寶石策略手冊：近期價格壓力和結(jié)構(gòu)性阻力

1、Global Research8 February 2019The Diamonds PlaybookEquitiesGlobalBasic MaterialsDaniel MajorAnalyst HYPERLINK mailto:daniel.major daniel.major+44-20-7568 3472Myles AllsopAnalyst HYPERLINK mailto:myles.allsop myles.all HYPERLINK mailto:sop sop+44-20-7568 1693Hugo BraveryAnalyst HYPERLINK mailto:hugo.

2、bravery hugo.bravery+44-20-7568 7202Jay Sole Analyst HYPERLINK mailto:jay.sole jay.sole+1-212-713 3559Helen Brand, CFAAnalyst HYPERLINK mailto:helen.brand helen.brand+44-20-7568 4395Julie Zhuang, CFAAnalyst HYPERLINK mailto:julie.zhuang julie.zhua HYPERLINK mailto:ng ng+44-20-7567 1888UBS Evidence L

3、ab inside: Near-term price pressure and structural headwindsNot just another diamond primer differentiated analysis/views in this report We are more cautious vs consensus on diamonds because: 1) we believe diamond jewellery demand growth will lag global luxury spend and diamonds will not grow in lin

4、e with GDP; 2) UBS Evidence Lab surveys support our view that synthetic diamonds are likely to gain sufficient market share to negatively impact natural diamond demand growth; 3) diamond mine supply is set to decline but we believe the disruptive impact is overstated. We initiate on Alrosa with a Se

5、ll HYPERLINK /shared/d28KHxw2d8 (Link) and downgrade Anglo to Sell HYPERLINK /shared/d2FRugkrtYi (Link).Outlook Solid long-term fundamentals, but headwinds limit price upsideIn our view, the fundamental outlook for diamonds is solid and our base case is for modest price upside in rough diamond price

6、s medium term. But, near term, we do not see any clear positive catalysts. Jewellery demand in USA/China appears lacklustre, the market for lower-quality stones is oversupplied, and low-quality rough inventory built in 2H18 is likely to re-enter the market when demand recovers, capping upside in ben

7、chmark prices and negatively impacting price realisations for Alrosa and De Beers.Will the global diamond jewellery market grow in-line with GDP?UBS Evidence Lab studies highlight diamond jewellery will remain a key category within Luxury but we believe demand growth (1,000 luxury consumers in China

8、 & USA; detailed global mine by mine supply model and realized pricing curve; synthetic diamond modelling and scenarioanalysis to estimate the impact of synthetic demand growth on natural rough diamond demand.SIGNPOSTSMajor Jewellers 4Q sales (Tiffany, Signet, Richemont, Chow Tai Fook, Luk Fook); Al

9、rosa & De Beerssight sales/inventory updates; synthetic growth (updated growth plans from synthetic companies).Figure 10: Diamonds supply & demandFigure 11: Rough Diamond prices upside vs downside30Market Balance (mcts)20100-10-20201510502013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023350Suppl

10、y & demand (US$bn3002502001501001Q064Q063Q072Q081Q094Q093Q102Q111Q124Q123Q132Q141Q154Q153Q162Q171Q184Q183Q192Q201Q214Q213Q222Q2350BalanceNatural Rough demand (RHS)Natural Rough Supply (RHS)UpsideUBS forecastDownsideSource: Paul Zimnisky, De Beers, UBS estimatesSource: Bloomberg, UBSDiamonds 101What

11、are diamonds?Diamonds are a rare, naturally occurring mineral and the hardest known natural substance. The hardness of diamonds is due to the strongly concentrated nature of the carbon chains that make up a diamonds structure.What are they used for?The price and use of a diamond depends on its quali

12、ty. High quality diamonds are typically referred to as gem quality and are used in jewellery. Low quality diamonds are commonly referred to as industrial grade and are used in industrial applications, primarily in cutting and polishing tools.How are they produced?Geology: Diamonds are found in a typ

13、e of an igneous rock called Kimberlite. Kimberlite was formed by volcanic activity which took place during the formation of the Earths crust. Diamonds are formed when carbon is put under extreme conditions of high pressure and high temperature, which are found at depths of 125-200 kilometres inside

14、the Earths crust in the upper mantle. The temperature at such great depths ranges from 900C to 1,300C. The natural process of diamond formation may take billions of years.Figure 12: Exploration chancesKimberliteDiamondiferousEconomicSource: Paul Zimnisky, UBS estimatesExploration: Diamonds occur in

