The worldwide diamond industry is going through a heightened state of recovery from COVID, but will it continue to sustain the trend throughout 2022? ROBERT BOUQUET provides a profound perspective.
The past two years have seen the diamond industry see-saw down and then rocket back up again. The eventual progression of the COVID-19 pandemic to endemic status should allow most of the world to return to normal.
That said, to a certain extent it feels like the diamond industry is already there.
During the pandemic I predicted this would happen as the world exits the horrors of COVID, economies revive, consumer spending accelerates and demand for the one product that provides the ultimate expression of love matches the level of emotional response and outpouring that the world understandably feels the need to make.
So what state is the diamond industry in right now?
Well, after the depths of the pandemic, the rebound – that logic and history told me would happen – came hard and fast.
At the time of writing, and after a prolonged break for the festive season, the diamond trading centres have kicked-off the year in a bullish mood. De Beers’ ‘sight’ saw significant price increases, particularly in the smaller and cheaper ranges of goods. Alrosa is expected to follow suit.
However, these rough price increases are merely bringing the two major producers closer to the pricing of the booming secondary market. Sales of rough by smaller producers and, at tender and auction houses, are performing very strongly as buyers aggressively seek rough to fill their manufacturing facilities, and to keep the wheels turning and polished flowing.
Of particular note for me is that the smaller sizes and cheaper natural goods are surging in demand and price. This was a segment that, in truth, I believed to be in permanent decline, exacerbated by the seemingly unstoppable advance of lab-created diamonds.
And yet, here we are with a healthy market and appetite for these goods.
In a current production scenario with both De Beers and Alrosa unable to significantly increase their production, no Argyle mine producing 12mcts per annum in Australia and the new Luaxe mine in Angola not yet up to nameplate capacity, the smalls and cheap goods are certainly benefitting.
Manufacturing in India continues apace, polished sales are very healthy in the trading centres – and of course all eyes are on the reporting of the critical retail markets to see how they performed over Christmas.
Early reports from the US indicate a whopping 40 per cent increase year-on-year in jewellery sales. Signet increased its sales guidance for the fifth time as sales just keep getting better and better.
Polished prices have been driven up by a combination of higher rough prices, shortages of availabilities and, most healthily of all for the trade, retail sales which have depleted inventories and, therefore, created genuine middle-market demand.
Polished prices are generally much less volatile than rough diamond prices, and while this remains the case today, we are seeing continued price increases in polished. Ideally these increases continue during 2022 to set a platform for the high rough prices to be sustainable.
The Chinese New Year and Valentine’s Day sales are still to take place or finish. Retail results will be forthcoming in due course, but all omens point to a very strong start to the year for the diamond trade.
Some commentators talk of a bubble forming, a speculative froth on rough trading, an impending market correction, however; the truth is that no one knows for sure what will happen. The key is that polished prices keep increasing and that retail demand continues its stellar performance.
There are some macroeconomic risks, as always, which might calm the temperature of the market this year.
Key themes of 2021
There have been some exciting and interesting industry developments over the last few months that are worth analysing.
• Production shortages – it is no secret that the rough market is booming; repeated statements by the two major producers that stocks are low is fueling this, and demand is outstripping their ability to produce and they have limited ability to increase their productions.
All producers are benefitting from increasing prices (c.+20 per cent in 2021); even more marginal projects are being injected with the positive momentum of the rough market; if this market holds (bullishly, I predict it will for most of 2022), we could be in for a bumper year.
As always, however, the old adage “caveat emptor” prevail – if rough overshoots, it will have to correct at some point.
• CSR becoming more important – future consumers will demand more from their diamonds. They will demand corporate social responsibility (CSR) and they will want to know that the diamonds and jewellery that they purchase have the right ‘footprint’; indeed many industry participants now consider sustainability and social responsibility to be commercial levers that can be pulled to drive sales.
It will be up to all stakeholders to adopt these principles going forward or risk falling behind and losing out on sales.
• Polished prices are on the up – all the polished indexes on the market show increasing polished prices; year on year average polished prices are around 15 per cent up; the last months of 2021 proved the strongest.
The real challenge now will be how to keep this momentum, ultimately retail prices need to increase to allow the trade to absorb these new price levels. It is also good to see strong demand for fancy shapes (especially ovals); good makes are flying.
Luxury goods sales in China are bouncing back and along with the solid US growth the industry is in a good place.
