The diamond market to come back to normalcy

Igor Leikin

The diamond market can return to normalcy after its impressive growth at the beginning of the year thanks to strong jewelry sales, rising profit margins for cutters and a shortage of rough diamonds. Midstream margins have decreased as the diamond prices continue to rise suggesting that the market is overheated.

Clients become less loyal to the new price rises recalling that as the summer season approaches, the business may slow down. In addition to the seasonal lull, the downside risks in the diamond market are fueled by the data on the rise in COVID-19 infections in Europe and India.

But even a complete victory over the coronavirus does not guarantee a repeat of the Christmas 2020 sales as the beneficiaries of the global vaccination are likely to be such lagging industries as air traveling and cruises. We know the example of the plummeting ‘stay in home’ shares – that surged last year – in the second half of February-March (for example, the shares of Zoom – the organizer of video conferencing, Square – the operator of electronic payments, and DocuSign – the digital signature service) against the background of strengthening banks and companies in the real sector that receive advantages from the reopening of the economy after the pandemic.

The diamond miners, in turn, consider the current situation to be unique as the demand for diamond jewelry tends to grow in the long term, and the shortage of diamonds is increasing due to the lockdowns and the closure of Argyle. This point of view was expressed by ALROSA’s CEO Sergey Ivanov at the beginning of March during Capital Markets Day.

According to the ALROSA’s presentation, the demand for diamond jewelry is growing with the number of weddings in the United States that will exceed the usual level by 50% in 2021 after a pause caused by the pandemic. After a 15% decline last year, consumption of jewelry will rise by high single-digit numbers in 2021. ALROSA expects that the market in the Asia-Pacific Region will grow by 10%, the largest US market will grow by 3%.

The same-store sales of Signet, one of the largest US jewelry retailers, showed a 7%-rise year-on-year during the three months ended January 30. The online sales increased by 71% (and their share reached 23% of total sales), which offset the 4%-decline in the traditional stores. The average purchase amount grew by 6%. Signet expects the same-store sales in the next quarter to grow by over 80% compared to the same quarter last year, which was the peak of the crisis, and its revenues to increase by 67% to at least $1.42 bn.

The midstream now has sufficient cash resources due to the spread between the polished and rough prices, Ivanov says. According to Rapaport, the polished diamond prices rose by an average of 20% during six months, including January 2021, while the rough diamond prices were held back by the major diamond miners until December in order to do no harm to the market recovery. In this situation, the polishing business profitability that averaged around 2% in the 2010s showed a 5-percent increase.

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Source Rough&Polished

Photo © Venetia Mine, De Beers.