De Beers Raised Prices Again Within Eight Months, And The Diamond Market Recovered Sharply After The Epidemic

De Beers, the world's largest diamond mining supplier, raised the price of rough diamonds by about 5% at the July fair, the fifth price increase in the past eight months due to strong market demand. It is reported that the price of some diamonds larger than 2 carats has increased by about 10%; The price of raw diamond stones weighing 1 carat or more has increased by 5% or more on average; The price of raw stones less than 1 carat has increased by about 3%. At present, the price of rough diamonds is far higher than that before the new crown epidemic. De Beers declined to comment.

Reasons: shortage of supply + increase of demand

Although the overall sales stagnated under the influence of the new crown epidemic in 2020, the diamond industry has shown a sharp recovery since this year, with little sign of slowing down. The data show that De Beers and Russia's Alrosa, the two largest mining giants in the diamond industry, sold almost all their remaining multi billion dollar stocks and newly mined diamonds last year in the first quarter of this year. In the first five months of 2021, total raw stone sales of De Beers and Alrosa reached $3.9 billion, more than doubling year-on-year and 10% higher than the same period in 2019.

DTC of De Beers is the world's largest supplier of natural diamond blanks. It holds a "look at" Trade Fair of rough diamonds every five weeks in South Africa, Botswana and Namibia, which is a diamond trading activity with global influence. In December last year to January, February and June of this year, De Beers has raised the selling price of diamonds several times.

At present, the price of rough diamonds is far higher than the level before the new crown epidemic. Xinhua News Agency

"It's been a tough year last year, and there's no doubt that the diamond industry has outperformed most," Paul Rowley, executive vice president of De Beers diamond trading, said in a media interview. "The market has shown extraordinary resilience." Mark cutifani, chief executive of Anglo American, the parent company of De Beers, points out that the rapid recovery of diamond market in recent years is mainly due to two factors: the decrease of rough diamond supply and the increase of demand for finished diamond at retail end.

The first half of 2020 is at the peak of the epidemic, and the global diamond industry has almost completely stagnated. Not only has sales plummeted, but many factories and diamond retailers are facing temporary closure. In order to avoid diamond unsalable flooding the market, De Beers chose to reduce production rather than reduce prices. Other diamond manufacturers or dealers have reduced their overstocks through online sales and suspended their plans for the purchase of raw stones and production of finished products for a long time to come. Mark cutifani once said at that time: "the inventory of many enterprises in the middle and lower reaches of the diamond market supply chain is decreasing, which is the biggest wave of" de Stocking "since 2008." The decrease in supply at the mining end and the lack of inventory at the retail end undoubtedly foreshadowed the subsequent increase in diamond prices.

In the second half of 2020, the epidemic situation will be gradually controlled, trade and manufacturing industries will gradually recover, and the demand for diamonds will also slowly increase. For dealers, from the second half of the year to the beginning of the next year, there are important holiday sales time nodes in China and the west, such as Thanksgiving, Christmas, Spring Festival, Valentine's day, etc., which need to be replenished before. For consumers, during the outbreak, people spent less on travel and had more disposable income to buy expensive accessories. Like other luxury goods, diamond has a limited supply and is more inflation resistant, and even can generate strong long-term returns. It naturally becomes an attractive "hard" asset and is favored by consumers.

In addition, in November 2020, the mining giant Rio Tinto announced the formal closure of Australia's Argyle drilling mine. At its peak, Argyle's diamond production accounted for about one-third of the world's total diamond production, and the most famous mining area is contracting out about 90% of the world's pink and red diamonds. The news of the mine's shutdown has also stimulated some investors' demand for diamonds. "Since the mine was announced to be closed, we have seen demand grow by nearly 50 per cent in the first half of 2021," Anna cisecki, executive director of Australia's diamond portfolio, told the CEO magazine

Jewelry sales in the United States exceeded pre epidemic levels between March and may 2021, according to a MasterCard SpendingPulse report recording the overall annual retail spending trend. Compared with the same month in 2019, jewelry sales revenue increased by 30% in March 2021, 14% and 45% in April and may, respectively. According to the natural diamond Association (NDC), diamond jewelry sales in the three months were 30% higher than in 2019 and three times that in 2020. China's jewelry trade also rebounded from the low point after the outbreak. In the 2021 fiscal year ending March 31, Chow Tai Fook had the highest net profit in seven years, and its sales in the second half of the fiscal year also set a record for six months“ The U.S. and China, the two largest diamond markets, have a strong retail recovery and may be better than we expected. " Paul Rowley points out that current industry fundamentals are probably the best in a decade.