15、two types of deposits primary and secondary. Primary deposits tend to have higher average grades, whereas secondary deposits, Alluvials, have lower average grades but much larger average stone sizes compared with primary deposits. The average grade of mines can vary from 0.03 to above3.0 carats per

16、tonne. But for a deposit to be economic, the quality and distribution of the diamonds is as important as the average grades. Statistically there is less than a 1% chance that a discovered kimberlite pipe will become a diamond mine.Exploring for these pipes is difficult due to the relatively small su

17、rface footprint of the kimberlite pipes. Unlike other minerals, drilling is not an effective exploration tool until after a pipe has been found. The invention of electromagnetic survey techniques in the 20th century allowed geologists to pinpoint kimberlite pipes with greater ease. Once a kimberlite

18、 pipe has been found it must then be drilled and bulk-sampled, a process that involves removing any overburden and then sampling a large parcel of the kimberlite material. Not all kimberlites contain diamonds and not all diamonds containing kimberlites are economic. Another potential problem is that

19、 the top layer of the pipe may have been enriched due to erosion and therefore may not accurately represent the grade of the rest of the pipe.Primary deposits are those which occur in diamondiferous pipes, i.e. pipes of mineral-rich volcanic kimberlite rock containing diamonds. These deposits were c

20、arried to the surface in molten rock, also known as magma. Whilst some of the material is erupted, much of the magma cools in situ as kimberlite, usually in the form of tapered pipe extending vertically back down into the crust.As the pipes are present at surface, they are almost always mined using

21、conventional open pit methods, except for some Canadian pipes that are beneath bodies of water. Once the pit reaches an unmineable depth, then a transition to underground methods occurs, typically through longhole stoping or block caving.As underground mining is more capital intensive than open pit

22、mining and more challenging, not all kimberlite pipes are deemed economically viable to become underground operations.Figure 13: Udachny kimberlite mineFigure 14: Typical kimberlite mining methodsSource: AlrosaSource: UBSSecondary (Alluvial/Placer) deposits were formed as a result of erosion of diam

23、ond bearing kimberlite pipes, which, over a period of time, have been transported away from their original source, normally by fluvial erosion. Alluvial/ Placer deposits are typically diamond containing gravels. The deposits arent particularly thick, but they can cover large swathes alongside river

24、systems. Mining placer deposits is generally lower cost than primary mining as once any overburden is removed the diamond containing gravel can simply be dug up and processed.Processing to rough diamonds: Mined material is subjected to crushing and gravity separation before x-ray machines are used t

25、o separate the rough diamonds from the ore. The rough uncut diamonds are then sorted by hand. Diamonds that are determined to be of gem quality are graded according to the 4 Cs colour, clarity, carat and cut. Diamonds that are not of gem quality due to the size or colour are classed as bort and used

26、 in industrial applications such as an abrasive in cutting tools.Cutting and polishing: The diamond industry has a vital but concentrated midstream. Diamond producers rely on midstream processers to buy their rough diamonds. They then process the stones by cutting and polishing, and they sell the pr

27、ocessed stones wholesale to retailers. Midstream barriers to entry are low, margins are thin, and the industry is reliant on debt financing from specialist banks to buy rough stones from producers. As the top producers control 70% of the rough supply, the processors have little bargaining power; as

28、a result, midstream businesses are low-margin, making them acutely sensitive to changes in financing costs and price volatility.Demand: growth in line with GDP?Diamond demand (expressed in US$, not carats) is overwhelmingly (99%) driven by demand for diamond jewellery; this contrasts with the other

29、precious commodities, such as gold, silver and PGMs, which have significant industrial applications and/or investment-driven demand.Diamond value chain:The global jewellery market was $260bn in 2018; diamonds account for 35% of the total jewellery market and were worth $80bn in 2018. In recent years

30、, diamonds share of the total jewellery market has remained fairly stable at 35% and we assume this share remains at a similar level in the future.Polished diamond content within the value of diamond jewellery is US$25bn or30% of the diamond jewellery market, despite the potential opportunities (hig

31、her growth rate growth) or threats (substitution for natural diamonds) from synthetic diamonds (discussed on page 21); we assume the share of diamonds value in jewellery also remains stable at 30%.Rough diamonds account for 60% of the value of polished stones, resulting in a$15.5bn rough diamond mar

