Part 2: KPCSC wants Russia to help end impasse on new definition of conflict diamonds

In the first installment of this two-part exclusive interview with Shamiso Mtisi, the coordinator of the Kimberley Process Civil Society Coalition (KPCSC), we focused on illegal diamond mining in the continent and where the contraband ends up...

25 october 2021

Part 1: KPCSC gives insight into illegal diamond mining, trading in Africa

Although the diamond watchdog Kimberley Process (KP) prides itself for significantly reducing the flow of conflict goods since its establishment in 2003, the Kimberley Process Civil Society Coalition (KPCSC) alleged that illegal diamond...

18 october 2021

The jewelry industry in Russia needs to be upgraded in a serious way

Dina Nasyrova is a vice-president of the International Jewelry Exhibition-Congress J-1 recently hosted by the Atrium of Gostiny Dvor in Moscow. As a partner and the Muse of the famous jeweler Ilgiz Fazulzyanov, she actively participated in the preparation...

11 october 2021

Smiling Rocks, a philanthropic business model, inspires companies to work for betterment of the world

Zulu Ghevriya, the CEO and Co-Founder of Smiling Rocks, Founder of Vedantti Jewellery and Managing Director of Prism Group has been in the diamond and jewellery industry for over 20 years. Zulu started his business, Prism Group, as a natural diamond...

04 october 2021

Work hard and you will find success

Eduard Utkin, Director General of the “Jewellers’ Guild of Russia” Association, expert of the RF Chamber of Commerce and Industry’s Committee on Precious Metals and Precious Stones, told R&P about implementing the SIIS PMPS (State Integrated Information...

27 september 2021

Diamond market argues against correction, helped by Beyoncé

04 october 2021

By September, the consensus in the diamond industry on the near-term outlook has become less optimistic despite the holiday season approaching. The majority of the market participants and some experts believe that the market can get new arguments for continued growth as long as there is a shortage of supply and consumer demand in the US remains strong. The other players are of the opinion that the high prices and excessive inventories could result in a bubble beginning to deflate at the slightest cooling off of the consumers to jewelry.

Anyway, one cannot but agree that the peaks in the polished diamond prices look dangerous this autumn when the correction does not spare even such unquestionable beneficiaries of economic growth as palladium and copper. And the structural shortage of semiconductors does not lead to sky-high growth of the manufacturing companies, but, on the contrary, puts pressure on their financial performance, as supply disruptions force the key customers - Volkswagen and Apple - to cut their production. These recent examples indicate that neither bright prospects and demand, nor acute shortages guarantee a long and stable growth. The industry is reacting proactively, involving Beyoncé-class stars to promote its products. But will the polished diamonds be an exception?

The signs of declining prices for rough and polished diamonds were seen in August-September, although so far, this can be explained by a seasonal lull (but before that, in May to July, we did not observe any signs of declining prices). The rough diamond prices have stopped their steady growth, with the index rising by 16% since the beginning of this year and returning to its pre-pandemic level that was in the autumn of 2019. On its August website, De Beers kept prices unchanged after five indexations during the last eight sights between December 2020 and July this year.

There is still potential for further price increases, says ALROSA CFO Alexey Filippovsky. While the rough diamonds have just returned to their previous levels, the polished diamonds - thanks to the strong demand for jewelry in the United States and China - exceeded the figures seen at the beginning of 2019 by 10-15%.

The rise in the polished diamond prices, which is now outstripping the dynamics of the rough diamond prices, is contributing to a further rise in the rough diamond prices, BCS analysts agree. Based on an analysis of the price index of 2015, they believe that the rough diamond prices could rise by another 9% up to their average level. The jewelry is also getting more expensive: according to Edited, the high-end jewelry prices rose by 57% over the year to $2,360. Finally, household savings in the United States skyrocketed to abnormal levels as the average savings in 2020-2021 grew by 160% compared to the pre-coronavirus levels (2017 to 2019), while the net value of 1% of the wealthiest Americans rose by more than $8 trillion. This creates opportunities for rising jewelry spending and, therefore, for the rough diamond prices, according to a BCS survey.

The steady strong demand for rough diamonds, high margins in the secondary market, and the approaching seasonal replenishment period create the basis for further growth in the rough diamond prices from September to December, VTB Capital agrees. The Diamonds Watch’s review published in early September says that the Las Vegas Jewelry Show added positive sentiments as the jewelers signaled the demand for stones, which indicates strong demand in the US. The jewelers’ reports show that stock replenishment in retail has not yet begun and it is believed that coupled with high margins in the secondary market, this sets the basis for further price increases in September to December.

