An Appetite For The Sparkling
What are some of the key trends that are influencing the diamond’s value chain, and what are the driving forces?
The initial recovery last year was driven by the Chinese market, which makes sense as it was the first market to reopen following the global lockdowns related to the pandemic. In 2021, the United States in particular has been very strong. For example Signet Jewelers, the largest jewellery conglomerate in the US, has raised full-year revenue guidance three times in just six months – I’ve never seen anything like that before. The company is now guiding 2021 sales to exceed 2019 sales by 12%, which is the pre-pandemic proxy.
This trend is very important for the industry as the US still accounts for half of global diamond jewellery demand. In general, the diamond market is currently being helped by generous government stimulus globally as well as market share gain from more “experiential” luxury, as people are not spending as much discretionary money on travel, dining out and other types of vacations during the pandemic.
Longer term, China continues to be the industry’s fastest-growing large market driven by a rapidly growing middle and upper-middle class, which has a penchant for luxury. I think over the next decade, China and India combined could outpace the US as the industry’s largest end-consumer market.
How is the impact of COVID-19 affecting the diamond value chain?
There have been some disruptions to the supply chain. Some mines were put on care and maintenance last year, and there were temporary labour shortages at manufacturing facilities in India. And of course retailers were forced to close.
But the greatest impact from the pandemic has been on the demand side. Unfortunately, I see the biggest economic takeaway from the pandemic being even greater wealth separation as global monetary policies and fiscal stimulus are driving asset prices higher. So those who own assets are doing quite well, and that tends to be the diamond- and jewellery- and luxury-consuming demographic.
So, from my vantage point, looking at the diamond industry in totality, the boost in demand has by far offset supply chain disruptions over the last 18 months or so, and this is reflected in diamond prices.
According to my proprietary rough diamond price index, the Zimnisky Global Rough Diamond Price Index, prices are up almost 20% since the start of the pandemic.
What have been the demand and supply fundamentals for 2020/21?
Based on my analysis, the diamond industry has been dealing with an oversupplied market since upstream production hit a multi-year high in 2017 and as the mid-stream segment de-levered inventory in 2018 and 2019.
However, year-over-year upstream production declined in 2018, 2019 and 2020 and production is forecast to remain well off the 2017 high-water mark through at least 2025.
Last year I estimated that global diamond production was 117 million carats, which was the lowest output since the 1990s. This compares to over 150 million carats in 2017. On the demand side, after growing at a low to mid single-digit percentage in the years prior to the pandemic, global diamond jewellery demand took a material hit in 2020, falling as much as 15% to 20%, but has since rebounded strongly.
Have there been any new developments in the sector, e.g. new technologies?
The diamond industry has a reputation for being slow to innovate, but in reality there is quite a lot of innovation happening right now throughout the supply chain. From more sustainable mining methods and technology, to digital diamond sales solutions, to automated manufacturing and grading, to diamond tracking initiatives, to innovation at retail, there is a lot happening in the industry. I think the industry is progressing faster than ever before on these fronts.
And then there is the advancement in lab-created diamond production technology, although I think the longer-term impact there will be greater in industrial and technological applications than in jewellery.
What’s the diamond production status from Africa?
On a continental basis, Africa continues to be the most important diamond producer, accounting for well over half of global production. Globally there is only one new major diamond mine currently in development, and it’s in Angola, the Luaxe mine.
De Beers has plans to move forward with expansion projects at the company’s Jwaneng and Orapa mines in Botswana. Both are multibillion-dollar expenditures that will extend the life of the company’s two most valuable assets through to the 2030s.