Source: I. Hennig & Co Ltd
• Fancy colours keep hitting the headlines – Firstly, the good news is that natural fancy colour prices are reportedly still increasing. Pinks, blues, and yellows are all rising; the overall trend is very encouraging for this segment of the trade.
The reality of the fancy colour marketplace is that it’s actually very difficult to be specific on true selling prices for this exciting niche. With the exception of publicly available auction hammer prices, one relies on hearsay and individual claims or anecdotes.
Indeed many truly exceptional fancy colour stones never get publicity at all and are sold very discreetly and without any market noise at all.
But one thing is for sure – the best natural fancy colour polished stones are still selling for prices of millions of dollars per carat. Therefore, I think it is fair to say that fancy colours have totally avoided the potential downfall threatened by lab-grown and treated diamonds.
The differentiation between natural diamonds and lab-created/treated is stark, and should remain that way. De Beers’ lab-created brand, Lightbox, with its aggressively low pricing for coloured stones has helped here also, in my opinion.
Yet again, some exceptional (natural) fancy colour stones have grabbed the market headlines recently. Let’s start with my favourite stone. Unearthed by Petra Diamonds at the Williamson Mine in Tanzania, the stunning 32.32-carat pink diamond (pictured below) was sold to Diacore for $US13.8 million.
Diacore dubbed it “a rare masterpiece of nature”; from looking at the picture of the rough, the polished stone should be exceptional indeed.
Another headline is being made with a 555-carat black polished (‘carbonado’) diamond.
The stone, which is reportedly the largest polished diamond recorded, has been given the exciting name of ‘The Enigma’ and will be auctioned (notably for crypto currency only) by Sotheby’s with an estimate of up to $US8 million.
The marketing of the stone claims unique origins caused by ancient meteorites hitting the earth; the veracity of this claim is, alas, not within the scope of my diamond expertise.
In December, a blue diamond ring was among the top lots at the Sotheby’s Magnificent Jewels sale in New York. The piece contains a cut-cornered rectangular modified brilliant-cut, 6.11-carat, fancy-intense-blue, VS2-clarity diamond surrounded by round diamonds.
It was estimated to bring in up to $US6.5 million at the 7 December auction, but actually sold for $US7.96 million.
Also, more stunning results as a pair of blue diamond earrings at Christie’s Magnificent Jewels auction in Hong Kong sold for just under $US7.5 million (picture below).
The price was very good for a couple of modified brilliant-cut pear shapes, fancy-vivid-blue VS2 stones weighing 3.06-carats and 2.61-carats, set with white diamonds.
Another ring with an emerald-cut, 3.32-carat, fancy-vivid-blue, internally flawless natural diamond achieved $US5.9 million.
Yet again, these sale results prove the enduring allure and extraordinary value that the best natural fancy-coloured diamonds hold in the eyes of the buyer.
• Lab-grown is expanding fast – I have always stated that I see a future two-tier retail environment for diamonds; where natural and lab-grown sit in the same stores, marketed differently and priced differently.
De Beers’ launch of Lightbox has no doubt accelerated the (inevitable) advance of lab-created diamonds. The longer-term outcome of this move remains to be seen; a certain level of sales cannibalisation must be inevitable; critical will be incremental sales, not lab-created taking away natural diamond clients.
Meanwhile, many new brands and retailers are entering the market with lab-created ranges. For example, Pandora is launching its ‘Brilliance’ lab-created collection this year; production of lab-created is increasing rapidly while De Beers Lightbox is now disclosing additional treatments to its stones (CVD, which is then given an HPHT colour enhancement).
Sales are increasing and the next generation of diamantaires from many of the larger sightholders are embracing this profitable, new part of the industry.
Also, it is noteworthy that we are seeing a migration of experienced executives from the natural diamond world.
I am excited by 2022; the industry has a lot of opportunity in front of it; mining companies are facing a potential bumper year and the trade must be careful in maintaining margins throughout the pipeline.
This is critical – but a genuine and tangible positive impetus is upon us; given the right marketing and successful trading it could be a year to remember.
On the macroeconomic side, we face new threats from the geopolitical issues between Russia and the West over Ukraine, seemingly worsening relations between China and the West and increasing energy costs and rising inflation in many countries.
Hopefully, none of these issues will destabilise the positive momentum of the diamond industry; but these are areas of risk.
I look forward to commenting further in the coming months.