
potential to initiate efforts in some of the following areas:
Identifying new consumer need states
- Identifying new consumer segments
Identifying new occasions to sell jewellery
Identifying means to increase accessibility of jewellery
Identifying new channels which could be leveraged to increase reach
Offerings at various price points also present the opportunity to tap new
consumer segments. As indicated by the JCOC, more jewellery purchases by
American consumers fall below the USD 100 per piece mark. Changes in pricing
strategy and introduction of smaller jewellery pieces could target the low-end
consumer segment, which could significantly increase volumes. Branding in this
case could help in the creation of a clear-cut dichotomy between high-end, highvalue jewellery and low-end jewellery, thereby maintaining jewellerys clear value
proposition of being precious as well. Jewellery fabricators and retailers could
foray into parallel areas such as mens jewellery, high-end abstract fashion
jewellery these could also open avenues for boosting overall jewellery sales.
3. Manage the portfolio of markets
So far, most jewellery players have reserved their attention primarily for the worlds
largest market the U.S. The need of the hour is to recognise other markets and
build a portfolio that, while riding on the back of developed markets, penetrates
deeper into emerging markets and invests constantly in identifying new markets
with a potential for growth.
Re-establish value proposition in developed markets: Two of the worlds
largest consumer markets for jewellery the U.S. and Japan have had a
strong historical intrinsic affinity for jewellery. However, due to competition
from other luxury goods and services and the inability of jewellery to compete
with these, the U.S. market is facing slowdown and the Japanese market is
actually on decline.
Markets with declining or stunted growth but having a latent demand for jewellery
products need to be targetted aggressively by critically re-examining jewellerys
value proposition, marketing and brand development efforts, product and service
innovation, and reaching out to untapped consumer segments. Luxury industry
trends would soon necessitate the development of new jewellery products, using
newer, more contemporary designs and materials. Large players would need to
lead the industry in these initiatives.
158
Maximise potential of emerging markets like India and China: Concerted

efforts are needed for penetrating emerging demand centres like India and China.
Industry players willing to invest and cash-in on these large emerging markets
could adopt the following steps:.
Explore new consumer groups: Players need to target hitherto unexplored

segments using focussed advertising campaigns and specially developed
products to drive consumption. For example, the Indian rural sector, a large
consumption base for pure-gold jewellery still remains untouched by
diamond jewellery retail.
Drive demand within the existing consumer base: Players need to focus
efforts to increase per capita consumption of jewellery. This could be done
through strategic pricing, design and product innovation, value-added services,
marketing, and branding. Gathering sales data, subsequent customer
segmentation, in-depth market research, and sophisticated product development
programmes are also likely to boost consumer spend on jewellery.
At the outset, what is required is a clearer understanding of the unique characteristics

of the market, consumer preferences and the overall demand drivers of the market.
Identify new markets with potential for jewellery consumption: Industry
potential could possibly be realised by targeting new untapped markets with the
right socio-economic conditions necessary for jewellery consumption. Large
markets like Brazil and Russia, where luxury goods consumption is taking off,
have still not registered on the radars of a majority of jewellery companies. For
instance, it is estimated that Russia as the second largest developing luxury
market in the world, accounting for a 3 per cent share of global sales.
4. Improve the industrys image
In the past, the industry has suffered from a negative image both in the mind of the
consumer as well as the financier. Off-the-book dealings, suspect quality of goods,
and closely held information have all contributed in shaping this image. However, if
the industry hopes to position itself as a significant competition to other luxury goods,
it must undertake corrective action, starting today, by taking the following steps:
Increase transparency: Jewellery has traditionally been a family business, where
information has been zealously guarded and the leadership baton passed on to
only the most trusted family members. As a result, very little is known about the
industry and its stakeholders outside its immediate environment. An aversion to
transparency has meant that companies have missed out on access to relatively
cheaper capital by not accessing equity markets. Figure 138 illustrates how this
lack of transparency has constrained the industry from growing fast.
159
The vicious circle of low transparency low growth
Low growth
Limited
earnings for
reinvestment
Limited access to resources,

talent pool, funds
5. Enhance talent supply
Lack of
transparency
Few trusted
people
Family management
of business
Figure 138: Illustration of the impact of lack of transparency
Businesses consciously need to move away from their involvement in some of

the more dubious forms of trade, and this move must be driven by the leadership
team in each company. This can be done by establishing clear guidelines and
internal checklists and following a zero-tolerance policy towards fraudulent
transactions. Players must realize that in the long run, the benefits of
self-regulation far outweigh the costs of implementation.
Players in different segments of the value chain, industry bodies and
governments need to take it upon themselves to push for greater transparency in
business. While it will be the role of government and industry bodies to make
public the benefits of greater transparency, and establishing industry standards,
bulk of the effort needs to come from individual players who need to set-up
systems and processes that support a transparent business environment.
Publish information: While data is available in the mining segment of the value
chain (possibly due to large number of listed mining companies), there is a
substantial dearth of data in any other segment of the chain. Such lack of data
only enhances the negative image of the industry, as very little is known about it
outside the immediate stakeholders. Periodic publishing of data is likely to make
the industry visible to analysts and external stakeholders and alleviate doubts.
Various industry organisations and governments must make it their top priority to
publish country level information about the industry on an annual, and if possible
monthly, basis.
160
While the industry has always had access to artisans through generations, an
infusion of fresh talent will go a long way in catapulting the industry into a
different league. The industry not only needs to train its workforce better, it also
needs access to the wider talent pool, that currently does not view the industry
in good light. The industry, therefore, needs to:
Attract talent from the luxury goods industry: Managers, marketers, and
sales people in the luxury goods have perfected the art of selling a product/
service much above its intrinsic value. At the same time, designers in the luxury
goods industry know the pulse of the market as they constantly come up with
new designs to retain consumer interest. The jewellery industry needs to look at
sourcing professional and managerial talent from these industries as it moves
into the future.
Establish learning centres: The industry, in collaboration with governments,
needs to establish institutions that impart education/training relevant to the
sector. The industrys aim should be to make a career in the gems and jewellery
industry an attractive option for jobseekers.
6. Reduce financing costs
Given the industrys image, the extent to which industry players have been able
to access finance in the past is surprising. However, this financing has not been
available without a huge premium, and unless the industry changes its mode of
operation, there is no guarantee that this premium will not rise further. To
aggressively push its expansion plans, the industry needs access to finance and
that too at cheaper rates. This will only be possible as information about the
industry is shared, business models are scrutinised, more companies are made
public, adequate default mechanisms are established, and financiers develop a
certain degree of comfort with the industry. Once this happens, there is no
reason why industry players should not be able to access all forms of capital
(equity, bonds, long-term loans, working capital loans, gold loans, private equity,
etc.) at an adequate risk premium.
7. Professionalise and transform family-owned businesses
In keeping with the changing times, it is imperative that the players in the gems
and jewellery industry move towards a greater degree of professionalism, by
establishing and internalising appropriate organisation structure, policies, and
processes. By doing so, the industry will generate and retain intellectual capital
and attract the best talent from other industries.
Players need to separate ownership from management by attracting, recruiting
and empowering professional managers. They also need to clearly define roles
and responsibilities with objective performance measures.
161
Build capabilities to manage growth

In the previous sections, we highlighted the opportunities available for growth
and hence achieving the industry potential. Realising this potential, however, is
entirely dependent on a focussed effort on the part of industry players to develop
certain capabilities. Assembling these capabilities is an extremely challenging
task as this would imply a change in the traditional ways of running the business.
Various capabilities required for growth can be classified under the following heads:
Strategic: These are capabilities that are required to identify growth opportunities
and convert them into actionable steps. These include identifying growth potential in
the environment, cultivating relationships, deal structuring, and business integration.
Operational: These are capabilities required to obtain and sustain high levels of
operational efficiency in the business. These would include the ability to obtain
high productivity levels from assets and people,
Financial: Primarily focussed on mitigating financial and operational risks in
business, these capabilities are required to establish adequate financial controls
and obtaining access to low-cost capital (including working capital).
Supporting: These capabilities provide an organization the right platform for
scaling-up in the future. These include, a robust organization model, appropriate
processes for sourcing and managing talent and project management techniques.
The capabilities under each of these heads have been listed in Figure 139.
Building enterprise capabilities
Strategic
Strategic and business

planning capabilities
Strategic sourcing
capabilities
Managing mergers,
acquisitions and
alliances
Financial
Raising capital
Managing financial and
operational risk
Managing operational
costs
Marketing capabilities
Technology and
product innovation
Managing supply chain
Adopting best practices
Operational
Defining robust
organisation models
Sourcing and
managing talent
Managing processes
Supporting
The relative importance of each of these capabilities to an individual player will

depend on the business model that a player decides to adopt in the future. In the
section that follows we have described in detail the most critical capabilities that
players in different segments of the value chain need to develop.
Players dominant in mining
Mining Major: Such players will need to possess/develop very strong capabilities
to manage mergers, acquisitions and alliances as they seek growth through
acquisition of Juniors and alliances with other majors. Ability to identify profitable
targets, acquire them at a competitive price and integrate the operations and
culture would be critical success factors. Such players will have to weigh the
risks of their own exploration activities with the risks of managing an expensive
acquisition.
Mining Juniors: These players need the ability to raise cheap capital from investors,
take moderate risks of exploration, enhance capital and people productivity to operate
mines with lower yields, develop innovative and economical methods of targeting
customers and selling goods. They need to strike a balance between tendering to
extract margins and developing a strong customer base for having a steady demand.
They need to maintain a lean organization to minimize the operational costs.
Players with dominant presence in diamond sourcing and processing
Integrated Industry Majors: Any player who wants to become a large
integrated player across the value chain will need to develop several capabilities.
First and foremost such a player has to operate globally and develop into a
transnational business. Geographical boundaries will become meaningless for
such players. Managing a wide portfolio of businesses with added geographical
complexity is the most important capability required. This complexity can be
managed through very rigorous strategic planning, a strong corporate center and
empowered business units focused on key product-market segments.
Investments in strategic sourcing and high quality talent would become
necessary prerequisites since such players will have the necessary scale to
utilize these people in the most optimum manner.
Inorganic growth will be a necessity for such players, and sensing opportunities,
quick moves to close deals, raising inexpensive capital, and the ability to integrate
operations and cultures will be critical. In order to raise large amounts of capital,
developing knowledge about capital markets, gaining access to investor networks
and adopting international financial accounting standards would be required.
The organizations would also have to build requisite skill to manage and mitigate
financial and operational risks associated with various stages in the business.
Figure 139: Universe of capabilities required by players in the future
162
163
These large players would have to work like large multinational organisations and
hence attention to designing the organisation, with clear and empowered roles
and oversight mechanisms for ensuring corporate governance would be
essential. Such organisations would have to source talent from other industries
to lead their various business functions and also institutionalise recruitment from
engineering/management/design institutions at entry levels.
Niche CPD players: These players would focus on polishing high value stones or
developing new cuts and marketing them. Such players will sustain themselves on
the basis of attracting and retaining highly skilled polishers and gemologists from
across the world. Being known for polishing skill is important, since that will then
attract business. Players developing new cuts will have to invest in marketing and
branding and hence need deep pockets or sponsors for funding.
High volume polishers: For such players, strategic sourcing (developing supply
linkages and alliances with large mines, governments of producer countries,
trading companies) to ensure a steady supply of rough would be essential for
survival. Scale would allow them to negotiate better terms from the open market
trade, and the juniors. Simultaneously, these players would need to track market
trends downstream to understand and track demand for diamonds/ coloured
gemstones in order to ensure a steady off-take of production.
Players with dominant presence in jewellery manufacturing
While so far growth has been organic for most players, given the overcapacity
and the impending competition in this segment, many small players would prefer
to exit the industry. Such acquisition opportunities will enable players to focus on
building scale to ramp up capacity, economically. With guaranteed access to
rough, the additional capacities can become immediately productive.
Managing operations and ensuring high levels of operational efficiency across the
entire supply chain would allow such players to squeeze margins in a competitive
industry.
Companies in this part of the value chain would also need to carefully manage
their rough and polished inventories, and associated financial risks through
appropriate hedging. They need to build a process driven organisation which
allows high levels of efficiency.
Pure play rough traders: These would clearly need to build finer sourcing
capabilities and skills given trends like local beneficiation, large polishers
forming direct links with rough sources etc. Further to this, these players would
need to enhance their marketing capabilities building on parameters such as
quality, origin of stones, consistent assortments etc. to sustain operations in a
highly competitive environment.
Trading organisations need to also institutionalise skill development so that young
talent can be trained to become high caliber traders. Knowledge of the stones,
price movements and risk management are critical. Institutionalised recruitment
from high quality institutions that offer education in commodity trading and
structured training are essential capabilities.
Niche jewellery fabricators: Players wanting to operate in this niche will focus
on a particular type/segment of jewellery e.g. high end designer jewellery, high
quality, high value jewellery, thus dominating the high-end jewellery segment and
seizing a premium for design and superior quality.
Key capabilities required to sustain this strategic position would be strategic
planning, design and marketing. A formal strategic planning process would
help reduce the risk associated with the low volume-high value business
model adopted by these players. Investment in design both people and
technology is critical, so is investment in developing and promoting a brand,
developing and running marketing campaigns and programmes and forming
alliances with retailers. Access to consumer insights and trends would be a
significant competitive advantage especially in the more developed markets
with a preference for higher design sophistication.
Mass jewellery fabricators: These players would focus on producing high quality,
jewellery at the lowest cost possible (low price-point jewellery), often within given
price bands (which are driven by retail price points such as USD 99, USD 199 etc.).
Such players would need to develop factories which meet with international
standards regarding safety, hygiene, work processes, automation and
employee welfare, as these would be hygiene factors for the large retailers
to consider sourcing from these players. While polished diamonds would be
easily available, getting consistent size/quality/color in large volumes will
require them to have alliances with the large polishers. Using standardized
processes designed to six sigma standards and cellular manufacturing
methods will be necessary in order to get zero defect rates, minimum
wastage and high productivity levels.
High standards of security and systemic controls to prevent switching of stones,
theft, fraud are essential.
Presence in multiple markets (for rough) will allow such players to acquire scale
and hedge one source against another and guard against risks.
164
165
Players with substantial presence in jewellery retail

International jewellery chains: Eminent national retailers of today have the best
chance of growing beyond their national boundaries. With retail organisation in
the large markets like India and China, established retailers in the developed
markets would want to enter such countries.
The key capabilities required for success in such ventures will be knowledge of
consumer behaviour in new geographies, careful choice of location (city and area
within a city), active marketing around key events and management of inventory
will be key operational capabilities required. Such chains will also look at
attractive acquisition targets (local/national brands or retail chains) and hence preacquisition due diligence, negotiation and post merger integration will be key
requirements to strike a good deal.
In addition to these, presence of a well developed sourcing function, to manage
a global supply chain is a critical capability requirement.
National jewellery retailers: The developed markets have large national chains
which would continue to exist. Further, large regional players or independents
will have the opportunity to grow regionally or nationally.
National retail chains need a large base to spread their marketing costs and need
to manage store profitability carefully to ensure a sustainable rollout plan. Such
players would need to develop retail management capabilities including location
assessment, quick rollout and stabilisation, robust supply chain and inventory
management, modern financial control mechanisms. Ensuring consistent
customer service while growing will require extensive training in retail selling and
customer service.
Rapid growers will also come across acquisition opportunities and hence abilities
to acquire and integrate or manage franchisees would be critical.
Global multi-product retailer: Large retailers today retail large volumes of
jewellery globally. Such retailers will continue to dominate by selling large
volumes of mass market jewellery.
Their spread and reach, global sourcing, high quality supply chain, knowledge of
consumer behaviour give them an advantage in retailing all goods jewellery is
no exception. They need to retain this advantage.
166
Such retailers will need to continuously identify and develop new large volume
mass market jewellery manufacturers in low cost locations with decent design
capabilities to feed the growing demand from the stores.
Jewellery brands: Jewellery Brands would grow by creating an identity for
themselves in an increasingly competitive market. Jewellery manufacturers
wanting to integrate forward would also adopt this position.
Critical success factors required for sustaining this position will be design , marketing
and branding, retail relationship management and identifying new markets for
growth.
Jewellery e-tailer: The e-channel will emerge as a large sales channel and many
more players will get to enter this space.
As with all e-tailers, superior supply chain management capabilities, scale in chosen
segments, marketing and reach are critical for success. With increasing volumes
and competition amongst the e-tailers, focus on select segments will become
important to acquire scale.
Independents: Historically, mom-and-pop stores have dominated the retail part
of the value chain in every market. As markets mature, large retail chains emerge
and acquire market share from these independents.
An independent succeeds by focussing on a small set of loyal customers in a
nearby geographical area. Growth is typically slow and many get acquired or get
out of business as organised retail penetrates.
The independents that want to survive the onslaught of organised retail and
manage to retain a niche for themselves will have strengthen their design,
inventory management and customer relationship management capabilities.
Backward integrated retailers: Some large retailers will want to integrate
backwards to capture additional margins since their size gives them the
advantage of doing so.
Such players will have to develop capabilities for managing modern manufacturing,
which is very different from managing a retail chain. Balancing the contradictory
needs of jewellery manufacturing which needs large orders and fewer varieties and
retailing which needs larger varieties and smaller order runs is critical for survival.
Players would also do well to develop small manufacturing units which specialise in
a type of product rather than very large establishments which are good for
producing volumes.
167
Sustainable strategic positions
As Figure 140 illustrates, each of these positions have strategic advantages

associated with them, and all the business models of the future lend themselves
predominantly suitable for one of these positions. As players that exist today
change their business models to those sustainable in the future, it will become
imperative for them to recognise and utilise these advantages.
As discussed earlier, and shown in Figure 135, sustainable business models of the
future will change the shape of the industry as we know it today. Players across
segment must identify their strategic position in the market, and compete based on
the inherent advantages that come with occupying that particular position.
All the different business models discussed earlier can be summarised under the
following broad strategic positions:
Clearly the basis for competition would vary, depending on the position chosen.
Our analysis indicates that players in the gems and jewellery space will largely
compete along four areas. These include:
Big brother Players whose presence spreads across more than two
segments of the value chain and who function as large multinational
corporations. For such players their scale itself is a huge advantage over
others.
Spread across value chain
Depth of operation in a single segment
Possession of skill
Volume player Through significant depth in one segment of the value

chain and operational efficiencies to compete in the market, these players are
able to squeeze out greater margins just on the basis of their size.
Presence in adjacent segments
Strategic positions and corresponding advantages
Specialist Players that rely on their skill in a particular segment of the value
chain and have developed capabilities that cannot be matched by a large player.
Straddler Players who are spread across two segments of the jewellery
value chain, either to ensure strategic sourcing capabilities or capture greater
value addition in the adjoining segment of the value chain.
Strategic
position
Big brother
Basis of
competitive
advantage
Spread across
value chain
Advantages enjoyed
z
Portfolio of businesses
Natural risk mitigation
Demand visibility
Access to talent
What is a strategic position?

