Editor’s Note
This article highlights the fragile nature of the global diamond market, where concentrated reserves and external shocks like the pandemic can quickly impact supply and prices worldwide.
The market for cut stones sees prices fall due to lower demand and a halt in trade. Diamonds are also suffering from the Covid-19 situation.
Despite the market liberalization introduced almost two decades ago, primary sources remain highly concentrated. According to a study this week from learnbonds.com, 80% of diamond reserves are located in just three countries: Russia, Congo, and Botswana.
In practice, this means any difficulty experienced by one of these countries is transmitted to the global supply chain for cut stones. This applies to Botswana, which experienced a five-week lockdown, and also to Russia, which holds half of the world’s diamonds in its lands. A few days ago, the giant Alrosa, the world’s largest producer, reported that its sales in April fell by 95% compared to a year ago. The company was forced to close operations at two of its mines due to current market conditions, which hinder transportation and trade, in addition to a contraction in consumption. Retail outlets are closed, and the United States, the world’s largest market, is experiencing the peak of the pandemic.
The South African De Beers, the largest producer in terms of value, has reduced its production for this year by one-fifth. The Canadian Dominion Diamond Mine filed for bankruptcy protection in April. Petra Diamonds, whose shares have lost 75% this year, has had to refinance its debt to borrow another $21 million to avoid insolvency.
Now, the day after the lockdown ends is a concern.
In the city of Surat (India), where 90% of the world’s cut stones are polished, the value of inventories has already reached $2.3 billion. To avoid ending up like oil, in negative territory, there is already talk that India may temporarily block the import of stones.
In fact, the price of rough diamonds already fell by nearly 9% in March, according to the Rapaport list. In April, the plunge could be double. The competition from synthetic diamonds, created in laboratories and identical to natural ones, is also a question mark. Being 25% cheaper, they currently represent only 3% of the total market but could reach 10% in the next decade. All of this has caused the price of polished diamonds to be in a downward phase since 2012. It is now at levels close to those of ten years ago.
It is possible that some mines may end up closing, either due to lack of profitability or resource depletion. Rio Tinto had already announced the end of its Argyle operation this year. In the immediate term, the industry is relying on so-called “revenge buying,” the impulsive spending to compensate for the deprivations of confinement. Hope is also placed on millennials, who appreciate the authenticity of the mineral. If they can afford it.