What a fascinating diamond market. As predicted, the diamond trade has rebounded; and it has rebounded strongly. However, it is clear that the world has not yet completely escaped the terrible clutches of the COVID-19 pandemic.
As many countries are still struggling to obtain and provide vaccines, the two major diamond consumer markets, the United States and China, have almost returned to their pre-pandemic lifestyles, and sales of diamond jewelry have skyrocketed.
The output of natural rough diamonds has "rebounded", and the demand has become stronger.
After the pandemic, manufacturers resumed mining and mining products. As traders and cutters in the middle market have good cash flow, healthy balance sheets and improved liquidity needs, rough sales have surged since the third quarter of 2020. This has prevented major mining companies from producing enough products to meet demand.
Alrosa talked about operating under minimum stocks and even purchased rough stones from Gohkra's Russian strategic stocks to supplement current production. De Beers also reported that there are "production challenges" because of its difficulty in meeting demand. The price increase is understandable, and producers are enjoying excellent rough sales, which is also good news for “non-professionals”.
Even marginal mines with high costs and/or low product values benefit from the rising tide. In the past 12 months, crude demand has been ruthless and shows no signs of abating.
For example, Alrosa recently reported that its rough stone prices have increased by 22% year-on-year, and by 10% in the last quarter alone.
There is a demand for diamonds in almost all ranges.
Even more surprising is that the price of -3 grain diamonds (less than 0.66 carats) is rising. For a long time, this area has been considered a permanent decline, mainly due to the arrival of small lab-made diamonds, but today, due to demand, prices are strengthening.
For diamond miners, this is a very healthy situation. Although the market has "cooled" in September, we are approaching the key retail season of the year and the market is strong again. We can look forward to almost full reporting of excellent results in 2021.
The bonanza of big stones continues to come from ordinary miners; today, when we see reports of 200 or 300 carats (or larger) gems found, it seems almost a trivial matter.
Who would have thought that the pandemic would be good news for diamond traders?
The middle market (traders and manufacturers) has long suffered from declining operating profit margins and the strong opposition to "book" pressure from the diamond pipeline (mining companies and retailers), and they are out of the pandemic flow with low inventory and healthy conditions. sex.
Since then, traders and manufacturers have reaped considerable returns in strong business activities. The waves eased slightly, letting everyone breathe a sigh of relief. Traders need to pay close attention to the profitability and profitability of their purchases.
Of course, the real driving force of polished sales is consumer demand, which "pulls" everything else. The demand for polished diamonds is very strong, which allows polished diamond sellers to reduce inventory and rebalance their business. Despite the obvious challenges, a JCK trade event was held this year. The feedback was a successful exhibition, although there were fewer overseas visitors.
Since January, polished diamond prices have risen by an average of 7.7% (see chart below). As rough stones become more expensive, the prices of finished products need to continue to rise. If we are to see major changes in the diamond business, this will be the biggest challenge facing the industry.
Marketing and increasing retail price points are the main challenges here.
Click on the chart to enlarge it. Source: I. Hennig Market Report-October 2021
The two most important markets, the United States and China, performed very well. This is driven by the predicted "emotional rebound" and the surge in diamond jewelry purchases/giving away after the pandemic.
In both markets, major players have reported excellent sales performance improvements. Chow Tai Fook plans to add 2,000 retail stores in mainland China and through regional expansion to Malaysia and the Philippines. Tiffany & Co. under LVMH is changing its marketing strategy and even hired Beyonce as its new brand ambassador.
Unsurprisingly, online jewelry retail sales have skyrocketed. This trend, which is happening anyway, has accelerated in the past 18 months due to COVID.
Expectations for the festival are very high, and the growth figures will be impressive.
This market segment is becoming more and more important to the industry. Ignoring inter-departmental disputes regarding naming, marketing, and/or the environmental impact of mining production, it can be said that the production of blanks created by the laboratory is definitely increasing.
Both De Beers and Diamond Foundry have increased their production capacity. Diamond Foundry recently announced the establishment of a new production facility in Spain, with an annual output of up to 10 million carats. These are not small numbers; for the background, let us take 100 million carats of natural rough diamond production in 2020 as an example; after the pandemic, it should be around 120 million in 2021).
In October, the largest laboratory-made stone graded by IGI was reported to be 14.6 carats F col VS2.
At the same time, the price created by the polishing laboratory has been hit hard. Prices continue to fall. This means that the price of rough will also fall. The price created by the laboratory is expected to fall further.