A strategic position refers to a business model that a player adopts, which is
defensible in the medium term, and provides the player with a competitive
advantage viz. other players in the segment. F
168
Volume player
Depth of
operation a
single segment
Offset weaknesses in one with strengths in other segments of the value

chain.
Garner margins across operations and hence, increase overall shareholder

value.
Mitigate risks associated with being present in only one segment of the
value chain (similar to an integrated oil company that is able to manage
risks better in case of volatility in crude prices).
Gain size, thereby leverage a huge asset base to mobilise large amounts of
funds which could in turn facilitate expansion.
Economies of scale
Greater bargaining power
Robust processes and systems
Specialist
Possession
of Skill
Straddler
Presence
in adjacent
segments
Designs and quality of highest

order
Capability to employ best
designers/craftsmen
Captive business - risk
mitigation
Greater margins
Strong relationships
Relevant business
models
Integrated industry
majors,
Large mining companies,

Mass jewellery fabricators,
pure play rough traders,
regional jewellery chains,
national jewellery retailers,
etailers, MNC jewellery
chains, multi - product
retailers
Junior mining companies,
niche CPD players, niche
jewellery fabricators,
jewellery brands
High - volume CPD
players, backward integrated retailers, local
jewellers/independents
Figure 140: Different strategic positions and their advantages

169

As these initiatives begin to bear fruit, jewellery sales will pick up steam across
markets. Our analysis on the industry is that the results could then be
significantly different from the projections in the realistic case.
Estimates have indicated that emerging markets such as India and China also
have the potential to contribute significantly to the aspirational pie. Clearly,
emerging consumer markets have much more to offer if the players ride on the
back of the retail revolution that is likely to take place in these markets. Together,
India and China, could contribute as much as USD 80 billion to global jewellery
sales by 2015. As per our analysis, other markets that bear potential for higher
growth are Middle East and Turkey.
As per KPMG estimates, the global gems and jewellery industry has the potential
to grow to USD 280 billion by 2015, an increase of USD 50 billion (21.7 per cent)
over what the realistic case promises. To achieve this size, the industry will have
to grow at a CAGR of 6.7 per cent over the next 10 years. These projections
have been made bearing a number of observations in mind:
Jewellery has the potential to re-invent itself in developed markets.
Jewellery is starting on an equal footing with other luxury products in

developing markets.
The industry is yet to utilise the power of marketing and branding.
There is an increased awareness among players about the state of the

industry and a willingness to take corrective action.
Key jewellery segments

We expect most of the growth to be realised from diamond jewellery followed
by plain gold jewellery. The diamond jewellery sub-segment, having the right
backing in the form of sales promotion and active marketing, has a high chance
of penetrating traditional gold-consuming as well as emerging markets. Close on
its heels, is the plain gold jewellery sub-segment with the potential to reach a
total market size of USD 116 billion.
Estimates have indicated that the market for palladium jewellery has the potential
to grow to a size of USD 15 billion, provided the right marketing initiatives are
undertaken.
An aspirational case for the industry
300
Aspirational case
USD billion
Realistic case
50
billion
200
100
Key markets and industry segments though will help realise aspirations
Turkey
9%
Others
5%
Plain palladium
Others
jewellery
5%
Plain platinum 5%
US
35%
Middle East
9%
jewellery
1%
USD
50
.
billion
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
India
17%
Plain gold
jewellery
43%
Figure 141: Industry potential over and above realistic case projections
Key markets
Much of the latent demand lies with one of the largest, most developed markets
the U.S. The U.S. jewellery market has the potential to reach USD 77 billion by
2015, growing at a much higher rate than what has been projected in the realistic
case. Presently, the worlds largest consumer market for jewellery has faced a
slowdown in overall demand growth. Competition from other discretionary spend
products and services such as consumer electronics, luxury travel, and lifestyle
goods have begun to slowly erode jewellerys share of wallet.
170
USD 50
billion
Diamond
jewellery
46%
China
25%
Figure 142: Key contributors to the estimated
demand potential of the industry
Figure 143: Share of the key industry segments

of the estimated demand potential of the industry
Most of markets will show positive growth

India, China, US, Turkey, Middle East, and UK will all experience an absolute rise
in jewellery sales from the 2005 level.
171
India and China, together will realize total sales of USD 80 billion by 2015 and will
therefore form a market that will be bigger than the US market.The US will still
dominate as the single largest jewellery market in the world with China and India
as second and third largest, respectively.
Value addition at various stages in the jewellery pipeline is expected to change

by 2010 and 2015
2010:
0
Turkey will emerge as the fourth largest market with sales of USD 11.5 billion in
2015, while all the countries of Middle East together are expected to sell USD
24.5 billion worth of jewellery. UK will see marginal increase in its jewellery
market and will reach sales of USD 5 billion in 2010 and USD 6.7 billion in 2015.
Italy and Japan will be the only two markets that will see an absolute decline in
jewellery sales, because of jewellery losing attraction in these markets. The country's
market will fall from the present sales of USD 7.3 billion to USD 6.8
billion in 2010 and USD 6.2 billion in 2015. However, the fall in the Japanese market
is expected to be more significant as it shrinks from its current level of USD 12 billion
to USD 8.4 billion by 2015, reducing at a rate of -3 percent over the next 10 years.
50
USD billion
150
100
200
250
300
250
300
15.3
0.5
Diamond mine sales
1.9
Diamond rough trade

CPD output
6.0
(1.2)
0.7

prices
Precious metals
23.2
59
Jewellery
28.8
Jewellery retail
89
200
Changes in key world markets
2005
2010
2015
45
2005
2005
58
2010
U.S.
5
2010
2005
2010
12
13
2015
2005
Turkey
2015
U.K.
12
2005
2010
2015
2015
7
2010
Japan
2015
2010
13
18
2005
2010
2015
RoW
24
12
2015
Middle east
2005
21
2010
50
18
Diamond mine sales
0.7
Diamond rough trade
1.8
CPD output
66
2005
2015
China
Italy
49
2010
77
2005
35
27
2015:
43
USD billion
150
200
7.0
5.2
0.9

prices
Precious metals
33.6
Jewellery
100
87.5
41.9
Jewellery retail
117
280
37
Figure 145: Jewellery pipeline and value addition at various stages, in 2010 and 2015 (USD billion)
2015
India
Figure 144: Outlook for retail jewellery sales in key markets, 2010-15, USD billion
172
173
Conclusion
The study clearly shows that the industry is in the midst of exciting times.
Growth is staring in the face, while competition from other industries is very
intense. In a way, the industry has emerged from the shadows and finds itself in
the glare of the consumers' eye. In the years to come, the industry will forever
lose its traditional tag as it reinvents itself and integrates into the luxury goods
industry.
This transition will bring its rewards and the inevitable pains. The responsibility of
preparing the players for the change and handholding them through this journey
rests with the industry and individual players.
This report is an effort to highlight the dynamism in the industry and the
tremendous scope of opportunities it presents to nations, conglomerates
entrepreneurs, professionals, industry analysts and financial institutions. We
sincerely hope that this study will be the beginning of a series of soul-searching
discussions within and about the industry, and stir stakeholders into action.
174
Appendices
Appendix
Page
Country profiles of key players
178
Silver
216
Coloured gemstones
219
Glossary
228
Secondary data sources
230
Acknowledgements
236
Angola
Country snapshot
Angolas presence in the gems and jewellery value chain
Angola is one of the largest producer of diamonds in the world.Angolan diamonds
Mining
Mining
currently account for over 4 per cent of the worlds produce in terms of volume
Diamo nd
and 12 per cent in terms of value, a large percentage of them being gem quality.
Gold
With the end of the civil war and the opening up of the economy, Angolas
diamond mining sector is attracting companies willing to invest and explore the
ption
Consumption
Processing
Processing Fabrication
Fabrication Consum
Platinum
Others
countrys vast untapped natural resources.
The local beneficiation movement is promoting an in-house diamond cutting and

polishing industry in Angola.
Country
profiles of
key players
Industry snapshot
Angolan diamonds are considered to be amongst the worlds best in terms of
quality. The countrys rich reserves, most of which according to sources are yet
to be tapped, lie in the provinces of Lunda Sul and Lunda Norte in the central and
northeastern parts of the country.
CAGR 15.49 %
1.5
1.6
1.3
1.4
1.1
178
USD Billion
1.2
Page
Established presence Emerging centre/market
Diamond mining
Angola: Growth in diamond production

(value-USD billion)
Country
Legend
Legend
0.9
1
0.8
0.73
0.73
0.6
1.
Angola ..........................................................................
179
0.4
2.
Botswana......................................................................
181
3.
China and Hong Kong ..................................................
183
4.
India ..............................................................................
187
5.
Italy ..............................................................................
192
6.
Japan ............................................................................
195
7.
Namibia ........................................................................
197
8.
Russia ..........................................................................
198
9.
South Africa ..................................................................
201
10. Turkey ..........................................................................
204
11. United Kingdom ............................................................
206
12. United States of America ............................................
208
0.2
2000
The end of the 27 year long civil war in 2002 and the opening up of trade channels
has ushered in a number of mining companies willing to invest in exploration and
development for the cause of diamonds in Angola. According to the countrys
designated governing body for the diamond industry Empresa Nacional de
Diamantes de Angola (Endiama), Angola has plans of doubling its capacity to
reach 12 million carats by the end of 2006, and 13 million carats by 2007.
2001
2002
2003
2004
2005
Figure 146 : Growth in annual production of

diamonds in value terms (2000-05)
Source: Diamond Facts Diamond Industry Report
Northwestern Territories Canada, De Beers
Given its aggressive plans of scaling up production, Angola is likely to emerge as

a primary producer of gem quality diamonds in the world. So far, the country has
received considerable support from industry players as well as various funding
agencies. A notable example is the assistance received by the mining sector
from the World Bank and the British Geological Survey in promoting the overall
minerals mining industry, drafting new mining laws etc.
While the overall outlook is positive, the Industry has several challenges to tackle:
The issue of conflict diamonds still remains alive in Angola. Historically,

diamonds have funded Angola's civil war.
State officials have estimated that the country loses over USD 375 million
worth of revenue each year due to the illegal trade of diamonds. In 2003,
Operation Brilliant was established as a measure to curb illegal trade. As per
the UN, the operation has been successful as over 250,000 illegal miners have
been identified and deported from the country.
179
Botswana
Angola: Growth in diamond production
(volume - million carats)
Million carats
CAGR 11.79 %
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
7.5
7.0
6.3
5.2
5.0
2001
2002
Much of the country's infrastructure is still underdeveloped and even damaged

due to the 27-year-long civil war. This poses a significant impediment to the
growth of the mining sector.
Country snapshot
Botswanas presence in the gems and jewellery value chain
Botswana is one of the leading producer of rough diamondsworldwide contributing

25 per cent in terms of value and 18 per cent in terms of volume to the global pool.
Diamond processing
As a key proponent of the Local beneficiation trend, Botswanais an emerging

centre for diamond processing.
2003
2004
Catoca
Endiama - 32.8 per cent

Alrosa - 32.8 per cent
OdebrechtOdebrecht-Brazil
- 16.4 per cent
Diamond Finance CY BV Group 16.8 per cent
Endiama - 40 per cent
Trans Hex - 35 per cent
Fucauma
Luarica
Endiama - 38 per cent

Trans Hex - 32 per cent
Luzamba
Alrosa, Obdrecht, Endiama
Figure 148: Key mines in Angola and their owners

Source: Mbendi Information Services (www.mbendi.co.za), Annual reports of various mining and
sourcing companies
Diamond mining
A snapshot of key mines in Angola
Ownership
Gold
Legend
Legend
The desire to maximise value obtained from a rare natural resource and create a
large number of jobs for local citizens has pushed the Angolan government and
Endiama to promote local beneficiation. This initiative is being supported by large
CPD players from major processing centres.
Mine
Diamo nd
ption
Consumption
Processing
Processing Fabrication
Fabrication Consum
Others
2005
Figure 147: Growth in annual production of

diamonds in volume terms (2000-05)
Source: Diamond Facts Diamond Industry
Report Northwestern Territories Canada, De Beers
Mining
Mining
Platinum
As an outcome of the local beneficiation wave that is taking place across the
southern tip of Africa where most of the diamond production centres are housed,
Angola has recently got enlisted as a cutting and polishing centre.
4.0
2000
A snapshot of key mines in Botswana
Mine
Contribution to
countrys total
output (%)
Damtshaa
1.00
Jwaneng
44.00
Lethalkane
3.00
Orapa
52.00
Debswana
Debswana
(A 50-50 per cent
venture between
De Beers &
Government of
Botswana)
Figure 149: Key mines in Botswana and

their owners (2005)
Source: Mbendi Information Services
(www.mbendi.co.za), African diamonds plc
website, De Beers website and annual report.
Botswana is the largest player in terms of value, with nearly 35 per cent of its
total produce qualifying as being gem-quality. The industry in general has been
witnessing a general upward trend in diamond production since 1995, owing to
the large reserves found at the four key mines Damtshaa, Jwaneng, Lethalkane
and Orapa. These mines currently produce over 30 million carats of high quality
diamonds. The Orapa mine is known as the worlds largest diamond mine (in
term of actual size of the open pit) and the Jwaneng Mine is known as the
Worlds Richest diamond mine.
The industry is of great significance to Botswana as rough diamonds account for
77 per cent of total export earnings and 45 per cent of the countrys GDP. Over
the last 35 years, revenues from diamond exports have funded the development
of healthcare facilities, schools, transport and communication.
Botswana is currently a favoured destination for diamond explorers from around
the world. Diamond exploration in Botswana continues at an aggressive pace
with a number of local and foreign organisations investing to carry out various
phases of exploration. In fact during 2005, there were 574 diamond prospecting
licenses in operations.
In order to accelerate economic growth (given the heavy reliance on the industry) a
number of exploration projects are being carried out by private and public sector
entities in the country. For example, De Beers and Debswana plan to invest
around USD 1.2 billion on the construction of the DTC Botswana facilities and
ramp-up the Orapa III plant. DTC Botswana is a 50-50 joint venture between the
Botswana government and De Beers, set up to undertake (once fully operational)
the full sorting and valuation operations of Debswanas diamonds. Currently,
these activities are carried out by the Botswana Diamond Valuing Company (BDVC).
180
181
China and Hong Kong

Botswana: Growth in diamond
production (value- USD billion)
CAGR 8.58 %
3.5
USD Billion
2.5
2.12
DTC Botswana is expected to come into full operation in 2008.
2.4
2.16
Country snapshot
3.2
2.94
DTC Botswana is also deemed to take on the role of a sales and marketing function
for selling rough diamonds to diamond polishing factories in Botswana. DTC has
also announced its plans of moving its London operations to Botswana, under
DTC Botswana28.
1
0.5
2000
2001
2002
2003
2004
2005

Source: Diamond Facts Northwestern
Territories Canada, De Beers
Botswana: Growth in diamond

production (volume million carats)
The diamond processing industry has emerged mainly due to the local beneficiation
trend that is sweeping key African producer countries. The industry is still at a nascent
stage, employing only 800 people in the cutting and polishing units (estimates for
2005). Majority of the units have been established by existing sight-holders of DTC
and are largely managed by expatriates. The industry in Botswana enjoys the
advantage of having comfortable access to high quality diamonds, however the
labour costs of manufacturing diamonds in Botswana are high, rendering the
business uneconomical for independent players. Another rampant problem is the
high penetration of HIV/AIDS in the Botswana population (Botswana has one of the
world's highest rates of HIV infection 24.1 per cent in adults). This high AIDS
penetration has significantly increased the mortality rate which implies a high
turnover of employees.
Chinese manufactured diamonds, making up 11 per cent of the total market in

terms of value, are being recognisedacross the world for quality and precision of cut.
35
30
24.65
26.41
28.4
30.41 31.12
Together, China and Hong Kong make up a significant chunk of the global jewellery
manufacturing industry. In the recent years, jewellery manufacturing has seen a
shift from HK to mainland China with the third phase of the CEPA III coming into
place.
China is the second largest consumer market for jewellery of all kinds growing at a
CAGR of 9 per cent (2000 2005).
Hong Kong has emerged as a hub for trade of gems and jewellery in the last few years.
CAGR 5.41 %
250
200
224.1
201.9
205.6
217.3
192.8
2001
2002
2003
2004
2005
172.2
150
100
50
0
2000
Figure 152: Growth in annual production of gold

in volume terms (2000-05)
31.9
Chinas presence in the gems and jewellery value chain