32、ket (i.e. revenue for miners). In 2018 the gem quality diamond market was 150mcts, resulting in an average sales price of $100/ct; we note that the exponential pricing of diamonds relative to size/quality means that the majority of this revenue is attributed to larger stones (see pricing section on

33、page 33 for more details).The two largest rough diamond producers, De Beers and Alrosa, accounted for65% of the rough diamond market by value in 2018. Relative to other industrial commodities, end demand for diamond jewellery tends to be less volatile, but significant inventory movements within the

34、supply chain and the impact of credit availability to mid-stream processors (mainly in India) creates additional volatility in rough diamond demand.Diamond Jewellery demand growth in-line with GDP?Over the past eight years (normalised base post GFC), global diamond jewellery sales have grown at 2.5%

35、 CAGR; polished diamond jewellery demand growth has been comparable to total jewellery sales at 2.5%, reflecting polished diamonds stable share of the total jewellery market. Whilst the historical differences are not dramatic, growth in diamond jewellery has been lower than global GDP at 3.0% and to

36、tal Luxury Jewellery sales at 3.1% over the same period.In our view, this slower growth rate for diamond jewellery has been driven by a number of factors, including: lower marriage rates; an increasing number of new categories for luxury spending (including tech); increased market share of fashion j

37、ewellery (lower diamond content); and a lack of co-ordinated marketing across the diamond industry (De Beers last major campaign ended in 2008).Diamonds are late cycle and will therefore benefit from supportive longer-term demand trends vs many of the other industrial commodities (steel and coal). H

38、owever, in our view, diamond jewellery as a category within luxury will continue to face headwinds, and growth in synthetic diamond supply will act as a substitute for natural diamonds at the lower end of the gem diamond market, reducingFigure 15: Diamonds value chain26083251530025020015010050Total

39、JewelleryDiamond JewelleryDiamond ContentRough Diamonds0Source: Paul Zimnisky, De Beersdemand growth for natural diamonds. As a result, we think rough diamond demand may not grow in-line with GDP as many believe.Figure 16: Global GDP, luxury jewellery spend and diamond jewellery spend Indexed 2010Fi

40、gure 17: Diamond jewellery and polished diamond sales (US$bn)13012032%12010031%110100908030%6029%402028%20092010201120122013201420152016201720188020092010201120122013201420152016201720182019202020212022202320242025027%Global GDPLuxury JewelleryTotal Diamond JewelleryDiamond JewelleryPolished Diamond

41、sDiamonds % totalSource: Bloomberg, Paul Zimnisky, De Beers, UBS estimatesSource: Paul Zimnisky, De Beers, UBS estimatesUnlike the majority of the industrial commodities where demand (absolute and growth) is dominated by China, the US dominates the diamond market, accounting for 50% of polished diam

42、ond demand, with China, India and Gulf markets accounting for another 30%.Figure 18: Global diamond jewellery demand (US$bn)Figure 19: Breakdown of diamond jewellery demand100.090.080.070.060.050.040.030.020.010.00.02010 2011 2012 2013 2014 2015 2016 2017 2018USAChinaIndiaGulfJapanROWJapan 5%Gulf 7%

43、India 6%ROW 18%China 16%USA 48%Source: Bloomberg, Paul Ziminsky, De Beers, UBS estimatesSource: Bloomberg, Paul Ziminsky, De Beers, UBS estimatesDespite a soft period of demand in 2015/16 in China and India (see below), in percentage terms growth in Chinese diamond jewellery demand between 2010 and

44、2018 was nearly double that of the US, but due to its much smaller consumption base, the US is still the largest contributor to global diamond growth. Looking forward, we expect demand growth rates from China and India to remain above the US and other developed markets, but the US is still expected

45、to be the main driver of growth in US$ terms.Figure 20: 2010-18 Diamond jewellery demand growth by region (CAGR)Figure 21: 2010-18 Diamond jewellery demand growth by region (US$bn)8.8%4.9%1.9%0.6%-0.3%-3.0%-3.6%-0.1-1.8-4.210.0%14128.0%106.0%84.0%62.0%420.0%0-2.0%-2-4.0%-4-6.0%ChinaUSATota