In other words, the market created by the laboratory is still viable due to extremely low production costs.
Retailers such as China’s Chow Tai Fook are increasingly experimenting with laboratory-made diamond jewelry collections.
It can be said that De Beers' strategy of distinguishing natural diamonds from laboratory-made diamonds is working. However, De Beers is now selling gems made in larger laboratories and has launched the "best" collection for higher-priced products; prices are deliberately kept low.
In fact, some cannibalization occurs in the natural segment. In fact, this is happening now as consumers switch from natural diamonds to lab-made diamonds, and this also applies to larger and larger sizes.
The biggest recent development in fancy colors must be the ultimate Rio Tinto Argyle Pink Tender.
The actual results were never publicly released, but the news on the street was that the price reached broke all previous records.
A striking auction was recently held at Sotheby's Hong Kong; this beautiful ring is set with a 3 carat VS1 clarity, type IIb blue diamond and two modified triangular brilliant cuts, fancy pink and intense fancy colors Pink diamonds are priced at 4.5 million U.S. dollars.
Market commentators report that fancy prices have risen across the board in the last quarter-blue is the most (4%), followed by pink (3%), and then fancy yellow (1%).
At the Christie's Magnificent Jewelry Auction in November, it will be interesting to see how this impressive ring with a 6.75 carat heart-shaped fancy vivid purple-pink performs. The pre-sale estimate is 10.8 million U.S. dollars.
So... what does all this mean for the future diamond market?
For the production of rough diamonds, the post-pandemic "main" is playing a very clever game; limiting production will see the price of rough stones continue to rise. All miners will benefit from it and may even make less-than-ideal exploration/mining projects feasible.
Some new works may appear, such as Luaxe from Angola; however, it is difficult to see where any major new supply comes from. Global production is expected to be relatively stable in the next few years. This means that under all the same conditions, the price of rough will only increase further.
This seems to herald a good time for diamond miners!
For the rough trade and the middle market-a vibrant and active space in the industry-now is a good time. Disciplined buying behavior and prudent inventory management should be the buzzwords here.
Speculative buying will always appear quietly, which is a natural phenomenon of this part of the pipeline-but this time (after the pandemic) we may see more shrewd and less reckless buying behaviors.
Increasing polishing prices also contributes to this.
Today, polishing dealers are in good condition. The key trading season is approaching.
If the major retail markets perform as expected, polished diamond prices will also rise further. In the past, rising rough prices meant that diamond sellers had less profit margins. This time, the supply of rough (and therefore polished) stones no longer exists.
Time will tell, but if the price of polished diamonds rises, the middle market will benefit a lot.
There are many important questions about the laboratory-made diamond market. For example, how big is it? Some calculations indicate that due to the number of "small pieces", laboratory-made products now account for 5-7% of the market by value and 10% by piece.
Another question is; how fast is this market segment expanding?
Growth may slow down at some point, but it is estimated that the annual growth created by the laboratory is about 20%; of course, if production increases, this number may be higher; there is no doubt that consumer demand will increase. Finally, what happens next to the polishing price created by the laboratory?
All signs indicate that prices will fall further; De Beers’ strategy is working; and the strong product difference between natural products and laboratory-made products may cause prices to fall by 50% in the next 10 years. This will make laboratory-made diamonds a very cheap substitute for increasingly expensive natural diamonds.
Sometimes it is easier to look at facts and figures and analyze the industry based on pure numbers.
It is also important to consider possible changes in the industry and trends that may affect the diamond pipeline:
All in all, 2021 will be an excellent year for the diamond industry. If the retail performance is as expected, we should start next year with strong demand, a healthy middle market and continued optimism. The price looks set to rise further.
Of course, all the usual warnings apply, but with strong business performance and many exciting things happening in the industry, it will be interesting to look back and comment in the coming months.
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The Natural Fancy Color Diamond Association provides transparent, up-to-date scientific and trade information to promote fair trade, confidence and consumer education in the natural fancy color diamond market.
The organization aims to let members understand the scientific data that may affect the value and usability, and provide strategies to inspire enthusiasm for this unique category of gemstones.
Our goal is to enhance the experience of anyone buying or selling natural colored diamonds.
Contributors • Natural Fancy Color Diamond Association
Robert Bouquet has more than 25 years of experience in the diamond industry, having worked in mining and exploration companies, marketing companies and consultants. He lives in Antwerp and is now part of the Natural Colored Diamond Association, sharing his insights on the global diamond pipeline. Visit: ncdia.com