Consumption
Mining Processing Fabrication Consumption

Diamo nd
Gold
Platinum
Others
Legend
Gold mining
China: Gold mining output

(volume tonnes)
CAGR 5.29 %
Million carats
Diamond processing
1.5
25
China is an eminent producer of gold; the countrys overall output of gold has been
increasing since 1979 at a year-on-year growth of 10 per cent. China is also a large
producer of silver, production of the metal has grown at a CAGRof 5.41 per cent in
the last five years.
1.8
20
15
10
China is the worlds fourth largest producer of gold. GFMS has reported a gold
output of over 224 tonnes in 2005, a 30 per cent increase from the countrys output
in 2000. Production has grown as the country has undergone several economic
reforms notable ones being the implementation of the Open Door Policy in
1979 and the subsequent deregulation of gold in 2001.
In the years to come, gold production is likely to increase mainly due to the
increase in the inflow of foreign investment in the sector as well as consistent
domestic explorations.
The Jinfeng Gold Project, which has reported reserves of about 65,000 kilograms,
represents the largest investment by a foreign company in Chinas growing gold
sector.
5
0
2000
2001
2002
2003
2004
China: Silver mining output (volume

terms million ounces)
2005

CAGR 4.75%
70
Million ounces
60
50
51.3
55.6
52.9
2001
2002
58.8
63.8
64.7
2004
2005
40
30
Silver mining
As per the Silver Institute, China ranks fourth amongst the top 20 silver producing
countries (as per 2005 figures). The country along with Mexico, Peru, Australia
represented 60 per cent of the silver supply for 2005. Silver output from China
has been on an upswing since 2002 at a CAGR of 4.75 per cent with total output
in 2005 standing at 64.7 million ounces.
20
10
0
2000
2003
Figure 153: growth in annual production of silver

Source: GFMS Silver Survey, 2006
28
28
182
Source:
DTC Annual Review 2006
Antwerp facets news service (March 2006)
Note:
Figures for 2005 have been obtained from Tacy Ltd, 7th Feb 06. As mentioned by Baledzi Gaolathe,
Botswanas Minister of Finance and Development Plan
183
CAGR 10.32%
3
USD Billion
2.5
1.85
1.53
1.47
1.5
1.44
1
0.5
0
2000
2001
2002
2003
2004
3.50
3.03
3.00
2.50
2.00
2.06
1.72
1.50
Chinese diamonds are being appreciated for quality and precision of cut, being
now labeled by the international diamond trade as 'China craft,' comparing with
'Belgium craft' and 'Israel craft.
The Chinese diamond processing industry receives considerable support from
the government in the form of regulatory and taxation reforms. Only recently, the
government has brought about radical changes in the tax structures reducing
Value Added Tax, Import Tariff and Consumption Tax to 0 per cent in 2002 for
import-process-export model processors.
A number of industry sources and analysts have indicated that the Chinese
manufacturing industry needs to keep a close tab on any erosion in its key
source of competitive advantage cheap labour. This advantage is under threat
on account of:
Rising wage rates salaries in China
Projected flattening out and decline in the total number of employable people
over the next two decades mainly due to the stringent family-planning laws of
the country.
China: The Chinese jewellery manufacturing industry employs a large base of
skilled labourers (approximately 5 million) working at relatively lower wage rates
(around USD 300 per month). The Chinese jewellery fabrication industry is growing
at a phenomenal rate of 12.84 per cent year on year, with the total output in
2005 being USD 3.14 billion.
1.00
0.00
2000
The industry is highly fragmented, however it employs a large number of people

(estimated to be 25,000) in approximately 80 processing centres based in three
primary districts Shandong, Guangdong and Shanghai.
2.35
3.14
2.62
0.50
2005
Figure 154: growth in annual cut and polished

diamond production output in volume terms
(2000-05)
Source: Idex Pipeline 2005, KPMG analysis
184
CAGR 12.84%
2001
2002
2003
2004
2005
Figure 155: Growth in annual jewellery fabrication

centre output in value terms (2000-05)
Hong Kong: Growth in export of precious

jewellery 29
4,000
3,013
3,000
USD million
2.33
2.5
China is the second largest diamond processing nation in terms of number of

workmen employed; operating on the same model (import-process-export) as the
largest player in the space, India. Although the industry has been historically driven
by state owned companies, the entry of foreign processors into the market
(mainly from Belgium, Israel and now even from India) is considered by analysts
as the key driver of growth. Processing centre output in 2005 has been estimated
to be close to 2.5 million carats, valued at USD 1.4 billion.
China: Jewellery fabrication centre

output 2000-05
USD Billion
Diamond processing
China: Cut and polished diamond

production
2,665
2,233
2,000
1,000
0
2003
2004
2005
Figure 156: Growth in export of precious

jewellery (in value terms)
Source: Hong Kong Trade Development Council
Processing (as well as sale of jewellery) in China is mainly concentrated in the

three major centres of Guangdong, Shanghai and Beijing. Shenzhen is a major
centre for the production of gold jewellery where 70 per cent of the countrys
total output of gold jewellery in value terms is fabricated.
Hong Kong: Logging an impressive figure of USD 4.2 billion worth of jewellery
exports in 2005, the manufacturing industry in Hong Kong is moving towards
higher growth and consequently could occupy a greater share of the global
jewellery pie.
Hong Kong manufactures jewellery of all types catering to almost all consumer
segments of the market studded, non-studded as well as gift items and
artifacts studded with gems.
Hong Kong manufactured jewellery is popular in key destinations around the
world. The industry in Hong Kong is rapidly growing; competing with other
fabrication centres on the basis of design and product innovation, and to a small
extent even quality and price.
As with many of Hong Kong's manufacturing industries, a large percentage of
jewellery manufacturing is moving to Mainland China. Currently, over 80 per cent
of jewellery sold in Hong Kong is processed and manufactured in the Chinese
mainland, which now has more than 200 factories manufacturing jewellery for
overseas markets. With the third phase of the Mainland and Hong Kong Closer
Economic Partnership Arrangement (CEPA III) further boosting partnership, this
trend is likely to pick up further in the near future.
29
Note:
2005 Figures are from January to November
185
India
China: Growth in retail sales of jewellery
Consumer market for jewellery

Growing incomes have translated into consumers tapping into their wish-lists of
personal products with jewellery featuring as one of the highly coveted items for
purchase.
Country snapshot
per cent of the worlds rough, by value. India's exports of cut and polished
diamonds in the year 2005 stood at USD 11.18 billion.
As per a recent report, Chinese consumers currently spend around USD 2 billion
on high-end fashion and accessories including fine jewellery, expensive watches
and a host of other luxury products. Estimates are that China has grown to
become the third-largest consumer of luxury goods globally after Japan and the US.
Figure 157: Growth in retail sale of jewellery,
value terms (USD Billion.), 2000-05
China: Market share of various types of

jewellery
Figure 158: market share of various types of

jewellery, as on 2005
China: Estimated jewellery consumption,

(2010-15)
The performance of the jewellery retail market in the year 2005 is representative
of the general health of the industry. The year logged a total sales of jewellery
worth USD 13.06 billion, growing at year-on-year rate of 9.15 per cent since 2000.
Sales made in Shanghai, the largest jewellery retail district contributed over
10 per cent of this pool.
China is a large market for most of the key elements of the precious jewellery
family. By a large margin, China is the largest consumer of platinum jewellery
(sale of plain platinum jewellery in 2005 recorded at USD 4.17 billion. China is
also the third largest consumer of gold jewellery after India and the US, logging a
total consumption of USD 4.17 billion worth of gold jewellery in 2005. In addition
to this, China is estimated to be fifth largest market for diamond jewellery. Total
consumption of diamond jewellery in 2005 was recorded at USD 1.32 billion.
As per estimates of 2006, jewellery consumption in China is projected to reach
USD 14.24 billion. This upward trend is expected to continue in the near future,
reaching a total of USD 20.44 billion by 2010 and USD 30.72 billion by 2015.
India is the largest player in the diamond processing industry, processing over 57
India is also a large producer and exporter of various forms of jewellery, jewellery
output in 2005 logged at USD 12.17 billion.
India is one of the fastest growing market for Jewellery, growing at a rate of 10.20
per cent per annum over the last five years.
India: Export of cut and polished

diamonds
Diamond processing
As per the figures published in 2005, India accounts for over 57 per cent of the
cut and polished diamond pie in terms of value. It is said that 11 out of 12 stones
set in jewellery are cut and polished in India.
Figure 160: Indias Export of cut and polished

diamonds from 1999-2000 to 2004-05
Source: GJEPC
Although, the industry traditionally grew by polishing lower quality stones (in
particular those classified earlier as near-gems), today India is processing the full
range of sizes and qualities of gemstones including stones larger than 10 carats
in size. However, the bulk of the production remains small and mid-sized stones.
In the recent years, Indian processing companies have been seen to be
experimenting with more complex cuts and colours. From a formalisation and
technological point of view, the industry is continuingly evolving. Increasing number
of processing companies are conforming to international quality standards.
India: Export of polished diamonds by destination
Figure 159: Estimated jewellery consumption in

China in 2010 and 2015
Figure 161: Major export destinations for Indian cut and polished diamonds, by value, 2004-05
Source: GJEPC
186
187
India is a prominent jewellery manufacturing base, accounting for 14.3 per cent of
the world jewellery fabrication pie (2005), as per our estimates. In the last two
decades Indian exports of jewellery have risen exponentially. The exports
opportunity has attracted CPD players to forward integrate and move up the
value chain. The initial advantage of low cost labour was supported by
investments in manufacturing leading to international quality products.
India: World jewellery fabrication share
India
14.3%
The success of the Indian jewellery manufacturing industry has been attributed
to five distinct factors; namely:
Figure 162: Share of world jewellery production

output, in value terms (2005).
availability of skilled labour at competitive wages,
growing domestic market,
increasing acceptance of Indian jewellery in overseas markets due to the

widely dispersed Indian diaspora,
investments in modern manufacturing and quality systems by players.
The industry is currently witness to a variety of trends and changes such as the
emergence of new manufacturing locations and reduction in the concentration
around Surat and Mumbai, technological changes, increased design sophistication
and adoption of industry standards, forward integration of diamond processors,
into diamond jewellery manufacturing, integration of jewellery manufacturers and
retailers etc. These trends are nascent and are likely to strengthen in the years
to come.
In recent years, Indian manufactures have forayed overseas and at the same
time several large overseas players have outsourced manufacturing to India (or
have entered into alliances). Manufacturing in India for Indian hand-made
jewellery has always had a high demand in overseas markets, mainly from the
large Indian immigrant population settled in the Middle East, South-East Asia, the
USA and Canada.
188
CAGR 10.20%
14.00
12.17
12.00
10.00
8.00
9.89
7.49
7.16
6.43
7.40
6.00

India's consumption of gems and jewellery has grown rapidly (10.2 per cent over
the last five years). Today the market is estimated at USD 12.17 billion. In the
advance estimates of 2006, Indias consumption of jewellery is expected to
reach USD 13.1 billion, a 7.64 per cent increase over 2005.
4.00
2.00
0.00
2000
2001
2002
2003
2004
2005

value terms (USD bn.), 2000-05
India: Market share of various types of

jewellery
Others 5%
RoW
85.7%
India: Growth in retail sales of jewellery
USD billion
The Indian diamond processing industry is currently in a state of overcapacity and

intense price competition, mainly due to the proliferation of small and medium
sized processing factories. There is intense pressure to reduce debt, clear inventory,
lower labour costs, improve productivity and under all these pressures, the industry
is expected to consolidate - integrate, both vertically and horizontally.
Plain Platinum
Jewellery 0%
Diamond Jewellery 12%
Plain Gold Jewellery 83%
Figure 164: Market share of various types of

jewellery, as on 2005
India has for long held its position as one of the worlds largest consumer of plain
gold jewellery, consuming over USD 10.07 billion worth of gold jewellery in 2005.
India is also one of the fastest growing markets for diamond jewellery. Diamond
jewellery consumption in 2005 was valued at USD 1.51 billion. Demand for diamond
jewellery in India has grown at a CAGR of 43.5 per cent in the last five years
(2000-05; in value terms).
Platinum jewellery in India has gained popularity over the last few years mainly in
the high-end segments for women between the age group 25-45 years. Growth
in demand has been encouraged by efforts of Platinum Guild International and
affiliated jewellery manufacturers and retailers. To encourage domestic manufacturing
of Platinum jewellery and boost demand, the government has reduced import
duty on platinum from INR 550 to INR 200 per 10 grams.
India has traditionally been a large consumer of coloured gemstones and silver
jewellery, with jewellery designs that extensively used coloured gemstones, and
this trend continues even today.
In line with the development of the retail sector in India following liberalisation
and growth in per-capita income, jewellery retailing industry too is slowly
transforming. The jewellery retail sector, traditionally dominated by small scale
local players is rapidly moving towards greater organisation as retail channels
mature and obtain greater penetration across the country. Also evident in the
industry is the increasing level of professionalism, quality controls and processes
and a heightened consumer focus. The need for being consumer focussed has
emerged as a response to increasing levels of consumer sophistication, both in
terms of design and product demand, as well as a general orientation towards
jewellery product origins, gemstone certification and jewellery hallmarking.
189
Changing trends in the Indian retail market for jewellery

Traditional Practice
Jewellery considered an investment, particularly
gold jewellery
Wearable' jewellery as a fashion accessory and gifting
Facilitating supply of Inputs
Marriage and festiv al season are peak seasons
Wearability' and gifting dimensions are distributing

demand throught the year
Ensure value retention for the Indian industry on domestic mining contracts awarded to international companies
22 karat jewellery
Acceptance of jewellertof a lower karatage, particularly in

studded jewellery
Include raw material sourcing in the agenda of market focus programmes
Dependence on the family jewellerin the locality
Growing interest in brands whic h personify quality and

trust
Commission exploration programmes and surveys to ascertain availability of coloured gemstones in India
Traditional and ethnic designs
Demand for fashionable, lightweight and innovative

designs
Persist with direct procurement of diamond rough (similar to Russia) and coloured gemstones rough through
Government interactions
Predominantly 'gold-based' jewellery

(particularly yellow gold)
Growing interest in white gold and newer precious

metals such as platinum. Diamond studded jewellery is
als o generating significant interest across the country
Reliance on local jeweller'sreputation/ trust in

local jewellersstated karatage
Introduction of objectiv e means of quality measurements through certification and guarantees
Jewellery la rgely sold on the basis of prevailing

gold price per gram with additional mark-ups for
making charges and profit margins
Jewellery is being sold at a fixed price basis

(maximum retail price) by branded players
Figure 165: Changing trends in the Indian retail market for jewellery
Source: KPMG analysis, Interviews with retailers
India: Estimated jewellery consumption

(2005-15)
The industry is witnessing some other trends as well. The urban areas of the
country are seeing strong white wave taking over. Rhodium polished white
gold is the most popular in lower and mid-ranged segments. Towards the higher
end, consumers have shown a preference for platinum jewellery and demand for
the metal in the premium category has witnessed an increase. The western
trend of opting for white metal as a base for diamond jewellery is catching on in
urban India. The last few years have witnessed a large influx of jewellery brands
in the Indian market. This is also related to the fact that the average age at which
the person purchases jewellery has reduced in the last couple of decades.
India is witnessing changes in the design and styling preferences as well. On one
hand jewellery for the metro-sexual man is coming into vogue, innovative
designs such as mesh jewellery, paved diamond jewellery is also catching up.

