This content was first published on IGR – Italian Gemological Review no. 9 in 2020. The information provided here is therefore current as of the original publication date.
Why should we be surprised by the negative signs of transactions, profits and price lists of the diamond industry following the COVID-19 storm? Rather, when has this decline started?
At the gates of the new decade, the diamond industry was repositioning itself. Immediately before the world economy has come to a stop, the forecasts were optimistic on the assumption that, by limiting the extractive fronts, reducing the introduction of rough into the production cycle and disposing of the accumulated stock, prices eventually would stabilize.
A decade of economic growth in China and India has dragged upward their domestic diamond consumption through a speculative and tumultuous trend. The United States, still the largest outlet market, experienced a drop in margins despite an increase in transactions, resulting in the decline of price-lists due to the pressure of excessive stocks.
A supply chain centralization phase is underway (see “The Diamond View – Big fish eat small fish. What will happen to intermediate diamond traders?”, published on IGR issue #8), a trend that will activate “tailor made” processes, that is, supplies purposely planned in accordance with the actual needs of the manufacturing sector. In short, manufacturers are aware that, in order to avoid excess inventories, skipping intermediaries will be the solution, reshaping consequently their organization on customer demand. The diamond supply in the coming years, also in India and China, will be increased by the reintroduction into the market of diamonds accumulated over time in family assets.
Lab-grown diamonds in recent times are entering the market according to their own proper quality, that is, as synthetic products, unsuitable for retaining value over time, a feature that at the end will inevitably be perceived by consumers beyond any earlier illusion. The identical chemical composition does not guarantee the same value.
Consumption patterns have also changed in recent years, Millennials are the most promising customers. This has led to an inevitable change in marketing strategies so that diamonds are proposed more to gratify new aspects of the young people world and a little less to celebrate events related to the couple’s traditional experience, such as engagements and weddings.
Many of the trends we have described are the result of structural pressures and there is no reason why they should be modified by the 2020 economic crisis.
Use of technologies, system efficiency, balanced inventory management, social responsibility will be more than ever the key factors to guide the future of diamond business. We stand firm on this road because this is where value can be consolidated.
Yet the sanitary crisis can provide some food for thought. If we talk a lot about ethics as a practice and as a compass for the future, why so much disappointment and hostility against the price drop reported by the Rapaport list in March? The move has been considered by large part of the industry as a mistake. Why should we derogate from transparency? Many withdrew their diamonds from the platform, some migrated elsewhere so that Martin Rapaport duly suspended the quotations.
Diamonds are goods subject to the turbulence of the economy, why should their prices not fluctuate like all other commodities do? Wouldn’t it be better to admit honestly that it happens that diamonds are slightly cheaper? The danger is not a price list consistent with the phase we are experiencing but the damage that could be caused by vultures that at the end of this emergency, under the performance anxiety of restarting their cash flow, will tend to destabilize the market by selling at any cost.
By Sergio Sorrentino, published on IGR – Rivista Italiana di Gemmologia n. 9, Spring 2020