46、lGulfJapanROWIndia-6USAChinaGulfJapanIndiaROWSource: Paul Zimnisky, De Beers, UBS estimatesSource: Paul Zimnisky, De Beers, UBS estimatesWhy was diamond demand weak 2015/16?Diamond demand was weak in 2015/16, with total diamond jewellery demand contracting in 2015, and diamond content contained in j

47、ewellery (i.e. polished diamond demand) contracting in 2015 and 2016.The weakness in 2015/2016 was attributed primarily to the Chinese end-consumer economy slowing. This was driven in part by a broader slowdown in the Chinese economy, weakness in the stock market/property sector, but also a corrupti

48、on crackdown that impacted reduced demand for gifts containing diamonds (including smaller stones in watches).Weakness in Chinese polished diamond demand caused oversupply of diamonds across the global supply chain in 2015/16. In the rough market this was compounded by Indian manufacturers that were

49、 over-levered with rough given the easy credit offered to them (supported by the Indian government) in the years leading up to 2015/2016; as a result, weakness in rough diamond demand was more significant than polished/jewellery demand.Figure 22: Global diamond jewellery demand (US$bn)Figure 23: Glo

50、bal polished diamond demand (US$bn)9014%278512%258010%23758%21706%19654%17602%15550%1350-2%11200920102011201220132014201520162017201845-4%914%12%10%8%6%4%2%0%-2%2018-4%200920102011201220132014201520162017Diamond Jewellery DemandGrowth y/y (RHS)Polished DiamondsChange y/ySource: Zimnisky research, De

51、 Beers, BainSource: Zimnisky research, De Beers, BainAre the demand headwinds faced in 2015/16 likely to be repeated?We believe two of the key drivers of weakness in rough diamond demand (China demand weakness due to the corruption crackdown and supply chain disruption caused by midstream pressures

52、in India) in 2015/16 were quite specific, and an improvement in mid-stream transparency reduces the chance of these issues being repeated in 2019/20. However, in our view, the near-term and medium-term outlook for natural diamond demand may not be as attractive as many in the market believe.Will gen

53、eric diamond marketing transform the growth outlook?Diamonds are luxury products that compete with other traditional luxury goods (clothing, shoes, handbags, watches) and increasingly technology products that rely heavily on marketing to promote their brands. While some of the top jewellery retailer

54、s promote products that include diamonds, the last generic diamond marketing campaign aimed at instilling the value, tradition and rarity of natural diamonds was De Beers A Diamond is Forever campaign, which ended in 2008. We think this is one of the key reasons growth in diamond jewellery demand ha

55、s lagged luxury jewellery and broader luxury spend over the last decade.In 2015, the Diamond Producers Association (DPA) was formed by the seven top producers to support the development of the diamond sector and the reputationFigure 24: DPA advertising spend (US$m)80606010908070605040302010020162017

56、20182019of the diamond brand. Marketing spend was $60m in 2018 and activities were extended to China (and continued in US and India). The DPA plans to lift spend to$80m in 2019 and has launched a new marketing campaign focused on self- purchases by women called From Me, To Me. We see this as a clear

57、 positive step for the diamond jewellery market, but are not convinced the marketing budget is sufficient to have a material impact on diamonds share of total luxury spending.Back in 2008/09, De Beers $200m marketing budget was equivalent to just 0.3% of the global diamond jewellery market (i.e. ind

58、ustry revenue); the total diamond jewellery market is 35% larger than it was in 2008/09, but the budget is 60% lower. We also note that marketing spend in 2008/09 or 2019 is materially lower than the advertising budgets of the major luxury jewellery retailers, which spend c4-15% of revenue on advert

59、ising their brands.Figure 25: Major global luxury retailers Advertising/marketing spend vs revenueSource: Zimnisky research, De Beers15.9%11.3%9.0%7.2% 7.0%6.8%6.6%6.0%5.7%5.0%4.4%0.3% 0.1%18%16%14%12%10%8%6%4%2%SwatchLVMHTodsRichemontBurberryHugo BossMonclerFerragamoPraga GpGucciHermesDe Beers 2008

60、/9DPA 20190%Marketing Spend as % of salesSource: Company data, UBS estimatesNear-term demand outlookThe latest UBS Evidence Lab bi-annual survey of luxury consumers (conducted in 4Q18) provides significant detail on the 2019 outlook for the luxury sector ( HYPERLINK /shared/d2WrJfmr6rdT Link). For t