India in 2010 and 2015
190
Action agenda for the Indian Government
Emerging Trend
Indias growing importance in the global jewellery market is only expected to

increase in the future. Total demand is expected to reach USD 18.25 billion in
2010 and USD 28.28 billion in 2015. The main drivers of this growth will continue
to be gold and diamond jewellery. Diamond jewellery consumption will jump by
78 per cent in 2010 and then further by close to 100 per cent between 2010
and 2015.
Facilitating market access for Indian exports
Negotiate favorable trade regimes and agreements with countries which currently impose high tariffs on imports
from India (e.g. Brazil, Mexico, China)
Coloured gemstones segment reform
Spearhead initiatives to legalise current mining activity through an appropriate licensing framework and develop a
regulatory framework for new mining and exploration
Facilitating Indias development into a diamond trading destination
Introduce presumptive tax regime
Remove duty on import of polished diamonds and branded jewellery
Remove duty on synthetic diamonds
Facilitating India development into a jewellery trading destination
Introduce systems to assure quality like those in other manufacturing countries
Remove duty on branded jewellery
Promote ties with jewellery centres like Italy and Turkey
Introduce jewellery manufacturing as an educational course in partnership with industry players
Domestic market reform
Spearhead creation of national industry body for the domestic market
Participate in initiatives aimed at promoting transparency - promoting hallmarking and encouraging consumer
activism in matters related to quality, purity, transaction legitimacy etc.
191
Italy
Italy: Declining market share in jewellery
fabrication
Country snapshot
Italy has traditionally been a large manufacturing destination for high quality
jewellery. However, the jewellery industry in Italy is on the decline in the face of
tough competition from more cost competitive nations like India and China as well
as from other nations like Lebanon and Turkey.
Italy is one of the largest consumers of jewellery globally. Retail sales of jewellery
in 2005 was estimated at USD 7.30 billion
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
16%
Jewellery manufacturing in Italy was initiated by the French fabricators in the mid
1900s. Even today, the industrys history resonates with French names such as
Cartier, Boucheron and Van Cleef & Arpels. Italians were quick to learn and fast
to industrialise production in anticipation of a soaring demand for high-quality
jewellery. Soon they eclipsed their French teachers.
Since then jewellery-making in Italy is considered an art, possessed by few and
passed down the generations through intensive training. Italy has earned a name
for itself for its imaginative and high-fashion jewellery. By 1998, Italy turned more
precious metal into jewellery than any other country.
The scenario is now changing as the centre faces tough competition from low
cost manufacturing centres like India, China and Turkey.
Key export destinations of Italian jewellery
10%
Italy
RoW
2000
15%
2002
2005
Figure 168: Market share of jewellery

manufactured in Italy
Source: KPMG Analysis
District
Specialisation
Manufacturing
Technique
Valenza
High end jewellery with

precious Handcrafting, stones
and diamonds, production, in
limited numbers per series,
never mass produced
Handcrafting
Vicenza
Gold and silver chains, rings,

brooches, pendants, earrings
Wax casting, stamping,

machines & handcrafting
Critical success factors in the past
Arezzo
Gold and silver chains, rings,

brooches, pendants, earrings
Manufactured mainly by
machines
Traditional jewellery base : Italy has a

tradition for jewellery, providing a solid base
for the development of the sector.
Milan
A mix of everything, its

strength lies in being the
centre of design and having
excellent network of selling
points
Machines & handcrafting
Marcianise
Torre del
Greco
Coral - cut,- cameos

reproduction of ancient jewels
Handcrafting
Large quality conscious domestic market :

Italy has the highest per capita consumption
of jewellery. A large domestic market which is
the most refined and demanding in the world
contributes to its recognition and success in
the world.
Advanced technological levels : Italian
manufacturers use advanced technology
(machinery and equipment) for repetitive
operations.
Design expertise : Italy is known for its
strength in design which allows
manufacturers to claim a premium.
A flexible clustered manufacturing
capability : Fragmented nature of the
industry allows changes in capacity. Industry
organised around distinct clusters allows
concentration of resources.
Significant support from local banks to
finance working capital at competitive rates.
Figure 167: Key export destinations for jewellery manufactured in Italy

Note: Data pertaining to year 2002
Source: Indo-Italian Chamber of Commerce
192
The Italian jewellery manufacturing industry comprises of five jewellery clusters

namely Valenza, Vicenza, Arezzo, Milan and Marcianise-Torre del Greco. Each
centre is known for a specific combination of design and manufacturing technique.
In terms of players, the industry is fragmented, characterised by over 8200 factories,
mostly small scale. It is estimated that 95 per cent of the units are family owned
and managed. Post production, a large proportion of the jewellery is sold to
jewellery wholesalers who further trade it in the key export markets as well as
the domestic market.
Proactive industry trade associations and

reputed international jewellery fair.
Figure 169: Characteristics of major jewellery manufacturing districts in Italy

Note: Data pertaining to year 2002
Source: Indo - Italian Chamber of Commerce
Italy typically produces jewellery of relatively high purity. Around 60 per cent of
production is in 18 carat gold, with close to 25 per cent in 14 carats. A large part
of Italian imports comprises contract manufactured jewellery. Majority of the
production is through mechanised manufacturing, handcrafting, wax casting and
stamping. It is also important to note that a large portion of Italys produce are
chains and chain products. Chain products account for more than one-third of the
total output.
The jewellery industry in Italy is declining in the face of tough competition from
more cost competitive nations like India and China as well as from other nations
like Lebanon and Turkey. The industry size has been dipping by 3 per cent each
year (since 2000). Italys share of the jewellery industry has dipped by 6 per cent
only in a matter of six years.
193
Japan
Italy: Jewellery fabrication output
2000-05
9.50
9.19
8.82
USD billion
9.00
CAGR - 3%
9.09
8.37
8.50
8.00
8.00
7.89

Country snapshot
Italy is a large consumer market (USD 7.3 billion) for jewellery of various types.
The country has a large demand base for diamond and plain gold jewellery. In the
diamond jewellery segment Italy is a mature market with diamond jewellery
sales accounting for 6 per cent of the global market (consuming around USD 4.2
billion worth of diamond jewellery in 2005) Italy is also the largest market for
diamond jewellery in Europe.
Japan is one of the largest consumer markets for jewellery and constitutes 8 per
cent of the global jewellery sales.
7.50
7.00
2000
2001
2002
2003
2004
2005

centre output (Value terms, USD billion., 2000-05)
Italy: Growth in retail sales of jewellery

CAGR 0.13%
7.40
7.32
7.25
7.34
7.30

The Italian market structure is simple, characterised by brands and independent
retailers. Like most markets, the industry is fragmented with close to 98 per cent
of sales coming from the 19,700 independent retailers.
Italian end consumers are very design and quality conscious, as opposed to being
cost conscious. Italian domestic brands are highly sophisticated. Branded jewellery
constitutes a significant proportion of the market.
7.20
Japan, like the United States (US) is a mature market, ranking fourth in the world
with jewellery sales to the tune of USD 12.13 billion (2005).
Growth in retail sales of various forms

of jewellery
7.12
7.10
In our estimates of 2010 and 2015, Italy's off-take of jewellery of all forms is
expected to decrease (at a slow and gradual pace) dipping down to USD 6.81 billion
in 2010 and then further down to USD 6.19 in 2015.
7.01
7.00
6.90
6.80
2000
2001
2002
2003
2004
12.13
12.20
12.00
2005
Figure 171: Retail sale of jewellery in Italy (USD

bn., 2000-05)
CAGR 0.66%
12.40
USD billion
USD billion
7.30
Italy is also a strong market for gold jewellery. Demand has been growing at the
rate of 7 per cent year on year, consumption in 2005 standing at USD 2.58 billion.
Italy: Market share of various types of jewellery
11.80
11.34
11.40
11.15
11.00
10.80
Italy: Estimated jewellery consumption

(2010-15)
7.40
7.30
10.60
Plain Platinum
Jewellery 1%
2000
2001
2002
2003
2004
2005
Figure 174: Retail sale of jewellery in Japan (USD

billion., 2000-05)

35%
In addition to the above, Japan is also the worlds second largest market for platinum
jewellery after China. Sale of platinum jewellery in Japan has declined over the
last five years by 5 per cent year on year. In the estimates for 2010, Japans off
take of platinum jewellery is expected to fall to USD 7 billion.
11.61
11.60
11.20
Others 5%
11.88
11.74
Japan is the second largest consumer of diamond jewellery after the U.S., with
diamond studded products forming 79 per cent of the total jewellery market. 13.7
per cent of the worlds diamond jewellery is consumed in Japan.
Japan, although not a major consumer of gold jewellery, features in the list of top
20 consumers of gold jewellery. Japanese import of gold into Japan have been
reducing since 2002. Consumption of the metal in the form of plain non-studded
jewellery in 2005 has been estimated to be worth USD 0.9 billion. Japan is also a
major consumer of coloured gemstone studded jewellery and a sizeable market
for pearls.
7.20
USD Mn
7.00
6.81
6.80
6.60
6.40
6.19
6.20
Diamond Jewellery
59%
6.00
5.80
5.60
2005
2010
2015

Italy in 2010 and 2015
194
Figure 173: Market share of various types of jewellery, as on 2005

Demand characteristics in the Japanese jewellery market have changed dramatically

in the last few years, the epicentre of this change being changing lifestyle and
consumer attributes. One of the prime examples of this change is the alteration
of the value proposition of jewellery in the bridal segment. As per industry
analysts, in the last few years, wedding and engagement rituals have changed in
Japan. Demand for engagement rings have fallen sharply as couples are placing
less importance on such traditional forms of expression. In addition, Japan is
witnessing an overall decline in marriage rate, indicating the possibility of a further
slow down in the bridal segment going forward. These and other consumer
trends, have been attributed to the increasing influence of the west. Influence of
the West is also seen in the increasing prominence of brands. It is estimated that
one third of all jewellery sold in Japan is branded jewellery.
195
Namibia
Japan: Estimated jewellery consumption
(2010 2015)
14.00
USD billion
12.00
12.13
10.00
9.08
8.00
8.39
6.00
Another important change seen is in the choice of metal. While 18 carat gold
remains the object of choice, white gold has gained popularity mainly as a cheaper
substitute for the highly priced platinum jewellery. Pink gold and Green Gold,
generally set with coloured gemstones or as pearl chains experienced growing
demand.
Country snapshot
Namibia is a significant contributor to the rough diamond pool, producing over 5.5
per cent of the worlds rough diamonds in terms of value and 1 per cent in terms
of volume.
Japans share of the world jewellery pie is expected to decrease at a rapid pace
by 2010 (reaching USD 9.08 billion) and then further in 2015 (to USD 8.39 billion).
4.00
2.00
0.00
2005
2010
2015

Japan in 2010 and 2015
Japan: Market share of various types of jewellery
Diamond mining
Others 5%
Namibia: Growth in production

(Value- USD billion)
Plain Platinum
Jewellery 9%
7%
CAGR 10.76%
0.8
USD Billion
0.6
Diamond Jewellery
79%
0.5
0.7
0.69
0.7
0.5
0.42
0.47
0.41
0.4
0.3
0.2
Figure 176: Market share of various types of jewellery, as on 2005

0.1
0
2000
2001
2002
2003
2004
2005

diamonds in value terms (2000 2005)
Namibia: Growth in production

(Volume- Million carats)
CAGR 2.26%
Million carats
2.5
2.01
1.52
1.5
1.49
1.35
1.7
1.55
Most of Namibia's deposits are alongside the river Orange or alongside the countrys
shoreline. Namibia is also home to the worlds richest marine diamond deposit,
De Beers Marine Namibia, which produced over 900 million carats in 2005. The
majority of both the land and sea mining operations are licensed to Namdeb, a
50-50 joint venture between the government of Namibia and industry major De
Beers. The Namibian economy is highly dependent on exports of rough diamonds,
the industry contributing close to 70 per cent to the countrys GDP. The countrys
largest diamond mining company Namdeb alone contributes about 10 per cent to
the countrys GDP and 30 per cent to the countrys export revenues.
Several industry sources have voiced concern over the fact that the countrys
onshore diamond reserves are rapidly depleting and no new kimberlite deposits
have been fround in the past few years. Given this, Namibias future production
depends largely on its marine diamond mining operations. It is predicted that by
2009, diamonds sourced from marine locations will supercede those sourced
onshore. Namdeb has recently announced its target of reaching 10 million carats
(annual production) by 2010.
Diamond processing
0.5
0
2000
2001
2002
2003
2004
2005

Source: Diamond Facts Northwestern Territories
Canada, De Beers, Antwerp Facets News
196
Namibia is a key player in the global diamond industry producing over 1.7 million
carats and USD 0.7 billion worth of rough diamonds each year. Namibian rough
diamonds are largely of gem quality; 95-98 per cent of the total production qualify
as gem quality.
Recently, following the African trend of promoting Local Beneficiation in mining

countries, Namibia has also forayed into diamond processing. Isreali Diamond
trading company LLD has established a diamond processing unit for the in-house
processing of rough; employing approximately 500 locals.
197
Russia
Russia: Snapshot of key diamond producing mines
Country snapshot
The Russian diamond industry contributes 17 per cent to the worlds production of
Name of Mine
Ownership
Contribution to
countrys total
produce
Aikhal GOK
Alrosa
16.20%
Anabar GOK
Alrosa
1.10%
Mirny GOK
Alrosa
21.40%
Nyurba GOK
Alrosa
19.20%
Udachny GOK
Alrosa
42.00%
rough diamonds in terms of value and 21 per cent in terms of volume.
Russia is also a large producer of gold, however the output has been on a
downtrend since 2003.
Russia is also one of the largest producer of platinum and palladium.
Russia also has the largest diamond processing industry amongst all the diamondproducing countries with polished output estimated to be worth USD 1.2 billion.
Diamond mining
Russia: Growth in diamond production
(Value - USD billion)
CAGR 6.71%
2.5
2.2
1.96
1.59
1.66
1.5
1.6
1.5
Figure 181 : A snapshot of key diamond producing mines in Russia (as on 2005)
Source: Websites, Annual reports of various mining and sourcing companies
Gold mining
Russia: Gold mining output

(volume tonnes)
CAGR 2.61%
1
0.5
0
2000
2001
2002
2003
2004
2005

Russia: Growth in diamond production

(Volume million carats)
CAGR 13.23%
45
38.15
40
It is reported that the Russian production of rough diamonds has currently flattened
out as some of the largest mines have been almost mined out. However, Alrosa
has plans of investing in the operations at Mir and Udachny as well as of increasing
capacity in Zarnitsa and Aikhal to maintain production. The company is also looking
at increasing exploration in Western Russia, where it holds a 92 per cent interest
in Severalmaz, operator of the Arkhangel pipe, one of the five in Lomonosov
deposits.
Starting from a small stake in Angolas Catoca mine, Alrosa is also looking at
strengthening its footprint internationally and is considering projects in DRC and
Sierra Leone.
185
180.6
180
182.3
181.6
175.5
175
Tonnes
USD billion
Russian rough diamonds account for 17 per cent of the total world production in
terms of value and 21 per cent in terms of volume (2005). The main player in the
Russian diamonds industry is the state mining company Almazy Rossii-Sakha
(Alrosa) which mines over 98 per cent of the countrys diamonds from seven
kimberlitic pipe mines and three alluvial pits. Alrosa is not only involved in mining,
but also in diamond manufacturing and marketing of polished diamonds and
diamond jewellery in Russia.
170
165
165
160
154.3
155
150
145
140
2000
2001
2002
2003
2004
2005
Figure 182 : Growth in annual production of gold

35
Million carats
35
30
25
20.5
23
20
19
20
Russia: Platinum mining output
15
10
5
1300
1400
0
2001
2002
2003
2004
2005

Territories Canada, De Beers, Antwerp Facets
News
1200
Million ounces
2000
1100
980
1000
1050
The rise in 2005 can

be attributed to the
pipeline release at
Norilsk Nickel in H2
845
890
2004
2005
800
600
Most of the production is from placer deposits in the eastern parts of Russia.
Nearly half of Russias gold is produced from the Magadan Oblast, Krasnoyarsk,
and the Yakutia Sakha Republic Region.
Platinum mining
Russia is the second largest producer of platinum after South Africa. The countrys
contribution to the global production pool has come to light only off-late as
secrecy policies have been lifted and production and trade data has been made
public. Russian output of the metal is clearly on a decline, as illustrated in Figure
183. Although no quantitative data is available, the production of platinum from
the alluvial mines of the Far East of Russia, (primarily Kondyor and Koryak) is
believed to have slightly reduced compared to 2004.
Russia also holds the position of the worlds largest producer of palladium. One ounce
of PGM mined in Russia yields 16 per cent platinum and 8.3 per cent palladium.
400
200
0
2000
2001
2002
2003

platinum in volume terms (2000-05)
198
Russia has a strong gold production industry with only 14 per cent of its gold
producers producing 74 per cent of total gold production in the country. GFMS
reported output of 176 tonnes in 2005, an increase of 14 per cent from 154
tonnes in 2000. However, the mine output has been on a decline since 2003,
mainly due to the drop in the country's alluvial production.
Exploration for deposits of both platinum and palladium are rampant in the country.
Norilsk Nickel, the worlds largest producer of palladium and one of the largest
producer of platinum, plans to invest USD 820 million during 2006, USD 205 million
of which is to go towards expanding production.
199
South Africa
Russia: Cut and polished diamond output
CAGR 10.27%
1.40
1.12
USD billion
1.20
1.00
0.80
1.20
0.89
0.74
0.71
0.69
0.60
0.40
0.20
0.00
2000
2001
2002
2003
2004
2005
Figure 184 : Growth in annual diamond processing

centre output (2000-05)
Diamond processing
Russia is home to the largest diamond processing industry amongst all the
diamond-producing countries. Most of the processing units are state-owned,
carrying forward the legacy from the Soviet era. This includes one of the largest
factories, Kristall of Smolensk, employing around 900 people (out of the total
5000 people estimated to be employed in the industry). The state mining company
Alrosa also owns a diamond cutting and polishing factory Brillanty Alrosa which
recorded a total production worth USD 143.7 million in 2005. The state also has a
handful of players in the private sector including Lev Levievs Ruiz Diamonds
in Moscow.
Russia polishes a range of sizes, from smaller stones (starting from 0.01 carats)
to large stones of over 5 carats. The industry has leveraged the advantage of
being one of the largest producer of rough diamonds in the world. Alrosa currently
allocates more than 50 per cent of its produce to the local cutting and polishing
industry.
Country snapshot
South Africas presence in the gems and jewellery value chain
Diamonds mined in South Africa contribute 13 per cent in value terms and 9 per
cent in volume terms to the global production.
South Africa is the world largest producer of gold, contributing 12 per cent to the
world output and also the worlds largest producer of platinum with a market share
of 78 per cent.
South Africa is also a key emerging diamond processing centre - in many ways the
heart of the much talked about Local Beneficiation initiative.
South Africa: Growth in production

(Value - USD billion)
Diamond mining
South Africa has been an eminent player in the diamond mining industry not only
in terms of the overall contribution to the world output each year, but also
because South Africa is more often than not the birthplace of large industry
trends and changes the trend towards Local Beneficiation being one such
example. With a large percentage (estimates to be around 35 per cent!) of rough
being supplied to in-house processing companies, the role of the country in the
next few years is expected to change.
Russian cut diamonds are increasing their presence in world markets, as the
country is gaining strength as a rough diamond producer and as a major centre
for cutting and polishing.

