The Diamond Industry and the Future of the Second Hand Market ___ - - PowerPoint PPT Presentation

The Diamond Industry and the Future of the Second Hand Market

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Pawn Expo, July 11, 2018

Overview

Market Overview Second Hand Market Synthetics

1 2 3

Rapaport Values:

Background:

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Established in 1978

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Global, 230 Employees, 7 Offices, 5 Countries

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Over 20,000 clients in 121 Countries

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Added Value Services

Ethical Transparent Competitive Efficient Markets

Information Services RapNet Diamond Grading And Certification Rapaport Auctions and Trading Services

Market Overview

1

The Diamond Journey

Mining Rough Wholesale Manufacturing Polished Wholesale Jewelry Manufacturing Retail Secondhand Market

Mining

Mining

• Diamonds are a finite

resource

• Limited new mines

discovered in the past 15 years

• As mines mature, it

becomes more expensive to extract diamonds from them

Source: ALROSA website

Mining

• Governments are seizing

more control and profits

• Miners moving

downstream

Source: ALROSA website

Manufacturing

90% of Diamonds are Manufactured in India Today

Trends in Manufacturing

• India playing dominant and growing role
• Large stones (30% of value) are still being manufactured
• utside of India
• High volume, low margin business
• Capture market share

The Lion Story

Manufacturing Edge

Source: SARINE website

• Economies of scale
• Technology

– Sarine Galaxy, Waterjet diamond lasering

• Data
• Go big, go niche or go

home

Major Wholesale Markets

Belgium Israel Hong Kong New York Dubai India

Why do we need wholesalers?

• Manufacturers and miners need consistent cash flow
• Not all diamonds are in demand and some need to be

pushed downstream

• Global physical commodity and buyers need to be catered

to in their own market

• Retailers need consistent supply and special terms

Value of the Wholesale Sector

Demand: Global Diamond Jewelry Consumption - 2016

USA, $41, 51% China, $10, 12% India, $3, 4% Japan, $6, 7% Gulf, $4, 5% Rest of The World, $17, 21%

*In Billion $ Source: De Beers Report for 2017

Retail

• The big have been getting

bigger

• Signet bought Zales

and James Allen

• Mom and pops are retiring or

closing down

• Online retailers are capturing

brick and mortar sales and profits

Retail

Source: BLUE NILE website

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Prices

Diamond Market Factors

Prices

Demographics Population Age Marriage Rate Divorce Rate Death Rate Globalization Foreign Demand Foreign Currencies China, India Quality - 4 C’s Cut, Carat, Color, Clarity Economic Forces Employment Rate Interest Rates Inflation Rates Wealth Effect Equities Social Norms Fashion Social Responsibility Consumer Confidence Diamond Dream Luxury Branding Store of Value Monetary Value Emotional Value Polished Supply Recycling Rough Supply & Prices

$ Million

3% 4% 5% 6% 7% 8% 9% 10% 11% 1,800 2,000 2,200 2,400 2,600 2,800 3,000 3,200

Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Retail Jewelry stores Sales ($M) Unemployment Rate…

U.S. Unemployment Rate & Retail Jewelry Sales

The First Rapaport Price List

Second Hand Market

2

Second Hand Market

• Estimated to be $1-2B annual

supply

• Major new source of supply and

growing

• US jewelers and dealers making

significant portion of their profit buying from consumers rather than selling to consumers

Source: HELZBERG website

Second Hand Market

• We estimate there to be over $200B of diamonds on

people’s fingers in the US alone

• As more diamonds are imported and consumed in the US

the larger the second hand market will be in the future

• The second hand market will continue to gradually grow

Millions

27

U.S. Population – 2018 vs. 2030

4%

• 1%

12% 0% 54% 39% 10 20 30 40 50 60 70 80 90 100 0-14 15-29 30-49 50-69 70-84 85+ 2018 2030

Second Hand Market

Gold and Melee Single stones Premium to melt jewelry and signed pieces Flat to slightly improving

Second Hand Market

• Can the pawn industry capture a larger share of this

expanding pie?

– Higher price point diamonds and premium quality jewelry

• Enhance your expertise and expand your clientele
• Position yourself long-term

– It’s not about loaning or buying, it’s about building relationships with customers and having the knowledge and capacity to help them

Synthetics

3

Synthetics

• Synthetics/Lab Grown

diamonds is a growing segment

• 4M carats of gem quality

synthetics being produced annually

– vs 70M carats of gem quality natural diamonds – Estimated to grow significantly – Primarily HPHT under 10 points

Source: PURE GROWN DIAMONDS website

Synthetics

• De Beers

moving into synthetics

• Cost plus model

Synthetics – 3Ds

The impact synthetics will have on the natural diamond market is contingent on the 3Ds:

• Detection
• Disclosure
• Differentiation

The melee category is the most vulnerable.

Source: REUTERS / REUTERS TV

Synthetics

• Diamond Foundry differentiating

their lab grown diamonds as conflict-free

• Diamond Producers Association

(DPA) established in 2015

• We are seeing lab grown diamonds

hitting the second hand market

• It is important to buy technology to

protect your purchases of diamonds

Source: DIAMOND PRODUCERS ASSOCIATION website

Synthetic Detectors

DiamondSure (IIDGR) GIA iD100 - $5,000 SYNTHdetect (IIDGR) AMS (IIDGR) DiamondView (IIDGR) Phosview (IIDGR)

Closing

▪ You’re on the front line;

• wn the customer

▪ We believe the pawn

sector can play a larger role in the second hand diamond and jewelry market

Closing

▪ How do you polish a

diamond

▪ Mazal

Thank you!

Wishing you all a very successful show!