‘THIS IS MY FIRST NCDIA DIAMOND MARKET COMMENTARY FOR 2021..
Despite the fact that most of the world is still distracted by the battle to defeat the pandemic, the general sentiment in the diamond market remains positive; indeed, since last September the diamond middle market has actually recovered and performed strongly.
Volumes of rough sales and polished demand have been healthy enough to allow a strong resumption of commercial activity throughout the diamond pipeline.
What happened with Covid-19 during 2020 meant that the industry effectively shut down, but a rebound was always likely to happen. And this is exactly what has happened recently.
Rough and the middle market
Rough producers got back to mining and selling both their latest rough productions as well as some of their accumulated stocks. Even most of the marginal diamond producers were able to restart sales again. The shortfall in polished supply from 2020 meant that gaps in polished inventory were evident and demand for rough diamonds surged. Dubai has enjoyed recently a strong window of opportunity, as global travel restrictions meant that Indian buyers headed to nearby Dubai to view goods at various sales events.
Large stone diamond mine recoveries from the usual suspects continue to be reported. Big stones have been unearthed recently in Botswana, Angola, South Africa and Russia.
The majors have noticeably changed strategy since Q3 of 2020; volumes of sales are up, and rough prices have been increased in each of the last 3 sales cycles. As always, a measured approach is considered sensible, and especially now – so as not to undo the success of the very restrained business approach taken during 2020. That restraint of 2020 of course meant significantly reduced turnover and cashflow for the majors, and it was inevitable that large volumes of goods would start to flow as soon as the trading and manufacturing centres reopened. Factories in Surat are now operating once again at full capacity.
In March, however, it was already apparent that the rough market was softening. So now is the time for caution.
Other developments include a reduced Sightholder (contracted client) list for De Beers and lower allocations to trading companies, with greater emphasis placed on analysing the polished output from the rough allocations. The industry often works in a cyclical fashion, as we have seen this desire to sell to more direct manufacturers in the past. My own experience over the years is that traders provide liquidity and perform a necessary role in certain market conditions. Time will tell if this proves to be the case once again in the future. There is no doubt that greater efficiencies in route to market, as well as through the application of technology, and a natural attrition will take place at some point. I just wonder if now the time is right to encourage these developments. We shall see!
Another interesting development of late is the increased upstream sourcing of rough diamonds from certain manufacturers, agreeing to share some of the polished upside in selling value for exclusive access to high-end rough.
Despite this, clearly most of the world is not yet free of the concerns and troubles of the Covid-19 pandemic. Some retail markets have re-opened, but I think it is premature to claim we are back on the levels of the pre-pandemic world.
The signs though are positive for a healthy and sustained recovery once the global vaccination roll-out gathers more pace. If nothing else, the middle market (supported by the strategies of the major diamond producers) has shown its resilience and ability to bounce back.
Fancy colours continue to make industry headlines. De Beers actually bought into a partnership on the 5 blue stones from Petra’s Cullinan mine (ironically an old De Beers mine of the past) in South Africa.
Breaking news – as this article was written….Petra has just recovered another magnificent blue diamond from the Cullinan mine; this time it is a 39.34ct type IIb blue diamond. The Cullinan mine is the best source of blue diamonds on the planet.
Of course, now that the Argyle mine in Australia is closed, the supply of their special pinks has ceased. This will logically have a longer-term impact on pink pricing.
Global rough production is forecast to remain relatively static at around 100m carats per annuum for the next decade (this compares with 150mcts mined in 2015). As always, production between individual mines and producer companies/countries will fluctuate though. Angola looks to have very favourable rough diamond production growth potential, with high quality diamonds and plenty of hitherto untapped reserves.
Polished markets / retail
Polished prices in 2021 strengthened as demand recommenced. Retails sales in China and the US improved over the last 6 months. The balance between demand and supply is considered by many to be at its healthiest for several years, and sentiment for the future is positive.
In the US, retail growth continues despite the pandemic – those retailers with strong e-commerce offerings have seen (unsurprisingly in this moment) significant upswings in online sales. For example, Signet saw a 61% year-on-year sales surge.
Other news – LVMH finally concluded its drawn out purchase of iconic jewellery brand Tiffany & Co.
Fancy Colour news
As always there is good exposure in the press for fancy colour stones. Upcoming events of note are the two Christie’s Magnificent Jewels auctions – April in New York – with 3 individual 2ct vivid stones -a blue, an orange and a pink….
….and May in Hong Kong – with the stunning 15.81ct Sakura Diamond (estimated at a whopping $25-38m) – a fancy-vivid-purple-pink, internally flawless, type IIa stone.
The most recent Bain & Co report suggests that a full recovery of the diamond supply chain will only happen sometime between 2022-2024, led first by China, then the US and, later, India. These three key retail markets have long been considered the future growth engines for diamond jewellery demand.
As things stand, Bain predicts that diamond jewellery demand is set to grow at 2-3% per annum between 2023-2030.
Lab grown is clearly set to continue its rapid growth; the expansion into more and more retail outlets continue; for me, as I have stated before, I am comfortable with lab grown entering the diamond jewellery space – with proper disclosure and no contamination of product the two products should be able to co-exist into the future; we all know that natural diamond reserves are finite. But more on that later….
So, we are not globally out of the woods yet with regards to the pandemic, but once we are things should stabilise and improve further. Trade wars, global political tensions and other unforeseen challenges aside, the potential for the industry remains and its recent performance has demonstrated clearly its resilience to withstand unparalleled challenges.
The long-term potential of the industry remains robust – supply will decline in the longer-term and demand should in relative terms increase. Natural diamonds will have another growth opportunity in the future.
Short-term, though, a careful balance is required and the levers of sensible supply levels, pricing by the majors, appropriate purchasing behaviour and polished stock levels by the trade need to be managed to maintain the positive momentum that we have seen and enjoyed during the last six months.’
By Robert Bouquet