South Africa: Growth in production

(volume million carats)
Most of the diamond mines (about 90 per cent of total produce) in South Africa
are owned and managed by the De Beers group under the name of De Beers
Consolidated Mines (DBCM). In fact the rise of the diamond industry in South
Africa is closely linked to the rise of the De Beers group since the De Beers mining
company was formed in 1888 in Kimberley, South Africa. The term Kimberlite
used to describe a diamondiferous pipe has been adapted from the name of the
mining town Kimberly.
Diamonds have played a pivotal role in developing the economy and the socioeconomic structure of South Africa. The government has therefore, in the recent
past, taken a few proactive measures to maximise the benefits the country can
potentially derive from this precious natural resource.

Source: Diamond Facts Northwestern Territories
Canada, De Beers, Antwerp Facets News
200
Black Economic Empowerment (BEE) legislation requiring part ownership of mining

companies to be passed on to black persons over a phased period. Reports indicate
that a 26 per cent share of DBCM is expected to be allocated to a BEE Partner.
201
The controversial Diamond Bill seeks to promote greater value addition to the
country's diamonds within the country South Africa is in some way leading the
trend of Local Beneficiation (i.e. in-house processing of diamonds produced
within the country to maximise value). It has been reported that about USD 575
million worth of high value rough has been distributed within the country.
South Africa: Cut and polished diamond

output
Given its large rough diamond reserves, South Africa wants to target greater
value addition within the country and enhance employment generation. However,
it has only off-late created waves in the diamond cutting and polishing industry.
In 2005, South Africa cut and polished diamond output was valued to be
USD 0.85 billion.
South Africas production of diamonds has increased over the years. However,
the industry has a number of challenges to face, notably the rising costs of mining
as the U.S. Dollar grows weaker against the South African Rand. As per De
Beers, five out of the seven mines operated by them are running into losses.
South Africa: Gold mining output
(volume tonnes)
Gold mining
Diamond processing
Figure 189: Growth in annual diamond processing

centre output (2000-05)
South Africa is the world's largest producer of gold, having a market share of
12 per cent in the year 2005. Production in 2005 was estimated to be 296
tonnes, a decline of 31 per cent from 428 tonnes in 2000. Since 1925, for the
first time mine production has gone under the 300 tonne mark.

The decline in production has purely been an outcome of the prevalent economic
environment which has led to the scaling down or closure of select mines
temporarily till the economic forces change direction again.
Being the worlds largest producer of gold, South Africa is more susceptible to
movements in price as its deep level mines are the highest cost producers in the
world. Industry sources indicate that production costs in South Africa are the
highest in the industry.
In terms of gold reserves South Africas estimated 40,000 tonnes, represents
40 per cent of the global reserves.
South Africa: Platinum mining output
Platinum mining
South Africa is the world's largest producer of platinum, producing over 5.1 million
ounce in 2005, an appreciation of 34 per cent from 3.8 million ounce in 2000. The
platinum mining industry was the biggest export earner for the country in 2004,
accounting for about 8.1 per cent of total exports. From 1995 to 2004 inclusive,
the country accounted for an estimated 78 per cent of the total rise in global
platinum production.

202
Most of the platinum in South Africa is mined in the Bushveld Igneous Complex
and with South Africa being the largest player in the world, the output from this
location contributes 72 per cent of the annual global production. The estimated
proven, probable reserves and inferred resources of platinum add up to 1142 million
troy ounces. The South African platinum industry has witnessed a sudden influx
of small mining companies, all keen to benefit from increasing prices of platinum.
203
Turkey
Country snapshot
Turkey is an emerging jewellery manufacturing giant; jewellery output in 2005

stood at USD 6.77 billion.
In 2004, Turkey exported gold jewellery to over 80 countries, major destinations

being the USA, UAE, Italy, Germany, Israel and Russia. Recently, Turkey has
emerged as a jewellery distribution centre playing a central role linking various
regions, particularly the Middle east with the Mediterranean and South East Europe.
Turkey is also, now being viewed as a major jewellery distribution hub for various
destinations across the world.
Major Export Destinations
Lithuania 4%
Spain 4%
Jewellery exports from Turkey (In value

terms)
Turkey today has established itself as a growing jewellery manufacturing base
largely due to its reputation for quality and innovative designs. The industry has
state of the art technology, computer aided design and manufacturing systems
and high quality processes and standards. The success of the countrys jewellery
manufacturing industry is reflected in its export figures Turkeys exports of
jewellery in September 2005 stood at USD 772 million, a 17 per cent increase
over the previous year.
Figure 190: Growth in overall jewellery exports

from Turkey (2000-04)
Source: Turkish Association of Jewellers
Turkey: Jewellery fabrication centre

output
CAGR 15%
8.00
6.77
USD billion
7.00
6.11
6.00
3.36
3.00
2.37
3.02
2.00
1.00
0.00
2000
2001
2002
2003
2004
2005

centre output (Value terms, USD billion., 2000-05)
204
Israel
5%
Libya
5%
USA
47%
Italy
5%
Germany
6%
Russia
6%
UAE
14%
Figure 192: Major export destinations for jewellery fabricated in Turkey
Source: Turkish Association of Jewellers
The Turkish jewellery industry consists of 60,000 firms (10,000 being gold-processing
workshops; 50,000 of them are retail shops). It is estimated that there are more
than 50 companies each of them employing 200-1500 trained workers. Jewellery
manufacturing is one of the largest manufacturing industries in Turkey.
Istanbul, Ankara and Izmir are the centres for gold jewellery production. Some
cities in East and Southeast Anatolia also produce gold jewellery.
4.92
5.00
4.00
Historically, Turkey has been acclaimed as a producer of mass manufactured

jewellery. In effect, majority of Turkeys exports in 2005 constituted massproduced goods. However, the industry has set different targets for itself going
forward firstly to produce and export USD 5 billion worth of jewellery by 2015,
and secondly to establish itself as a manufacturer of high quality fine jewellery,
going beyond its image of a mass-producer of jewellery.
UK
4%
It is important to note that a major chunk of Turkeys exports is plain gold jewellery.
According to figures published by the Turkish Association of Jewellers, gold
jewellery export was about 105 tonnes in 2004. Furthermore, taking into account
sales made to tourists and by the informal sector, total export of plain gold
jewellery was estimated to be over 150 tonnes. It is estimated that approximately
250-300 tonnes of jewellery is produced every year in Turkey.
205
United Kingdom
Country snapshot
UKs presence in the gems and jewellery value chain
Expenditure on various forms of

jewellery under various price bands
(April 2004 March 2005)
Estimated at USD 4.55 billion, UK is an important jewellery consumer market,

growing at a rate of 4 per cent year on year.
UK: Growth in retail sales of jewellery

Jewellery consumption in the UK has grown since 2000 by 4 per cent and the
market size today is estimated at USD 4.55 billion.
The UK market for jewellery is relatively stable and mature, with distinct product
and design preferences for jewellery. Jewellery demand has grown at a moderate
rate and the market has registered a decline since 2004.

2000-05
Figure 194: Expenditure on various forms of

jewellery under various price bands in the UK
retail jewellery market 30
Source: Target Group Index (TGI)/ BMRB
International/ Keynote Research 2005
Advertising expenditure on jewellery and

watches (000 GBP)
A number of changes in consumer preferences are also seen in the UK market.

There is a growing demand for coloured jewellery in both the high end and
fashion/adornment segments. In addition to this, there is a growing market for
traditional vintage style jewellery featuring products such as brooches and
chandelier earrings.
Yellow-gold is regaining demand since 2004, mainly due to marketing initiatives
like the featured Greek themes from the Olympics. A number of well known
designers have used yellow gold for their collections and this is likely to drive
demand for the metal in the short and medium term. The market has also seen a
positive growth in jewellery sales for mens and childrens jewellery in the last
few years. The UK jewellery market is relatively stable and robust. Jewellery
sales are likely to reach USD 4.59 billion.
It also appears that enhanced advertising spends have contributed to sustaining
the jewellery demand. As can be seen in Figure 195, advertising spend on
jewellery and watches is on the rise.
UK is a large consumer of diamond jewellery and diamond jewellery constitutes a

large percentage of UK jewellery market. DTC has reported a 31 per cent growth
in the sale of 3-stone products (bulk of which are sold mostly as rings).
Gold jewellery accounts for the highest value of jewellery sales in the UK. The
market generally consume 9-carat gold jewellery, however there has been a gradual
shift to higher carat jewellery in the last decade. According to World Gold
Council, 18 karat gold sales reached a record high accounting for more than
10 per cent of all hallmarked gold items in the UK in 2004.
Platinum jewellery demand has grown significantly in the last few years. The
largest consumption of platinum is in the form of wedding rings. As per industry
sources, the growing demand for coloured jewellery in the UK is likely to translate
into platinum being grouped with coloured gemstones in the months to come.
Figure 195: Annual advertising expenditure on

jewellery and watches in the UK 31
Source: Nielsen Media Research/ Keynote Market
Research 2005
UK: Estimated jewellery consumption
UKs market share of the world jewellery retail pie is expected to increase at a
slow CAGR of 0.6 per cent reaching a total sales figure of USD 4.78 billion in
2010 and USD 4.84 billion in 2015.
(2010-15)
The UK jewellery market has got clearly segmented in the last few years.
Diamond and platinum jewellery has dominated the high end (above GBP 500) of
the market, while bulk of the volumes are generated from consumers whose
annual spends are less than GBP 100.
Italy in 2010 and 2015
206
Note:
30 Timelines April 2004 - March 2005
31 Year ending June 2004 and 2005
207
United States of America

Country snapshot
The U.S., which is one of the largest producers of gold, has a 11 per cent market
U.S.s presence in the gems and jewellery value chain
United States: Cut and polished diamond

output
share. In 2005, the U.S. produce exceeded that of Australia, thereby taking it to
CAGR 10.27%
number two position in the global pecking order of gold production.
0.90
0.80
The U.S. is the worlds third largest producer of platinum.

The U.S. has a small diamond processing industry processing mainly high value goods.
The U.S. is also one of the oldest jewellery manufacturing centres. Although
currently on a decline, the U.S. produces over USD 3.5 to 4 billion worth of

Source: Gold Survey 2006, GFMS
North America: Platinum mining output

The 7% decline has been
attributed to fall in grade,
poor mill availability and a
sharp drop in recoveries
Million ounces
300
390
2002
Jewellery manufacturing
385
360
2000
200
150
100
50
0
2001
2002
2003
2004
2004
4.50
4.00
USD billion
Alaska and Nevada are the main contributors to the production pool, with the
former producing majority of the countrys gold output (83 per cent in 2005).
About 30 mines contributed most of the U.S. gold output. The large gold mines
in the U.S. are located in northern Nevada, the Goldstrike Mine owned by Barrick
Gold Corporation being the largest in the country.
CAGR 2.7%
3.50
3.53
3.60
3.12
3.80
3.93
4.03
2003
2004
2005
3.00
2.50
2.00
1.50
1.00
0.50
0.00
2000
2001
2002
Figure 200: Growth in jewellery fabrication centre

output (2000-05)
Platinum mining
North America as a whole is the third largest producer of platinum. It reported an
output of 360000 oz in 2005, an increase of 50 per cent over the 240000 oz
mined in 2000.
Top destinations for the U.S. gold and

silverware exports (2002)
Others
15%
France
3%
Italy Dominican Republic 4%
2%
UK
4%
India1%
Platinum accounts for 25 per cent of the PGM mined and recovered, with palladium
largely making up the rest an average one ounce of PGM mined in North
America 28 per cent Platinum and 70 per cent Palladium.
The U.S. manufactures over USD 3.5 to 4.00 billion worth of jewellery each year,
contributing around 5 per cent to the global jewellery pie. Being the largest
consumer nation of jewellery, a majority of the jewellery manufactured in the
country is consumed domestically. Exports constitute approximately 25 per cent
of the total jewellery production, major destinations being Japan, UK, Mexico,
Canada and Hong Kong.
The U.S. Jewellery manufacturing industry was originally located in New England,
Massachusetts and Rhode Island, but has since then moved to other parts of the
country such as Florida and Los Angeles. The industry is characterised by over
4,000 production units of which 80 per cent have less than 25 employees. The
bulk of the jewellery produced in the U.S. is of 14 carat variety. However, there
has been an increase in the production of 10 carat as well as 18 carat jewellery in
the recent past.
High infrastructure and administrative wages costs have rendered jewellery
manufactured in the U.S. to be significantly more expensive than to other nations
(average employee wages per month reaching up to USD 2000, compared to
USD 200 and 300 in Indian and China respectively). As a result, jewellery
manufacturing in the U.S. is witnessing a steady decline. This downward trend is
also reflected in the countrys demand for precious metals mainly gold. In U.S.
consumption of gold for jewellery fabrication has reduced over the last few years.
Netherlands
5%
Canada
6%
2005

Source: Johnson Matthey, Platinum 2006
2005
United States: Jewellery fabrication

centre output
Primary production of PGM in the U.S. is confined to the Stillwater mining

complex in Montana. In the absence of any domestic refining facilities, PGM
concentrates are sent to Belgium for refining.
250
2003
Figure 199: Annual diamond processing centre

output (2000-05)
295
285
2000
2001
0.30
Gold mining
The gold mining industry in the US, currently the third largest in terms of total
annual output, is on a steady decline. As per GFMS, the countrys gold output
has declined by 28 per cent over the last five years from 355 tonnes in 2000 to
260.3 tonnes in 2005. Production stabilized in 2005, logging a 1 per cent growth
over 2004.
360
0.45
0.10
United States: Gold mining output

(volume tonnes)
400
0.58
0.46
0.40
The U.S. market estimated at USD 44.98 billion is the largest market for jewellery
450
0.48
0.00
accounting for 31 per cent of total world jewellery sales.
350
0.50
The U.S. diamond manufacturing industry (mainly based in New York) is relatively
small; employing around 400 people in around 100 small processing units.
New York ranks as the most expensive labout cost destination (average cost of
processing being USD 100 per carat), amongst all processing locations and
processes stones of larger sizes (2 carats and above) and higher quality.
0.20
jewellery each year.
0.60
0.78
0.73
0.70
USD billion
Diamond processing
Israel
17%
HK
8%
Mexico
8%
Belgium
10%
Japan
9%
Switzerland
8%
Figure 201: Key export destinations for gold

jewellery and silverware manufactured in the
United states
Source: Data compiled from U.S. Department of
commerce, U.S. Treasury, U.S. international Trade
208
209
2000
34.61
2001
2002
39.51
2003
42.09
2004
44.98
2005
Figure 202: retail sale of jewellery in the U.S.

(USD bn., 2000-05)
In the estimates for 2006, the slowdown is expected to continue with the industry
growing once again at a lower pace of 4.7 per cent to reach USD 46.62 billion.
Share of various types of jewellery in
value terms
Others 5%
Plain Platinum
Jewellery 1%
24%
The U.S. fine jewellery market is diverse, with almost all significant segments of
the jewellery having a sizeable share. It is also the largest market for gold jewellery
accounting for 17.9 per cent of the global consumption with India closely following
at 16.6 per cent. U.S. gold jewellery sales in 2005 added to USD 10.85 billion.
The U.S. is also the largest market for diamond jewellery. Retail sales of
diamond jewellery has been growing at a Y-o-Y rate of 5 per cent; total diamond
jewellery sales in 2005 reach USD 31.25 billion.
Diamond Jewellery 70%
Figure 203: Market share for various types of

jewellery in value terms (USD billion)
Source: National Jeweler
Notwithstanding the high price tag, platinum has remained popular amongst
consumers, however majority of the sales are restricted to a small number of
people in the high-end category.
Figure 204 and 205, describe the characteristics of the worlds largest market for
jewellery.
Festive seasons are clearly the drivers of major purchases
the >100 USD category
1000
350
2005
300
Christmas is the largest

occasion for jewellery
purchase
1200
Majority of the purchases made in

400
Number of people
33.90
37.18
Currently valued at USD 44.98 billion, the U.S. is the largest consumer market for
jewellery in the world. The U.S. market has been a robust market for the last
several years and has steadily grown at a CAGR of 5.81 per cent between 20002005. After logging an impressive 6 per cent growth rate in 2004, the market
reported a rather less than average growth rate of 3.87 per cent in 2005. A number
of market analysts have attributed this slump in jewellery demand to the slow
down being experienced by the U.S. consumer markets. Also, shift to other
luxury products and services and a dip in the consumer confidence are
considered as the main reason behind the real fall in demand, possibly signaling
new challenges for the industry.
Number of purchases made at various price bands (2005)
Number of purchases
USD Bn
CAGR 5.81%
50.00
45.00
40.00
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0.00
250
200
150
Valentines Day
purchases
800
600
400
Slump due to
holiday season
100
200
50
0
100$ o r le s s
101 - 200$
201 - 300$
301 - 400$
401 - 500$
> 500$
Figure 204: Survey estimate of purchase made by U.S. consumers

under various bands
Source: Jewellery Consumer Opinion Council (JCOC)
U.S.: Estimated jewellery consumption

(2010-15)
70
60
USD billion
Growth in retail sales of jewellery
50
54.10
58.70
45.00
0
Jan
Feb
March
May
July
Aug
Sept
Oct
Dec
Figure 205: Survey estimates of jewellery purchases in the U.S. around the year.
Source: Jewellery Consumer Opinion Council (JCOC)
It is expected that the United States will remain a large markets for jewellery of
various types in the future. Overall demand for jewellery will reach USD 54.09
billion by 2010 and then to USD 58.72 billion by 2015. The country will remain a
large demand centre for diamond jewellery, expected to grow to reach USD 37.83
billion in 2010 a CAGR of 4 per cent. Growth will slow down 2010 onwards to 2
per cent per annum till 2015 where the industry will reach a total size of USD
41.66 billion.
40
30
20
10
0
2005
2010
2015
Figure 206: Projected U.S. jewellery sale

