Mere months ago, Bain and the Antwerp World Diamond Center (AWDC) issued their once-a-year “World-wide Diamond Industry” report, recounting the diamond jewellery industry’s “brilliant recovery” from the pandemic downturn.
Masking the total diamond price chain from manufacturing to buyer gross sales, it documented, “In 2021, earnings improved 62% [year-over-year] in the diamond mining phase, 55% for cutting and polishing and 29% for diamond jewellery retail – all mounting previously mentioned pre-pandemic amounts, +13%, +16%, +11% respectively.”
Seeking to this calendar year, it predicted ongoing powerful progress at a better level than throughout the pre-pandemic period. “Demand for diamond jewellery and polished and tough diamonds is anticipated to mature by the first half of 2022.”
That was then, this is now
But with the breakout of war in the Ukraine and the ensuing Russia financial sanctions, the provide of tough diamonds may be slash by above 25% as Russian-owned Alrosa, the world’s biggest diamond producer by quantity, was put on the sanction list.
All told, the U.S. Treasury claims Alrosa is liable for 90% of Russia’s diamond production and accounts for 28% of world source. The Russian authorities owns 33% of Alrosa and yet another 33% is owned by Sakha, the Russian Republic in which the organization is headquartered. In addition, Alrosa CEO Sergey Ivanov Jr. was extra to the specially-designated nationals sanction list.
The industry’s Jewelers Vigilance Committee (JVC) advised, “Effectively, this action bans U.S. businesses and persons from entering into debt transactions extended than 14 times with Alrosa but does not impose the harsher sanctions of an asset freeze and outright prohibition of all enterprise.”
The JVC extra, “For the jewellery industry, any open memo agreements beforehand entered into with terms lengthier than 14 days ought to instantly be amended to shorten the conditions, and/or closed.” The Treasury’s get, nonetheless, does not use to goods acquired from Alrosa or Alrosa United states just before February 24.
Talking on behalf of the AWDC, Tom Neys stated, “Sanctions can have a considerable effect on the diamond business enterprise. It is a blow that really should damage Russia, but there is a prospect that we do more destruction to ourselves. The Russians can very easily trade their diamonds with non-EU international locations.”
The diamond jewellery business is heading into the calendar year with diamond offer at traditionally minimal degrees, approximated by Bain at 29 million carats in 2021. “Upstream inventories declined ~40%, driven by significant need and sluggish manufacturing restoration, and are in close proximity to the negligible technological level,” the report mentioned.
Law of supply and desire
With gross sales of diamond jewellery reaching $84 billion in 2021, purchaser desire kept surging even as charges rose. Rapaport’s RapNet Diamond Index showed the common rate for a a single-carat diamond sophisticated 17.4% all over 2021. And price ranges continued to increase, up 6.9% in January.
It will take some time for the impacts of the Russian sanctions to be felt downstream, but larger costs for diamonds and diamond jewellery are bound to arrive.
Not counting the macro-financial impact Russia’s war on the Ukraine will have on customer sentiment and investing, even increased price ranges for diamond jewellery could set its publish-pandemic recovery on maintain, if not convert back again the clock.
And rising diamond price ranges may perhaps give the lab-grown diamond (LGD) current market a welcome enhance. LGD selling prices are now well under the cost for a equivalent all-natural mined diamond – Bain stories the typical polished lab-grown retail cost declined to 30% of purely natural diamond prices in 2021 – and materials of male-made stones are up as far more production capability will come on-line and technological know-how innovations.
Shoppers previously unwilling to think about LGDs may well choose a 2nd appear as the selling price variation widens. On the other hand, the law of source and demand does not always apply to luxurious goods.
The 19th-century economist Thorstein Veblen did the seminal do the job on the matter in his e-book, The Theory of the Leisure Course. Veblen uncovered that purchaser demand for luxury merchandise amplified along with prices for the reason that of their social signaling value, i.e. they come to be position symbols.
Bain notes, “Lab-developed diamonds continued to diverge into a individual, extra affordable jewellery category.” In other text, purely natural diamond jewellery is a luxury whilst LGD jewellery is mass.
But that distinction may be analyzed this yr. What was a increasing divergence concerning the two may possibly turn out to be a convergence, if mined diamond rates carry on to climb.