This content was first published on IGR – Italian Gemological Review no. 14 in 2022. The information provided here is therefore current as of the original publication date.
Not counting the war events of these days and the ongoing news updates that require a dedicated coverage in the next issue, the diamond industry come out among the surprise winners of the post pandemic global economic upswing. It has recovered from the 2020 market turmoil, rebounded in the second half of 2021, and looks overheated in early 2022. Diamond prices are rising, from 5% up to 30% on cut stones. De Beers increased prices by about 8% in its first sale of the year.
We are now witnessing a sharp rise in price of once upon a time over-supplied small sizes. Other sizes and high quality goods also went up. Price hikes are an indisputable factor affecting the consumer’s purchasing intentions and the jewelry manufacturers’ strategy as well as the retail’s behavior. The question is only apparently a trivial one: why are diamond prices on the rise? Here are a few considerations in response.
The market is fueled by demand rather than supply, a modification of the business trend that until a couple of years ago was going downward. As a result of over-stocking (rough inventory increased by 7 million carats by the end of 2020) both rough and polished diamond prices fell that time by 11% and 3%, respectively.
Several mining companies suspended operations for more than six months during the first lockdown. And so in early 2022, De Beers and Alrosa, the two largest mining companies, found themselves managing lower reserves and consequently increased rough diamond prices by 5 to 15%.
The pandemic has jammed the gears of the world’s largest cut diamond factory, India’s Surat district, where more than 85 percent of the world’s available cut and polished diamonds come from. At full capacity Surat including its satellite towns has 6,000 polishing units, employing nearly 700,000 people with annual sales amounting to about €12 billion. India introduced quarantine restrictions, which led to a drop in factory utilization down to 50–70%, an outflow of migrant workers, and a decrease in the volume of diamond processing operations. Despite the resumption of orders many workers have not yet returned to work and have shifted to other occupations in their home villages. Unions claim that they have not been paid some of their due wages, earned at the time of the first closure of the cutting factories.
Something is also happening in the distribution chain. In a positive selling phase, dealers are reluctant to sell and bet on even higher selling prices while buyers are still looking for goods, but do not believe that current growing price levels are stable enough to purchase.
At the end the positive sentiment following the most robust vacation season in years is prevalent in the U.S., as well as in Europe and the Far East. And so the real question to ask is a different one. Is the rising price season set to last long? Diamonds must be seen in the broader economic climate that is currently characterizing this time of global health emergency. The factors that have been listed above are likely to change in the short to medium term. Enthusiasm could be followed by a slowdown (in IGR issue no. 13 we reported that there might be a bubble, according to some commentator). Notice to mariners: please sail by sight.
By Sergio Sorrentino, published on IGR – Italian Gemological Review #14, Spring 2022