Demand for gold and platinum jewellery will increase by 14 per cent and 2 per
cent respectively till 2010, after which as in the case of diamond jewellery,
growth in demand for the metals will cool off to 2 and - 3 per cent respectively in
2015. The market for plain gold jewellery and plain platinum jewellery will reach
USD 10.35 billion and USD 1.25 billion respectively in 2015.
Most of the sales made in the U.S. fall within the USD 100 or less price band. A
large number of sales are also made in the USD 500 and above price bands a clear indication of a polarisation based on price.
Jewellery sales in the U.S. are seasonal with Christmas and Valentines day
being the largest occasions for purchasing jewellery.
210
211
Establishment of Retail Power Centres
IN FOCUS: Changing retail landscape in the Unites States
Emergence of eminent destinations for large volume retailers where a mass of consumers can be tapped.
Competition and industry supply forces forcing consolidation

Industry is witnessing consolidation driven by intense competition between the high volume retailers and the
smaller mom-and-pop independents. Challenged, traditional players, mostly independent retailers, are consolidating
their small stores into one large superstore, or are expanding a single retail location into a larger format with added
features. Department stores are facing the threat from larger discount stores such as Walmart and the likes.
Pressure to specialise
High volume retailers currently constitute 55 per cent of the market.
Internet sales on an upswing
Industry consolidation in part is also due to the large scale consolidation taking place in the industry across the
supply chain as a whole the largest factor being the efforts of large upstream players to influence diamond sales
downstream.
The internet has emerged as a major vehicle for purchase of low value products.
As per reports from eBay and Amazon, consumers have started making high value purchases online.
Majority of purchases made online are jewellery bought for oneself
Amazon, the largest player in this space is marketing itself as a low-cost, nomark- ups retailer claiming to have
made phenomenal sales during the festive season
Design boutiques/ viewing rooms for upscale customers
A number of chain stores are moving beyond the mall or retail store format and establishing private viewing
rooms and design studios to cater to their upscale customers who typically would not visit a mall or a retail store for
their purchases and would prefer discreet environments for high value purchases
Change in the market share of major retail categories over the years
100%
4%
7%
90%
9%
80%
70%
Independents
53%
49%
49%
60%
50%
Competition is pressurising retailers to specialise either in terms of product category or customer segments. This
trend is largely observed in the independent category.
The most expensive eBay jewellery purchase was a USD 149,000

pair of Harry Winston diamond earrings in 2004.
One wealthy mouse-clicker shelled out USD 94,000 for a pair of

diamond earnings set in platinum and 18-carat gold.
Discount Stores
Jewellery Chain
Stores
40%
30%
Non store retailers
23%
24%
22%
20%
20%
20%
1987
1992
2003
20%
10%
0%
Figure 207: Changing market structure of the U.S. jewellery retail market
Source: OneSource
212
213
IN FOCUS: Declining output from the traditional diamond processing centres: Israel and Belgium
Rising labour costs, threat from the low-cost giant India, emergence of low-cost processing centres like China has
resulted in the market share of Israel and Belgium traditional houses of cutting and polishing to decline. In the
future, the market share of both these centres is expected to decline from 17.2 per cent in 2005 to 11.1 per cent in
2010 and then further decline to 5.5 per cent in 2010.
Declining market share of traditional CPD centres Belgium and Israel

100%
Israel's polishing industry, which is concentrated in Tel Aviv and Netanya, has been one of the traditional processing
centres of diamonds owing to its large base of skilled cutters. Israel's output of cut and polished diamonds mainly
consists of larger stones (half carat and above) processed using state-of the art technology. Amongst the high labour-cost
manufacturing centres, Israel has the highest output of cut and polished diamonds and currently employs about 2000
workers in cutting and polishing factories.
Industry sources point to gradual diminishing of the Israeli cutting and polishing industry on account of a number of
reasons:
Belgium
80%
Israel
70%
60%
The Israel story
RoW
90%
82.8
50%
88.9
94.5
40%
30%
20%
10%
2.6
14.6
1.6
9.5
2005
2010
0%
0.7
4.8
2015
Figure 208: Estimated decline in market shares of Belgium and Israel in 2010 and 2015
The Belgium story

Declining workforce: The average age of the workforce is much higher than that in other processing centre. Main
reasons being the inability of the industry to attract and retain manpower in the face of competition from several other
attractive and growing industries.
Over the years, the number of Israeli sightholders have reduced. This has translated to a reduction in guaranteed
supply of rough diamonds to the country
Threat from low cost countries like India and China has turned real for Isreal. As a response, a number of Israeli
polishing companies are increasingly establishing factories in low-labour cost countries in the Far East, Russia and
China to polish smaller size stones and also increasing volumes of larger stones at lower costs. A large portion of these
diamonds are returned to Israel after being processed in these centres. Another popular model is where a number of
diamond processing companies sub-contract polishing work to low cost countries on a job-lot basis.
As a response to this trend, the Israeli diamond industry has in the recent past reassessed and upgraded its brand
identity, it now positions itself as possessing all the attributes that a processor would seek in a jewellery destination
such as high quality output, creativity, a wide range of products, state of the art technology. The industry has aimed to
revamp its image, with the slogan All you could ask for in one.
214
Antwerp in Belgium, once the diamond trade centre of the world is no longer a major centre for diamond processing
due to the high cost of skilled labour. However it still retains its position in diamond cutting expertise. As of today, the
country only processes stones of high value and larger sizes (of size one carat and above) in order to absorb the high
labour cost.
Belgium also remains a major trading centre for rough diamonds. The majority of rough imported into Belgium is
re-exported to India and Israel to be cut and polished. In 2002, India's off take of the total Belgian rough diamond
exports was 78 per cent by volume and 48 per cent by value while Israel imported 4 per cent (in terms of volume) and
10 per cent (in terms of value).
Like in the case of Israel, some of the older traditional cutting and polishing houses have moved to low cost countries.
Many of the factories in Russia, China and the Far East are owned by Antwerp companies and managed by Belgian
technicians.
As per our estimates, the share of Belgium in the global cutting and polishing industry is likely to reduce as the industry
moves towards the east (India) and far east. While major players may not stand to lose (as they would still earn large
revenues from processing factories owned and contracted in low cost nations), Belgium may not remain the preferred
cutting and polishing destination.
215
Supply of silver from various sources

(2005)
As in the case of gold and platinum, sources of silver supply include both primary
and secondary sources. Supply from primary sources (from key mines across the
world) has been growing at 1 per cent per annum (2000 to 2005). Secondary
sources of silver include net government sales, silver obtained from old silver
scrap and from producer hedging.
Producer Hedging
2%
Old Silver Scrap
21%
Net Govt. Sales

7%
Demand by various applications
Mine Production
70%
Figure 209: Supply of silver from various sources

(2005)
Source: GFMS Silver Survey (2005), Silver
Institute
Silver
Silver demand by various applications

(2005)
Implied Net
Investment
5%
Coins & Medals
4%
The use of silver by mankind dates back to as far as 3000 BC. Due to its
malleability, ductility and lustre, silver has been a metal of choice for fabricating
lower end fashion jewellery. Today, the white wave that has gripped many
consumer markets has enhanced the demand for silver manifold making it one of
the most popular precious metals for jewellery fabrication. The whitish metal has
a unique positioning mainly due to its distinctive ability to adapt to the fashion
world. Silver jewellery is purchased by almost all types of consumer, from the
lower end consumers who purchase it for its affordability to the high end fashion
conscious segment who purchase silver set with precious and semi precious
stones to wear it on a one-off occasion. Silver jewellery today is available in many
lightweight, sophisticated and trendy designs. In many markets, the metal has
caught on in the form of Sterling silver (commonly known as 925 silver) an
alloy made from a mix of silver (92.5 per cent) and copper (7.5 per cent).
Industrial
Applications
46%
Photography
18%
Figure 210: Demand for silver by application

Source: GFMS, Silver Survey 2005
Global silver mining output

CAGR 1%
650
642
640
World supply of silver from primary sources
In the year 2005, growth in global silver mine production exceeded expectations,
with an increase of 3 per cent or 21.1 million ounces. This improvement was
partly explained by record performance at two of the worlds largest silver
producing mines, namely Penoles Fresnillo in Mexico and BHP Billitons
Cannington in Australia offsetting the reduction in output recorded by the U.S.,
Bolivia, Poland and Canada. Canada generated the bulk of last years losses,
accounting for 52 per cent of the gross decline in the global mine production.
Mine closures and reduced output at Eskay creek, where reserves are expected
to be exhausted by 2008, explained much of the fall.
634
630
620
612
610
611
607
600
590
2000
2001
2002
2003
2004
2005
Figure 211: World supply of silver from primary

sources (2000-05)
Source: GFMS Silver Survey (2005), Silver Institute
216
Silver has many uses photography, industrial applications, silverware and

jewellery being the prominent ones. Aggregate silver fabrication demand, driven
by industrial demand, attained its highest level in 2005 since 2001. It rose by
3 per cent to 864.4 million ounces. Demand for industrial fabrication, which
consumes the highest amount of silver, rose by 11 per cent to reach 409.3 million
ounces and has taken its share of total fabrication to 46 per cent as compared to
37 per cent a decade ago. Demand for the metal in the jewellery and silverware
category has recorded a modest increase in 2005 to 249.6 million ounces,
irrespective of soaring prices. Silver is extensively used in the photography
industry, demand from this sector accounted for 18 per cent of total demand.
Silver is mainly mined as a by product of gold and other metal, with only about 20 per
cent being mined as a primary resource. Supply of the metal from primary sources
(mining) has witnessed a slow but steady increase at a year on year growth rate of
1 per cent. Key mining countries for silver are Mexico, Peru, China and Australia.
Jewelry and
Silverware
27%
million ounces
Silver jewellery is purchased

by almost all types of
consumers, from the lower
end consumers who
purchase it for its
affordability to the high end
fashion conscious segment
who purchase silver set with
precious and semi precious
stones to wear it on a oneoff occasion.
World supply of silver
Peru ranked as the number one producing country by crossing the 100 million
ounces mark and recording a 4 per cent jump in production volumes. As for
future supply, higher silver and base metal prices have improved the outlook for
mine production, with fairly significant growth expected in 2007. As per GFMS,
mine production output is expected to rise by a modest 1 per cent or 6.4 million
ounces. Faster growth will be seen during the 2007-08 period due to expected
production from new mines in Bolivia and Mexico.
217
World supply of silver by country 2000-05

587.3
611.8
607.4
611.2
634.4
641.6
6%
6%
5%
7%
6%
7%
7%
8%
Australia
7%
7%
7%
Peru
9%
9%
100%
Others
80%
7%
5%
Chile
Poland
China
60%
40%
20%
5%
5%
6%
6%
7%
7%
7%
8%
8%
10%
11%
10%
10%
11%
11%
14%
13%
12%
11%
11%
10%
17%
15%
15%
14%
14%
12%
2002
2003
2004
Mexico
0%
2000
2001
2005
Figure 212: Changing market share of key production centres for silver
Source: GFMS, Silver Survey 2005
World demand for silver for jewellery fabrication

Silver has working properties similar to gold and possesses significantly high
levels of reflectivity. It can achieve the most brilliant polish compared to any
other metal. Pure silver is too soft to be directly used in jewellery. Hence sterling
silver comprising of 92.5 per cent silver and 7.5 per cent copper is most
commonly used for jewellery fabrication.
Silver jewellery can be segmented into high, mid and low end. Demand for the
metal in the low to medium end fashion jewellery segment has outrun its
demand in the high-end jewellery segment. The emergence of the mass-luxury
market which comprises of the increasingly self-bought all day wear spurred the
growth of the mid price segment. Silver, especially gem-set, is well suited for
everyday wear and hence there has been a shift away from plain silver jewellery
to silver set with semi-precious or even precious stones. The low end silver
jewellery which is known to have performed consistently well in the past is now
facing competition from new materials such as mixed materials (comprised of
leather or rubber) or steel which have been aggressively promoted off late. This
trend was most pronounced in Italy and later caught on in Europe and North
America as well.
Global demand for silver for jewellery fabrication
Coloured gemstones
Coloured gemstones which

can be classified as precious
and semi precious constitute
a sizeable part of the industry
Coloured gemstones have been an integral part of the gems and jewellery
industry at all times. Going by contemporary definition, any stone other than
diamonds is labeled as a Coloured Gemstone (diamond occupying the position
of a separate sub segment due to its share in the overall global jewellery pie)
Coloured gemstones may be precious or semi-precious:
Stones that qualify as being precious are Emeralds, Rubies and Sapphires.
Other coloured stones are labeled as Semi-precious, however this

terminology is changing, with the term semi-precious stones being gradually
replaced by gemstone in common parlance.
100%
90%
Rest of the world

5%
7%
6%
6%
5%
6%
7%
6%
7%
8%
7%
7%
8%
5%
80%
70%
60%
11%
11%
10%
50%
11%
13%
40%
China
US
5%
6%
7%
Mexico
7%
7%
Thailand
9%
Italy
India
10%
14%
12%
11%
15%
14%
30%
Coloured gemstones are more often than not mined using picks, chisels,
hammers and shovels by small scale miners. This is in contrast to diamond
mining which usually comprises of very large, mechanised, highly efficient
operations
11%
20%
17%
15%
10%
14%
0%
2000
2001
2002
2003
2004
2005
Figure 213: Change in market share of various demand centres for

silver for jewellery fabrication
Source: GFMS Silver Survey (2005), Silver Institute
218
219
World production of emeralds
Snapshot of key precious coloured gemstones

Emeralds: The wonderful green colour of emerald gives it a unique position in the
gem kingdom. The green colour depends on the chromium content and iron
traces serve to enhance it. Emeralds often contain inclusions and other flaws.
However the finest emeralds are transparent. Unlike rubies and sapphires which
undergo heat treatment for clarity enhancement, emeralds are not heat treated.
Major producing centres for emeralds are Columbia, Brazil and Zambia
Rubies: Ruby is a variety of corundum (aluminum oxide) with chromium as an
impurity. Synthetic rubies have been successfully produced since 1904. Apart
from being set in jewellery, rubies are used in space research in connection with
communication systems. Major production centres for Rubies are Myanmar,
Madagascar, India, Afghanistan and Pakistan.
Sapphires: Sapphires are available in colours ranging from very pale blue to deep
indigo, depending on the quantities of iron and titanium present. Its chemical
composition is the same as that of a Ruby essentially corundum, which is the
second hardest known natural substance after diamond. Apart from jewellery,
sapphires are used in the manufacturing of jewel bearings, gauges, dies, and
high grade abrasives. Key production centres are India, Myanmar, Sri Lanka,
Thailand and Madagascar.
Major production centres for precious and select semi precious coloured gemstones32
Production of emeralds is
concentrated in three major
countries Columbia, Brazil
and Zambia
Columbia: Columbia is estimated to be the oldest producer of emeralds, having

operations since 1000 A.D. Historically, emeralds have been mined in three main
areas - Muzo, Coscuez and Chivor; with each area having several mines. The
recent years have seen a shift towards new mining deposits in the La Pita area.
Recent estimates indicate that while Muzo accounts for 10 per cent of the
production, Cosquez produces 20 per cent and La Pita produces around 60 per cent.
In terms of quality, Cosquez and La Pita produce commercial quality stones and
Chivor produces a mix of fine and commercial stones. The top quality stones are
produced in Muzo. Colombias political instability and increasing depth of mines
has resulted in a decline in quality and quantity of emeralds as a whole.
Brazil: Brazil is catching up with Colombia in the quality of emeralds mined as
the mines get deeper. Production, estimated to be at 70 to 80 kilograms per
month, is centered in the states of Tocantins, Golas, Itabira and Nova Era. In
terms of volume, Brazil is the largest producer of emeralds.
Mid 2005 has seen the opening of a new emerald mine in Brazil with an output
of about 60 to 80 kilos of rough a month.
Zambia: It has been estimated that Zambia produces 20 per cent of the worlds
emeralds. Zambian emeralds are known for their exceptional deep green colour,
making them highly valuable. Kamakanga is the most prominent emerald mine.
The emerald mining industry of Zambia is an important contributor to the
country's economy as emerald exports form about 16 per cent of the total
exports of the nation. It is estimated that the annual production of emeralds lies
between 500 and 1000 kilograms.
World production of rubies
AfghanistanPakistan
India
Columbia
LEGEND
Emeralds
Brazil
Myanmar
Sri Lanka
Zambia
Sapphires
Rubies
Madagascar
Australia
Tanzanite
Topaz
Opal
Figure 214: Key supply sources for select coloured gemstones

220
32Note:
Locations plotted on the map are representative and do not depict exact locations of the sources of the stones
Myanmar: The Mogok region in the central part of Myanmar is the largest
mining area producing the finest quality rubies. Mong Hsu in the north east of
Myanmar is the second largest mining area producing rubies of lower quality but
in far larger quantities.
Initially rubies from Myanmar were considered unfit for jewellery purposes as
these crystals show two colours when untreated a purple to blackish core and
a bright red brim. However, they found their way into the jewellery market after
it was discovered that heat treatment of these stones would eliminate the dark
core and only the deep red would remain. The size of heat-treated rubies from
Mong Hsu varies between 0.5 and 3 carats. Most of the mining which is carried
out by independent miners is of the secondary deposits of ruby in the river
terraces of the Nam Hsu.
221
Rubies, like sapphires are

currently exhumed mainly in
eastern and south eastern
countries
Given the nature of the Industry, reliable production data is not available.
Gemstone dealers in Thailand have estimated that about 80 per cent of the world
supply of rubies comes from Myanmar. It is however believed that the quantity
has reduced in the past few years.
Sri Lanka: Sri Lanka is home to some of the oldest sapphire mines in the world.
Ratnapura district is known to have contributed to mining for over thousands of
years. The quality of stones found in Sri Lanka has been depleting as older mines
are running out and production on the whole is on a decline. New productive
mines include Kantale, Horana, Mihintalaya, Ragala and Bogawantalawa.
Luminosity and brilliance of the colour typifies Sri Lankan sapphires.
Madagascar: Vatomandry, discovered in 2000, is the largest ruby deposit in

Madagascar. Rough rubies produced in Madagascar are usually very small in size
(at an average giving a yield of 1.5 carats) and are of relatively lower quality.
However, it has been noted that the quality of the stones is gradually improving
Madagascar: Madagascar is one of the key producer of coloured gemstones.

