Editor’s Note
This article examines the sharp decline in diamond prices, driven by geopolitical tensions and potential sanctions on Russian imports. The market faces significant uncertainty as these factors reshape global trade dynamics.
Since the beginning of the conflict in Ukraine, the prices of rough diamonds have fallen by more than 30%. And the threat of sanctions against diamonds imported from Russia is just one of the factors weighing on the market.
But before that, obstacles have followed one another. At the beginning of the pandemic, in March 2020, many consumers turned to buying luxury goods to combat the depression of lockdowns. A movement that had driven up prices, with the latter rising in one year from 116 to 158 on the scale of the IDEX Diamonds index, which tracks the prices of cut stones.
But with the reopening of economies, the backlash was much greater than imagined. Professionals in the sector, importers, cutters, and jewelers, apparently found themselves with stocks that were too large and paid for too expensively during the pandemic. Hence an offer exceeding demand, and pressure on prices. The IDEX index fell to a floor of 107 points. A classic economic effect of speculative “overstocking.”
Inflation followed to disturb the sector, especially in the United States. And recently, another major market has plunged. This is China, burdened by an unprecedented real estate crisis that has affected the appetite of investors and consumers in the luxury industry. Finally, the last shock absorbed by the diamond market is the enthusiasm of a younger public for synthetic diamonds used in jewelry. These stones have been known since the 1950s for their use in drilling and polishing tools, but the improvement of industrial production processes has over time reduced manufacturing costs.
Better yet, while natural diamonds suffer from a reputation often incompatible with the objectives of sustainable development and social protection of workers in extraction, some synthetic diamond producers highlight their ability to produce stones based on renewable energy. And this affects both rough stones and cut diamonds. Like the French luxury giant, LVMH, which has just launched jewelry with synthetic stones.
The very broad diamond sector has therefore suffered a heavy drop in prices, with wholesale prices of polished diamonds falling by an average of 20% (knowing that prices vary strongly depending on the dimensions of the stones, measured in carats) while rough stones have experienced a fall of 35%. The level of what is called a “Crash” in financial markets. The sector has therefore seen its historical heavyweights try to find a solution to the problem. An embargo on Russian diamonds would be one, partial, knowing that markets not aligned with the European position and OECD countries will remain open to these exports. But in practice, the sector has organized scarcity, at least for certain types of stones, by postponing scheduled sales.
For its part, the Russian Alrosa interrupted its sales for two months, while Indian players suspended sales until mid-December. That is, from a strategic point of view, until the eve of the end-of-year holidays which began last week in the United States, and stretches in Europe until January to end in mid-February at the time of the Chinese New Year. According to Bloomberg, some observers are seeing a stabilization of prices. The whole thing will then be to see to what extent the disposal of existing stocks does not put pressure back on the market.
