Strong comeback of the diamond industry

Igor Leikin

The diamond industry, which bounced off the bottom in July and August last year, received a strong support from the strong holiday jewellery sales, and in 2021, it is ready to compete in the growth rates with other beneficiaries of the global economic recovery from the COVID-19 pandemic.

January-February 2021 again proved to be successful for all segments of the ‘diamond pipeline’ as the diamond miners demonstrated the record sales, the midstream margins grew amid high diamond prices, and jewellery sales exceeded all expectations. The diamond inventories in the pipeline are at their lowest in 7-8 years, which prompts the diamond cutters to buy heavily while the consumer demand is supported by the US stimulus package. The confidence in the market stability allows the diamond miners to raise prices for rough diamonds that have already returned to their pre-crisis levels, as well as to speed up resuming the operation of the mines that were under care and maintenance last year.

Rough diamond price growth

The major diamond miners – trying not to upset the balance in the market – refrained from rising their prices until December although the environment was favorable for the rise. The growth in the midstream margins on the back of the growing jewellery sales led to a sharp growth in the polished diamond value in the second half of the year, especially of large-size stones. In December, the prices for polished diamonds increased by 2% on average, with the strongest figures for 1-2 carat stones. The polished diamond prices were on average 16% higher than in early 2020, while the 0.5-1 carat polished diamond prices rose by more than 20%. According to Paul Zimnisky, the spread between the rough and polished prices widened to multi-year levels last year, and the gap between them would inevitably have narrowed as the supply chain normalized.

Finally, in December last year, De Beers increased its rough diamond prices for the first time since 2018 and this change affected the 0.75+ carat stones and made 1-2%. This measure was due to the strong demand from the midstream against the background of both a reduction in the inventories and a strong demand for rough diamonds from a cutting and polishing sector.

At their first auctions in 2021, the major diamond miners raised the prices again in response to a rising demand during the post-holiday restocking and revival due to the upcoming Chinese New Year. The increase was justified, since the De Beers boxes, according to sightholders, were sold at a 5-7% premium in the secondary market at the beginning of the year.

As a result, the De Beers diamond price rose by 4-5% on average while ALROSA increased the prices by 6-7% in an effort to bring them in line with the market trends and the confirmed demand. The large-size and high-end stones mainly showed the increase in prices. After the increase, the prices in these categories have returned to their pre-pandemic levels.

The rise in prices will continue thanks to active replenishing the midstream inventories, according to VTB Capital, which estimates that in 2021, the rough diamond price index will grow by 10%. The index shows the change in the prices of comparable stones without taking into account the possible correction of the assortment.

The monopolists raised the prices and retained their flexible terms of trade. The most flexible ones are offered by ALROSA, which allowed its long-term clients again to abandon 100% of their allocations during the January and February sales. Thus, its long-term clients can purchase rough diamonds according to their real needs. But the clients’ discipline is unlikely to suffer from this move because the company is holding its negotiations before concluding the contracts for the next season that will start in April 2021. Consequently, the buyers’ activity – even in the most liberal trade environments – will become the most important argument for obtaining a contract with the desired assortments.

Trading sessions in early 2021

It seems that the new pricing conditions have not affected the customers’ appetite so far. De Beers sold $650 mn worth of rough diamonds during its first sight this year held from January 18 to February 2 and it was the highest result since January 2018. The sum was 18% higher than a year ago and 44% higher than at the previous sight. The demand is encouraging as the midstream customers sought to replenish their reduced inventories to fulfill the retail orders amid the strong holiday diamond jewellery sales in the United States, De Beers CEO Bruce Cleaver said. The rough diamond sales are also supported by the anticipated demand in the run-up to the Chinese New Year and the Valentine’s Day.

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Source Rough&Polished