Will the price increase continue?

The recovery speed and strength of the diamond market is surprising, but whether the price rise will continue is also the focus of the industry. The future trend of diamond price is determined by the production of rough diamonds in the upper reaches, the purchase of mid stream processing manufacturers and the demand of end consumers.

At the first three fairs this year, De Beers' rough diamond sales have exceeded $1.6 billion, the highest level since 2018. In May and June, De Beers sold $385 million and $470 million worth of raw stone, respectively, with sales slowing slightly. According to Anglo American in its first quarter update report, the slowdown in sales was mainly due to supply disruptions in South Africa and Canada, and drilling production was constrained.

Some analysts believe that due to limited production but no drop in demand, this wave of rough diamond prices did not reach a climax, and is expected to continue for some time. The data show that, on a global scale, the total global diamond production will drop by about 18% in 2020; In the first quarter of 2021, diamond production fell by about 17% year-on-year. Due to the fact that most mines have resumed full capacity production, it is estimated by relevant media that diamond production will increase by about 4% in 2021, but this figure is still far below the level before the outbreak of the new crown epidemic. In addition, the closure of Australia's Argyle mine, which has always been a high-yield mine, has further restrained the increase in production.

From a midstream perspective, at the height of last year's epidemic, diamond cutting centers in Mumbai, India and Antwerp, Belgium, were unable to purchase raw materials, and these manufacturers are continuing to replenish their supplies. According to foreign media reports, up to now, although the increase in raw material prices has reduced the profit margin in the middle reaches, these diamond cutting centers still benefit from the shortage of finished diamonds and the strong consumption power of the US and China markets, which makes their demand for raw stones still very strong.

However, there are also views that, with the return of international travel and other types of luxury shopping in the post epidemic era, consumers' demand for diamonds may fall. In addition, laboratory diamond cultivation has gradually gained more and more consumer recognition and market attention due to its low cost and price in recent years, which may occupy a larger market share in the future.

In May this year, Pandora announced that it would completely abandon natural diamonds in favor of cultivating diamonds to produce a new series, "Pandora brilliance.". The series will first be launched in the UK and will be extended to global sales in 2022. Pandora said one of the factors driving his decision was price, as laboratory made cultivated diamonds cost about a third of the price of mined diamonds, and they wanted to make diamond jewelry affordable to more consumers. In addition, by stopping the use of mining diamonds to make jewelry, it is possible to reduce unethical methods of producing related raw materials. As the world's largest jewelry producer, Pandora's move sends a strong industry signal: Based on "price" and "sustainable" reasons, cultivating diamonds may gradually replace natural diamonds in the future. Although it is still controversial whether cultivated diamonds are more sustainable than natural diamonds, the market will pay more and more attention to cultivated diamonds as a cheap substitute for natural diamonds in view of the decline in global rough diamond production.

David Kellie, chief executive of the natural diamond Association, said that while the diamond industry had rebounded strongly from the epidemic, it had "lagged far behind" global economic growth in the past decade. In order to reverse this trend and maintain the market share gained in the past year, the industry needs to continue to deepen digital reform. Although most people believe that the 2008 financial crisis was the beginning of the industry's recession, he points out that the e-commerce and social media revolutions started about the same time“ Before the outbreak, the diamond industry was not only "backward" in the digital field, but simply did not adapt. " "For me, there is a direct correlation between the poor performance of the diamond industry and the lack of digital expertise," he said

But David Kellie believes that the post epidemic is a good opportunity to change the decline of the diamond industry in the past decade: "we need to be more active and proactive. Whether the market can continue to grow in the future still depends on us - how we as an industry will invest, how to accept digitization, and how to combine with the tourism and cultural experience that is expected to recover."

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