According to the International Coloured Gemstone Association (ICA) almost all
gemstones except tanzanite, diamonds and jade are found in Madagascar.
However, the industry is plagued by high levels of illegal trade. World Bank
estimates the illegal trade of coloured gemstones from Madagascar to be
between the range of USD 200 to 500 million. To curb illegal trade, the country
has put a new mining code in place in December 2005 to regulate the export of
coloured gemstones.
India: India has been the biggest supplier of low-end rubies. Andhra Pradesh,
Bihar and Tamil Nadu produce facet grade rubies while Karnataka produces gem
quality rubies. Most mining is done on a small scale, by small units of locals
producers. Because of their poor clarity, Indian rubies are often dyed and oiled.
Other production centres: Afghanistan is another prominent producer of rubies.
However, political difficulties and rugged terrain have made mining in Afghanistan
difficult and complex. There are two mines, one located at Jagdelek, east of
Kabul and Badakhstan on the banks of Shignan river. Kabul is a major centre for
the trade of rubies though most of it enters the market through Pakistan.
Ruby deposits also occur in the belt extending between Hunza valley and
Ishkoman valley in Pakistan. These rubies are transparent to translucent and
brownish pink to pinkish red or deep red. Pakistan is one of the few regions in
the world that is producing blood red rubies which fetch a very high price in the
gem market. It is estimated that Hunza belt has a reserve potential of 1.8 million
carats of ruby, spinel and sapphire.
World production of sapphires
India: India is a notable producer of sapphires. Kashmiri sapphires, incidentally
discovered in 1880 after being uncovered by an avalanche, are considered to be
of a very high value. The key characteristic of Kashmiri sapphires is its pure and
intensive blue colour which is maintained under artificial light.
Sapphires are produced

mainly in the east and the
southeastern parts of the
world.
222
Myanmar: The colour of the sapphires found in Myanmar varies from royal blue
to deep cornflower blue. Sapphire deposits occur in the Mogok region, Mong
Hsu region and Kachin state. Mong Hsu region produces higher quantity of
sapphires than Mogok region though the quality of produce is inferior. Though
the quantity of pink sapphires produced by Kachin state is little, the quality is
exceptional.
In the past decade, Madagascar has emerged as one of the key producers of
sapphires. Ever since the discovery of the first sapphire mine in southern
Madagascar, there has been a fairly steady supply of blue sapphires from the
country. Madagascar is also an eminent producer of yellow and pink sapphires.
Blue sapphires from Madagascar are similar to those found in Kashmir, India in
terms of crystal morphology, however they appear to be slightly more cloudy
with significant colour zoning. Heat treatment is believed to give a lively blue
colour to these gems.
A variety of stones fall into

the category of semiprecious, topaz, opal and
tanzanite being the most
coveted.
Overview of select semi-precious coloured gemstones

Tanzanite
Tanzanite is one of the recent finds in the semi-precious gemstones segment,
discovered recently in 1967.
The stone is primarily mined and produced in Tanzania, exhumed entirely from
weathered rock found in Merelani, Tanzania. Tanzanite occurs as orthorhombic
crystals whose colour varies from colourless, yellow-green, brown, or blue to
violet. The stone has gained popularity in the jewellery segment due to its
sapphire blue colour and the fact that it exhibits more shades of blue than a clear
midnight sky.
Almost 90 per cent of Tanzanite production is cut and polished in India. Around
70 per cent of the Indian produce is traded through New York City. Tanzania is
now trying to maximise value by establishing its own cutting industry, however,
the industry has several challenges to face one being a 20 per cent value added
tax that eliminates inter dealer trade and mining.
223
Colour is the most significant factor in determining the quality of tanzanite. Clarity
is the second most important characteristic in the same. Carat weight comes
next in order of significance and cut is the least important of the 4Cs in
determining the value of a tanzanite. Synthetic tanzanite has never been made.
Topaz
The Oro Preto hills in Brazil hold almost the entire known commercial reserves of
Imperial and Precious topaz. These hills produce colourless topaz which is then
heat treated to give it a blue colour. Majority of the Topaz currently available in
the market is produced by a single mine, Capao, located about five kilometers
from the small village of Rodrigo Silva.
While pink to reddish-orange is the most valuable colour, the most common
colour of topaz is yellow with a reddish tint. Topaz is of two types Imperial and
Precious. While Imperial topaz exhibits a strong multicolour effect, precious topaz
usually exhibits a yellow colour range. Synthetic blue topaz has been in the
market since 1976.
China: With rising labour costs in Thailand, China is replacing Thailand as a major
cutting center for coloured gemstones.
Sri Lanka: It is interesting to note that although the coloured gemstone cutting
industry in Sri Lanka is an age-old traditional industry, it was only as recent as the
1980s (with industrialisation and the removal of trade barriers) that the industry
began to make meaningful contributions to the countrys economy. However, the
industry is currently facing a number of challenges such as competition from
other low cost, more technology-savvy centres, difficulty in retaining talent,
smaller enterprises losing out due to rapid fluctuations in gemstone prices etc.
Current trends
The coloured gemstone industry is also drawn in to the web of the sweeping
changes taking place across the upstream segments of the gems and jewellery
industry:
Coloured gemstone mining countries increasingly processing in-house:
ZEIL (Zambia Emerald Industries Ltd.) is one of the largest emerald

processing and cutting plants in the world involving more than 50 cutters.
Madagascar and South Africa have already developed their own cutting
industry.
Mineral Resources Governance Project (PGRM) has set up a lapidary school

in the capital for two month cutting classes. A longer six month course has
also been devised to train instructors who will then open regional cutting
schools in gem-mining areas.
Opal
Australia accounts for more than 95 per cent of the world supply of opals. The
three states that house opal mines are Queensland, South Australia and New
South Wales. Opals are found in locations all over the world, from Canada to Japan.
There are three major cutting

and polishing centres for
coloured gemstones India,
China and Thailand.
224
Key processing centres for coloured gemstones

Cutting and polishing of precious and semi-precious stones has been mainly
performed in the traditional low cost centres:
The industry is getting more organised with the entry of large players who
Thailand: Thailand holds the top position in coloured gemstone cutting. It was in
the 1980s that Thailand rose to prominence as a cutting center for gemstones.
The development of skillful gem cutters through extensive training has been a
success factor for Thailand. Proximity to the gem producing nations of Myanmar,
Sri Lanka and Cambodia has also aided Thailand in easily sourcing the rough
gemstones. Until recently, Thailand itself used to be a significant producer of
coloured gemstones. Thailand supplies around 80 per cent of the cut rubies and
sapphires in the world1.
control an influential share of the supply
India: Jaipur is the worlds largest and most diversified center for cutting and
polishing coloured gemstones. In 1927 when Jaipur was built, the maharajas of
the time used to offer tax concessions to skillful artisans and jewellers thus
laying the foundation of a thriving gemstone industry here. In 2005, India
imported USD 83 million worth of coloured gemstones and exported USD 193
million of cut stones. Rough emeralds are imported from Colombia, rubies from
Myanmar and aquamarines from Brazil.
other stones are treated or not
A case in point is that of TanzaniteOne which acquired the Tanzanite mines

controlled by Afgem, devising a new supply strategy for Tanzanite. Moreover,
it has proposed the creation of Tanzanite foundation on the lines of Platinum
Guild to promote Tanzanite.
Stones that cannot be enhanced through irradiation or heat treatment are

commanding higher prices because of the uncertainty over whether the
An instance is the decrease in value of 3 carat yellow sapphire from

USD 1000 a carat to USD 400 a carat.
225
IN FOCUS : Tanzanite industry setting an example for the global coloured gemston industry 33
The industry for mining and production Tanzanite, a violet-blue gemstone, occurring only in remote regions of Tanzania,
has made spectacular progress in key markets over the last few years.
Name
34
Relative Pricing
Available colours
Practical size for jewellery
Very high
High
Green
Medium
Ruby
Rose to deep purplish red
Small
Bixbite
Blue-green
to light blue
Small
A stone 1000 times rarer than diamonds, is expected to die out in 15-20 years: The worlds only known source of
Tanzanite is along a six-km strip in the Merelani Hills of northern Tanzania, near Mount Kilimanjaro. Production has
been steadily rising from USD 54.1 million in 1996 to around USD 185 million in 2000 reaching USD 300 million in
2005. As no major sources of the stone has been found in any other country or location within Tanzania, production
of Tanzanite is expected to be exhausted within the next 15 to 20 years given the estimated life of the current
mine.
Sapphire
Blue
Medium
Tanzanite
Blue
Small
Benitoite
Blue, purple, pink, colourless
Small to medium
Alexandrit e
Green by day, red by artificia l light
Former U.S.S.R. (small), Sri Lanka

(medium)
Cats-eye
Greenish to brownis h
Small to large
Aquamarine
Blue-green
Blueto light blue
Any
Nature of the stone: Unique structure in the rough form; the stone radiates three different colours blue, violet and
burgundy. Once cut and polished, tanzanite ranges from electric violets and pale blues to deep royals and rich
indigos.
Fancy Sapphire
Yellow, pink, white, orange, green, or violet
Medium to large
Peridot
Yellow and/or green
Any
Amethyst (Quartz)
Purple
Large
Garnet
Brown, black, yellow, green, ruby red, or orange
Small to medium
Opal
Colours fla sh in white gray, black, red, or yellow
Large
Pearl
White, pink, or bla ck
Small
Amber
Yellor,
Yellor red, green, blue
Any
Topaz
White, blue, green
Medium
Tourmaline
All, including mixed
Medium
Zircon
White, blue or brown, yellow or green
Small to medium
Coral
Orange, red, white, black, or green
Branching, medium
Moonstone
White
Large
Turquoise
Blue to green
Large
Jadeit e (Jade)
Green, yellow, black, white, or mauve
Large
Nephrite (Jade)
Green, yellow, black, white, or mauve
Large
Relative Pricing: After the three key precious stones emeralds, rubies and sapphires tanzanite is the fourth most
popular coloured gemstone in the largest jewellery market US. In comparison to these stones, tanzanite is much
cheaper with average price ranging from USD 500 USD 2000 per carat.
Demand for Tanzanite

70 per cent of Tanzanite is consumed in the United States where the demand for the stone has shot up remarkably.
Tanzanite was rated the fourth most popular coloured gemstone in the U.S. in 2002 and in 2003. Amending the list for
the first time after 1921, The American Gem Trade Association has included tanzanite as a birthstone, illustrating the
popularity of the gemstone in the largest jewellery market.
So, what is so exceptional about tanzanite industry?
Industry dominated by a single vertically integrated company: TanzaniteOne currently controls an estimated 40
per cent of a tanzanite market worth USD 120-million. On the lines of De Beers
Supplier of Choice, TanzaniteOne has implemented Preferred Supply Strategy.
Under this strategy TanzaniteOne sells its tanzanite production only to a select
number of gemstone houses and jewellery manufacturers. The companys
Preferred Supplier Strategy as it is called is a vehicle for the company to grow
the global market for tanzanite.
Medium
> 50 carats --------------------< 5 carats > USD 200 per ct----------------------<USD 25 per ct
Emerald
Unique characteristics of tanzanite
Classification of coloured gemstones
1
1
1
1
1
11
11
11
11
Figure 215: Classification of coloured gemstones

Source: Paper on Gemstones by Ronald F. Balazik, 1997
Unified marketing efforts: What clearly differentiates this industry from that of
other gemstones is the marketing initiatives of the industry players and
associations that are driving the growth in a very big way. Tanzanite Foundation
has been marketing the stone, showcasing its various unique propositions such as rarity, colour and other
characteristics. Notable among these efforts is the marketing campaign Be Born To Tanzanite that has created waves
in the industry.
33
226
Source:
Tanzanite Foundation Tanzanite Report, Maverick April 2006, TanzaniteOne Annual Report 2005, ICA World Mining
Report 2005, ICA Website, Jewellery News Asia Sep 2005, National Jeweler 01 May 2006
34
Note:
Size: Small-up to 5 carats;medium-upto 50 carats; large-more than 50 carats
227
Glossary
228
AIDS
Acquired Immuno-Deficiency Syndrome
HIV
Human Immunodeficiency Virus
Alrosa
Almazy Rossii-Sakha
HK
Hong Kong
ASSOCHAM
The Associated Chambers of Commerce and Industry of India
HNI
High Networth Individuals
BDVC
Botswana Diamond Valuing Company
HPHT
High Pressure High Temperature
BEE
Black Economic Empowerment
HRD
CAD
Computer Aided Design
Hoge Raad voor Diamant (Diamond High Council,

Antwerp World Diamond Centre)
CAGR
Compound annual growth rate
IAMAI
Internet and Mobile Association of India
CAM
Computer Aided Manufacturing
IGI
International Gemological Institute, Inc.
CBGA
Central Bank Gold Agreement
ILO
International Labour Organization
CEO
Chief Executive Officer
IMF
International Monetary Fund
CEPA
Closer Economic Partnership Arrangement (China and Hong Kong)
IMRG
Interactive Media in Retail Group
CIA
Central Intelligence Agency
INR
Indian Rupees
CIS
Commonwealth of Independent States
JAF
Jewellery Affinity Factor
CPD
Cut and Polished Diamonds
JCOC
Jewellery Consumers Opinion Council
CVD
Chemical Vapour Deposition
LBMA
London Bullion Market Association
DBCM
De Beers Consolidated Mines
MIBA
Miniere de Bakwange
DDE
Dubai Diamond Exchange
Mn
Million
DFID
Department for International Development
OECD
Organisation for Economic Co-operation and Development
DRC
Democratic Republic of Congo
Oz
Ounce
DTC
Diamond Trading Company
PGE
Platinum Group Elements
EITI
Extractive Industries Transparency Initiative
PGI
Platinum Guild International
EIU
Economist Intelligence Unit
PGM
Platinum Group Metals
ENDIAMA
Empresa Nacional de Diamantes de Angola
PWP
Polished Wholesale Prices
ETF
Exchange Traded Funds
RMB
Renminbi
FDA
Food and Drug Administration
SEZ
Special Economic Zone
FDI
Foreign Direct Investment
SOC
Supplier of Choice
FICCI
Federation of Indian Chambers of Commerce and Industry
U.A.E.
United Arab Emirates
GBP
Great Britain Pound
U.K.
United Kingdom
GDP
Gross Domestic Product
UNAID
Joint United Nations Programme on HIV/AIDS
GIA
Gemological Institute of America
UNITA
GSP
Generalized System of Preferences
Unio Nacional para a Independncia Total de Angola/

National Union for the Total Independence of Angola
U.S.
The United States of America
USD
United States Dollar
WGC
World Gold Council
YoY
Year-on-year
229
Secondary data sources
230
Africa Gems website (www.africagems.com)
31
Democratic Republic of Congo, Diamond Industry Review, 2005
Aerens Gold Souk website (www.goldsoukindia.com)
32
Department of Business Economics (Thailand)
African Diamonds plc. website (www.afdiamonds.com)
33
DiaMine Explorations Inc. (www.www.diamineexplorations.com)
Afrol News (www.afrol.com)
34
Diamond Facts 2005: Diamond Industry Report, 2005, Northwest Territories Canada
American Express website (www.americanexpress.com)
35
Diamond Fields website (www.diamondfields.com)
American Museum of Natural History (www.amnh.org)
36
Diamond Pipeline by Idex (2004 and 2005) (www.idexonline.com)
Anglo Gold website (www.anglogold.com)
37
Diamond Vues (www.diamondvues.com)
Anglo Platinum website (www.angloplatinum.com)
38
Diamond World magazine (www.diamondworld.net)
Antwerp Diamond conference newsletter
39
Diamonds :The Source (www.diamonds.co.il)
10
Antwerp Facets News Service
40
Diamonds by Louis Perron, 2006, Minerals and Metals Sector, Natural Resources Canada
11
Article by Lloyd R, Lewis III, 1997, Trade Environment Database published by

the Mandala projects group.
41
Diamonds for development' (Botswana High Commission, www.diamondsfordevelopment.com)
42
12
Article by Thomson Dialog, Rapaport News, July 2006
Diamonds: Adding lustre to the Canadian economy, 2004, Bruna Santarossa,

