The diamond value chain is on the most value adding processes in the world. Between production and retail, revenues of market players increase by a factor of nearly 5x. Players in the extraction and production segment, and high-end retailers take the largest chunk of the margin.
In the report ‘The Global Diamond Report 2013’ Bain & Company analysed the value chain of the diamond sector. The analysis shows that the value of diamonds increases significantly as they travel through the pipeline from the mine to the final market, nearly quintupling over the course of the journey. Rough-diamond production generates revenues of $14.8 billion. The revenues grow to $47.2 billion when the diamonds are manufactured into jewelry and grow again to $72.1 billion when the jewelry is sold at retail. The greatest value to the process is added at the jewelry manufacturing and retail stages.
The consultants also conclude that the value added to the process does not necessarily coincide with the margins for companies. Rough-diamond producers, such as De Beers, Rio Tinto and BHP Billiton, are in the most lucrative part of the value chain, boasting profit margins of 16–20%. The only other segment of the market that generates comparable margins is retail, where large chains such as Tiffany & Company and Cartier can achieve margins of 11–14%.
Other points along the value chain are far less profitable, with players at the cutting and polishing stage generating profit margins of 1–8%. This explains according to Bain why players at the cutting and polishing stage are also frequently involved in other activities along the value chain, so that they can gain additional margin from those activities.