The prices are supported by a fundamental supply shortage caused by a decrease in production volumes by 18% compared to mid-2019 due to the closure of the Argyle mine and a slowdown in the ALROSA’s production. The inventories of rough diamonds available for sale remain low and the retail replenishment cycle has not yet begun. According to VTB Capital’s estimates, the level of inventories by Q1 2022 will increase the demand in the global jewelry market by about 5%.

In August, the midstream’s inventories continued to decline due to strong demand from cutters and polishers. In August, the rough diamond imports to India, according to the GJEPC, amounted to $1.21 bn, which is 54% higher than in 2019, and 141% higher than in August last year. India’s polished diamonds exports ($2.052 bn) were by 27% above the level of 2019, which is below the dynamics of July when the exports exceeded the exports of 2019 by 55%. Compared to a year ago, the exports in August were 86% higher.

In the jewelry retail segment, the strong sales dynamics remain. Signet reported a 97% year-on-year growth in the like-for-like sales in Q2 (up 36% compared to Q2 2019) and raised its full-year sales forecast by 5%. The dynamics of sales are also facilitated by the activity of retailers in marketing. At the same time, the retail sales of jewelry in the United States increased by 36% year-on-year (and by 50% compared to 2019) in July.

The holiday sales forecasts support the market participants’ optimism. The jewelry sales in the US will rise during the traditional two-month holiday sales period, that is, from November 1 to December 24, as consumers use the savings, according to a study by Mastercard SpendingPulse. Another factor is the government’s economic incentives. The Jewelry sales are expected to grow by 60% over 2020 and by 55% over the same period two years earlier during the “75 Days of Christmas”, from October 11 to December 24.

The swift recovery is surprising, considering where the industry (and the world) was 18 months ago when the coronavirus first began to spread. Historically, jewelry and other luxury products are late bloomers after a recession. Not so this year, with jewelry outperforming many other product categories,” writes Rapaport columnist Avi Krawitz. He explains this, among other things, by an income disbalance - while low-income households bore the burden of financial difficulties, the wealth of affluent Americans - traditional jewelry buyers - increased.

The upturn in the market was evident in the volume of deals during the Las Vegas Jewelry Week (that includes JCK) at the end of August. Despite the decline in the number of participants as many of the major exhibitors did not come due to their concerns about the Delta, the orders were at the regular level, Krawitz said. The retailers did their best to find the polished diamonds they want to buy before the holidays at attractive prices, as popular diamond categories were in short supply.

The industry is entering the holiday season with confidence and optimism, Krawitz says. Regardless of stiffer competition for consumers’ money or a potential economic downturn, the industry is taking steps to sustain demand through marketing campaigns inviting the singer Beyoncé and tennis player Emma Raducanu (both cooperating with Tiffany), and actress Ana de Armas (cooperating with Natural Diamond Council) as the ambassadors. ...

The dealers’ margins in the secondary rough diamond market reached 10-15% by August, which is 4-5 times higher than usual. And although the polished diamond prices fell in August amid a lull in the market, the seasonal replenishment of the jewelers’ inventories could also lead to higher diamond prices by the end of the year, VTB Capital believes.

Meanwhile, Rapaport began to notice ambiguous trends in the secondary market towards the end of September. According to the agency, the trade has become rather cautious (although in general, this can be explained by the seasonal lull). The prices for polished diamonds dropped for some items, continuing the trend of August. Weakness was noted in the 0.3 ct to 0.7 ct stones. While the US-focused dealers are bullish, the slowdown in the second-largest market, China, is worrying. The Golden Week in China begins on October 1 amid fears of the economic growth slowdown - the PRC’s industrial production index fell in September due to the consequences of the energy crisis. The market becomes alarmed because of the strong regulation of the welfare of certain segments of the population by the Communist Party.

The US jewelry demand remains critical to the market's success, but what if consumers stop rushing to stores tomorrow? This question is posed by Edan Golan in his article. Some buyers buy jewelry, like other consumer goods, on credit, which is very typical of American consumerism. The use of credit funds is fraught with inflation and the formation of a bubble. On the other hand, many retailers are responding to the growth in demand caused partly by credits by purchasing additional volumes of goods. As a result, the polished prices rose by 24.7% over the year, the longest and most impressive period of price increases in more than a decade.

The Golan reminds us that the previous period of peak prices, which ended in August 2011, was followed by a strong 4-year decline in the market, also followed by a six-year “flat”. “At the time, the market was flooded with money, and retailers in China and India were on an expansion track that required inventory. That is until they didn’t anymore. At that point, prices were too high for the American market, leaving the midstream with a drop in demand in three of its four main consumer markets,” the expert writes. In his opinion, the cyclical decline caused largely by the speculative nature of rough diamond purchases could begin as early as September.

Igor Leikin for Rough&Polished