Statistics Canada, Ministry of Industry
13
Australian Government Invest Australia website (www.investaustralia.gov.au)
43
Diavik Calendar 2005, Production Statistics, January 2006, Toronto Stock Exchange
14
Bank of Israel Annual Report, 2003
44
Economist Intelligence Unit
15
BBC news online (news.bbc.co.uk)
45
EITI - Extractive Industries Transparency Initiative
16
BHP Billiton 2005 presentation by Sean Brennan President & COO EKATI, Sept 2005
46
Explorations Consultants Ltd (www.zambia-mining.com)
17
BMRB International
47
Factiva - Dow Jones and Reuters news service
18
Botswana Government Ministry of Mines Annual Report, 2004
48
19
Botswana guardian (www.botswanaguardian.co.bw)
Facts and Figures 2005: Ministry of Industry, Trade and Labour, Diamonds,
Precious Stones and Jewellery Administration, Israel
20
Brandz TOP 100 Power Brands, 2006, Millward Brown Optimor
49
Financial Times
21
Business Weekly (www.businessweekly.co.uk)
50
Gartner Dataquest,July 2005
22
China Chain Store and Franchise Association (CCFA)
51
Gateway to Russia news and research (www.gateway2russia.com)
23
China Chain Stores Association
52
Gem Jewel (www.gemjewel.com)
24
China Daily (Agencies via Xinhua, www.chinadaily.com,cn)
53
Gemesis cultured diamonds website (www.gemesis.com)
25
China Statistical Abstract, Greenwood Publishing Group
54
Gemstones, 1997, Ronald F. Balazik
26
CIA World Fact Book
55
Geopolitical Silver,2005, Scott Wright, Zeal Speculation and Investment
27
CNN, CNN Fyi (www.cnn.com)
56
Global Auto Report, 2006, Scotiabank Research
28
Consumer Brands and Retail Report, May 2005,HSBC Global Research
57
Global Poverty Research Group
29
DAC - Diamond Administration of China
58
Global Witness (www.globalwitness.org)
30
Datamonitor E-Retail report, 2006
59
Gold Avenue (www.goldavenue.com)
60
Gold Inspirations online magazine (www.goldinspirations.com)
231
232
61
Gold Price (www.goldprice.org)
91
LBMA Precious Metals conference, 2004 (www.lbma.org.uk)
62
Golden Italy (www.goldenitaly.com)
92
Majescor Resources website (www.majescor.com)
63
Gulf News, reported by UAE Interact
93
Mbendi Information Services (www.mbendi.co.za)
64
Hong Kong Trade Development Council (www.tdctrade.com)
94
Minerals Bureau, South Africa's Department of Minerals and Energy
65
HRD (Diamond High Council) website (www.hrd.be)
95
Mineweb (www.mineweb.net)
66
ICA World Mining Report 2006
96
Mining Review Africa, 2005 (www.miningreview.com)
67
ICICI Direct (www.icicidirect.com
97
Mining Weekly (www.miningweekly.co.za)
68
Idex, International diamond and jewelery exchange (www.idexonline.com)
98
Mintel website (www.mintel.com)
69
India Brand Equity Foundation (IBEF)
99
Mittal Steel website (www.arcelormittal.com)
70
India Retail on the Fast Track, 2005, KPMG-FICCI
100
Money Week (www.moneyweek.com)
71
Indian and Northern Affairs Canada (www.ainc-inac.gc.ca)
101
MosNews, Russia (www.mosnews.com)
72
Interactive Media in Retail Group (IMRG) website (www.imrg.org); comment by

Benjamin Schmittzehe, Schmittzehe & Partners - China Consulting
102
MSN Encarta (encarta.msn.com)
103
National Jeweler (www.nationaljeweler.com)
73
International Diamond Consultants website (www.diamondwww.com)
104
National Retail Federation (www.nrf.com)
74
International Labour Organization (ILO)
105
Natural Resources Institute,United Kingdom
75
International Monetary Funds (IMF) website (www.imf.org)
106
Nielsen Media Research (www.nielsenmedia.com)
76
Internet and Mobile Association of India (IAMAI)
107
No Dirty Gold campaign website (www.nodirtygold.org)
77
Internet Retailer (www.internetretailer.com)
108
One Steel website (www.onesteel.com)
78
Japan Tariff Association
109
Onesource Online Business Information
79
Jewelers' Circular-Keystone (www.jckgroup.com)
110
Oracle Market Research 2002
80
Jewelers Vigilance Committee Website (www.jvclegal.org)
111
Organisation for Economic Co-operation and Development (OECD; www.oecd.org)
81
Jewellery Association of China
112
Platinum 2006 - Johnson Matthey
82
Jewellery Net Asia magazine
113
Platinum and Palladium Survey 2006, GFMS
83
Jewelry Consumers Opinion Council (JCOC)
114
Platinum Guild International
84
Joint United Nations Programme on HIV/AIDS (UNAIDS) website (www.unaids.org)
115
Polished Prices (www.polishedprices.com)
85
Keynote Research 2005
116
Professional Jeweler Magazine, September 2005
86
KPMG FICCI Report on the Indian Retail Industry, 2005
117
Rapaport News (www.diamonds.net)
87
Kristall Smolensk website (www.kristalldiamonds.com)
118
Rediff News (www.rediff.com)
88
KSA Technopak: Consumer outlook for 2005
119
Report on Dirty Metals, No Dirty Gold website
89
KWR International -Overview of Global Steel Industry,2006, Salman Anwar
120
90
LBMA - the Alchemist; interview with Mr. Frank McAllister,

Chairman and CEO of Stillwater Mining
Report on Productivity Trends in Selected Natural Resource Industries in Canada,

October 2004, Centre for the study of living standards
121
Research Report on the Jewellery Sector in Hong Kong - Prepared by ICE HK June 2005
122
Retail Outlook for China,2005,KPMG
233
234
123
Rio Tinto Annual Review,2005
151
The Israeli diamond Industry (www.israelidiamond.co.il)
124
Rio Tinto Industry Report,2003
152
The Namibian Newspaper (www.namibian.com.na)
125
Russian Diamonds Syndicate website (www.russiandiamondssyndicate.com)
153
The New York Times
126
Shanghai Flash - Issue 6, December 2005, Consulate General of Switzerland in Shanghai
154
The Opal Mine website (www.opalmine.com)
127
Shanghai Gem Association
155
The Register (www.theregister.co.uk)
128
Shenzhen News April 2004
156
The Rubies and Spinels of Afghanistan a brief history,Richard W. Hughes
129
Sierra Leone News (www.sierraleonenews.com)
157
The Silver Institute (www.silverinstitute.org)
130
Silver Investor (www.silver-investor.com)
158
The Source - Dubai metals and commodities centre newsletter
131
Solitaire International magazine
159
Think Equity Partners, 2005
132
Statistics South Africa: Labour Force Survey
160
Trans Hex website (www.transhex.co.za)
133
STAT-USA Market Research Reports
161
Travel daily news (www.traveldailynews.com)
134
Stillwater Mining website (www.stillwatermining.com)
162
U.S. Bureau of Labour Statistics (www.bls.gov)
135
Stillwater Palladium (www.palladiumcoins.com)
163
United States Department of the Treasury (www.ustreas.gov)
136
Strategy on Mining, Cutting, Polishing and Marketing of Gemstones in Pakistan

Government of Pakistan, Ministry of Petroleum and Natural Resources
164
137
Tacy Ltd, Diamond Intelligence Briefs
United States General Accounting Office; INTERNATIONAL TRADE,

Critical Issues Remain in Deterring Conflict Diamond Trade,
Report to Congressional Requestors, June 2002
138
Tanzania Government website (www.tanzania.go.tz)
165
United States International Trade Commission (USITC, www.usitc.gov)
139
Tanzanite Report, Tanzanite Foundation (www.tanzanitefoundation.com)
166
US Census Bureau (www.census.gov)
140
TanzaniteOne Annual Report 2005
167
US Department of commerce (www.commerce.gov)
141
Target Group Index (TGI)
168
US Geological Survey (USGS, www.usgs.gov)
142
Tendances du march de l'art 2005 - Art Market Trends, Art Price
169
USA Today January 2006
143
Thai Gem (www.thaigem.com)
170
World Book Multimedia Encyclopaedia 1998 Edition
144
The De Beers group website (www.debeersgroup.com)
171
145
The Economist
World Colored Gemstone Mining Report 2005, Gordon Austin, Morgan Beard, Mick Elmore,
Cara Woudenberg and Megan Zborowski
146
The Freedonia Group
172
World Economic Outlook Database, April 2006, International Monetary Fund (IMF)
147
The Gem and Jewellery Sectors of India and Italy - A Cluster Perspective, 2004,
Indo Italian Chamber of Commerce
173
World Exploration Trends, Metal Economics Group
174
World Gold Council
148
The Gem Zone Inc. (TGZ, www.etanzanite.com)
175
World Silver Survey, 2005, The Silver Institute, GFMS
149
The Great Indian Retail Story, 2006, Ernst & Young
176
World Travel Market 2006 (www.wtmlondon.com)
150
The Indian Chemicals Industry - New directions, new hope, 2003,

KPMG and Chemtech Foundation
177
www.emeralds.com
178
www.goldsouks.com
235
Acknowledgements
236
Andrea Turcato, VicenzaFiera International, Italy.
31
Neill Swan, Sales and Marketing Manager, Johnson Matthey, UK
Angela David, Assistant to Executive Director
32
Nirupa Bhatt, Country Manager, Rio Tinto Diamonds, Mumbai, India.
Ashok Gupta, ACPL Jewels, Agra, India.
33
Pankaj Mehta, Chairman, Dimexon Diamonds Limited, Mumbai, India.
Bakul Mehta, ex-chairman, GJEPC.
34
Pankaj Parekh, Alankar, GJEPC Convener: Eastern Region, Kolkata, India
Chaim Evan Zohar, Managing Director, Tacy Ltd., Ramat Gan, Israel.
35
Paul Walker, Chief Executive Officer, GFMS, London, UK.
Charles Wyndham, Polished Prices, Diamonds International Canada Ltd,

International Diamond Consultants, London, UK.
36
Philip Olden, Managing Director, Marketing and Jewellery, World Gold Council, London, UK
37
Prabir Chatterjee, Managing Director, Concept Jewellery (Adora), Mumbai, India.
Dilip Desai, Director, Diabex N.V., Antwerp, Belgium.
38
Prashant Kapre, Business Director, The Diamond Trading Company, Mumbai, India.
Dilip Mehta, Chief Executive Officer, Rosy Blue, Antwerp, Belgium.
39
Douglas Ritchie, Managing Director, Rio Tinto Diamonds, London, UK
Rajiv Jain, Director, Sambhav Gems, GJEPC convener:

Jaipur region and Coloured Gemstone panel, Jaipur, India
10
Dr. Ajay K. Garg, Botswana Government, Ministry of Mines, Botswana
40
Rajiv Mehta, Chief Executive Officer, Dimexon Diamonds Limited, Mumbai, India
11
Edahn Golan, Editor-in-Chief, Idex Online, Israel
41
Richard Platt, International Diamond Consultants Ltd., London, UK
12
Gareth Penny, Managing Director, De Beers Group, London, UK.
42
Sanjeev Agarwal, Managing Director - Indian Subcontinent, World Gold Council, Mumbai, India.
13
Gaurav Gupta, Vice Chairmand and Joint Managing Director, Aerens Gold Souk, Gurgaon, India
43
Sanjiv Arole, Consultant, GFMS, Mumbai, India
14
Haresh Zaveri, Pramak, GJEPC Co-convener - Exhibition, Mumbai, India.
44
Senthil Kumaran, Country Manager, Aber Diamond Corp., Mumbai, India
15
Harsh Dalal, Vice President Sales, Aber Diamond Corp., Toronto, Canada.
45
Shashikant D. Shah, DM Gems (Authorised Distributor Gemesis Corp), Pune, India.
16
Hemant Shah, Chief Executive Officer, Uni Design Jewellery, Mumbai, India.
46
Shishir Nevatia, Director, Sunjewels India Pvt Ltd, Mumbai, India.
17
James Courage, Chief Executive Officer, Platinum Guild International, London, UK.
47
Shreyas Doshi, Managing Director, Shrenuj & Company, Mumbai, India.
18
Kamal Naqvi, Precious Metals analyst, Barclays Bank, London, UK.
48
Sonu Parikh, Diarough, Antwerp, Belgium
19
Kaushik Mehta, Chairman, Eurostar Diamond Traders, Antwerp, Belgium.
49
Stephane Fischler, Vice Chairman, HRD Diamond High Council, Antwerp, Belgium
20
Ketan Parikh, Partner, Mahendra Brothers, Mumbai, India
50
Tehmasp Printer, Managing Director, International Gemological Institute, Mumbai, India.
21
Konal Doshi, Modern Impex, GJEPC Co-convener gold jewellery panel, Mumbai, India.
51
Tim Jackson, Investor Relations, Signet Group plc., London, UK.
22
Lawrence Bentley, Strategy and Business Development, De Beers Group, London, UK.
52
Tom Beardmore-gray, Head of New Business, De Beers Group, London, UK.
23
Lea Retter, Managing Director, Rapaport Belgium, Antwerp, Belgium.
53
Vaishali Bannerjee, Manager- India, Platinum Guild International, Mumbai, India
24
Loet Kniphorst, Global Head of Diamond & Jewellery Group, ABN Amro Bank,
Antwerp, Belgium.
54
Varda Shine, Managing Director, The Diamond Trading Company, London, UK.
55
Vartkess A. Knadjian, Group Chief Executive Officer, Backes and Straus, Antwerp, Belgium.
25
Madhusudan Daga, Freelance Journalist, Mumbai, India
56
Vijay Chordia, Swaraj Gems, Jaipur, India
26
Mahesh Rao, Carbon, GJEPC Convener -Gold Jewellery Panel, Mumbai, India
57
Vinod Kurien, Editor, Solitaire International, Mumbai, India.
27
Manek R. Mistry, I Hennig and Co., Mumbai, India
28
Mark Jenkins, Group Company Secretary, Signet Group plc., London, UK.
29
Mehul Durlabhji, RY Durlabhji, Jaipur, India
30
Mihir Dalal, Hindustan Diamond Company, Mumbai, India
237
About GJEPC
About KPMG
The Gem & Jewellery Export Promotion Council (GJEPC) is an all - India apex
body representing more than 7000 jewellers from India, established to promote
the export of various gems and jewellery products from India. Set up in 1966, the
council is a non-profit organisation, operating under the supervision of the
Ministry of Commerce, Government of India and elected representatives of the
industry.
KPMG is the global network of professional services firms of KPMG International.
The core objective of the GJEPC is to introduce Indian gem and jewellery
products to the international market and promote their exports. To achieve this,
the council provides market information to its members regarding foreign trade
inquiries, trade and tariff regulations, rates of import duties, and information
about jewellery fairs and exhibitions.
The member firms of KPMG International in India were established in September

1993. As members of the cohesive business unit that serves the Middle East
and South Asia (KPMG's MESA business unit), they respond to a client service
environment by leveraging the resources of a globally aligned organisation and
providing detailed knowledge of local laws, regulations, markets and competition.
As a secondary objective, the council has also taken on the role of compilation
and publishing industry import-export statistics of India and select other nations
on a regular basis.
KPMG has offices in India in Mumbai, Delhi, Bangalore, Chennai, Hyderabad,

Pune and Kolkata and services over 2,000 international and national clients. The
firms in India have access to more than 1500 Indian and expatriate professionals,
many of whom are internationally trained.
KPMG member firms provide audit, tax and advisory services through industry
focussed, talented professionals who deliver value for the benefit of their clients
and communities. With nearly 100,000 people worldwide, KPMG member firms
are spread over 144 countries.
Other activities of the council
Sponsors study teams and trade delegations to explore foreign markets.
Arrangement for the participation of its members in foreign trade fairs and
exhibitions.
Advertising in leading trade journals abroad to introduce Indian products in

those markets.
Organising meetings between its members and foreign delegations visiting

India.
Acting as a liaison body between the industry and the government to ensure
a smooth flow of exports
KPMG strives to provide rapid, performance-based, industry focussed and

technology enabled services, which reflect a shared knowledge of global and
local industries and our experience of the Indian business environment.
The council also forms an effective link between foreign buyers interested in
importing gems and jewellery from India via appropriate Indian exporters. The
council plays a nodal role in establishing and managing the international network
between Indian exporters of gems and jewellery and foreign buyers.
238
239

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The Gem and Jewellery Export

The global gems and jewellery industry

Vision 2015: Transforming for Growth

The information contained herein is of a general nature and is not

2006 KPMG, an Indian partnership and a member

intended to address the circumstances of any particular individual or

firm of the KPMG network of independent member

entity. Although we endeavor to provide accurate and timely information,

firms affiliated with KPMG International, a Swiss

there can be no guarantee that such information is accurate as of the

cooperative. All rights reserved.

date it is received or that it will continue to be accurate in the future. No

KPMG and the KPMG logo are registered trademarks

Message from the Chairman

Study scope and approach

Industry Current state

Sources of precious stones and metals

Predicting the future

A roadmap for the future

Aspirational view of the future

Industry size, segments, and historical growth

Eight key world markets

Figure 3: Geographic share of the global

Growth in industry segments

Diamond rough production

Diamond mine sales

Diamond rough trade

Polished diamond inventory

Figure 1: Global jewellery sales (2000-2005), USD billion

Polished diamond at wholesale

Diamond-studded jewellery is the largest segment of this industry (2005 sales

World jewellery sales

Figure 4: The global gems and jewellery value chain (2005)

Key trends and likely scenarios

Plain platinum Others

Sourcing: This segment has witnessed an increased fragmentation of rough

Jewellery fabrication: Accelerating fashion cycles, relative factor costs

Polished diamond trade

Figure 2: Retail mix of various jewellery segments (2005)

Diamond supply controlled by

Israel and Belgium

Traditional centres finding

3. Consolidation occurs across the jewellery value chain.

JEWELLERY FABRICATION JEWELLERY RETAIL

6. Demand for plain gold jewellery declines.

1. Mining countries encourage local beneficiation and capture a share of the

Competition and overcapacity

SOURCES OF PRECIOUS STONES AND METALS

8. Jewellery loses out to competing luxury goods.

Future of the global jewellery industry

Gold price bull run

High and volatile

High debt levels in

Figure 5: Snapshot of key trends impacting the industry

Sluggish world jewellery sales

High cost of financing

Figure 6: Projected global jewellery sales

Projected share of industry segments and key consumption markets

Mass jewellery fabricators

Niche jewellery fabricators

Several retail formats

Figure 7: Projected share of various jewellery