- DIAMOND TIMES – The diamond industry, which bounced off the bottom in July and August last year, received a strong support from the strong holiday jewellery sales, and in 2021, it is ready to compete in the growth rates with other beneficiaries of the global economic recovery from the COVID-19 pandemic. January-February 2021 again proved to be successful for all segments of the ‘diamond pipeline’ as the diamond miners demonstrated the record sales, the midstream margins grew amid high diamond prices, and jewellery sales exceeded all expectations. The diamond inventories in the pipeline are at their lowest in 7-8 years, which prompts the diamond cutters to buy heavily while the consumer demand is supported by the US stimulus package. The confidence in the market stability allows the diamond miners to raise prices for rough diamonds that have already returned to their pre-crisis levels, as well as to speed up resuming the operation of the mines that were under care and maintenance last year.
ROUGH DIAMOND PRICE GROWTH
The major diamond miners – trying not to upset the balance in the market – refrained from rising their prices until December although the environment was favorable for the rise. The growth in the midstream margins on the back of the growing jewellery sales led to a sharp growth in the polished diamond value in the second half of the year, especially of large-size stones. In December, the prices for polished diamonds increased by 2% on average, with the strongest figures for 1-2 carat stones. The polished diamond prices were on average 16% higher than in early 2020, while the 0.5-1 carat polished diamond prices rose by more than 20%. According to Paul Zimnisky, the spread between the rough and polished prices widened to multi-year levels last year, and the gap between them would inevitably have narrowed as the supply chain normalized.
Finally, in December last year, De Beers increased its rough diamond prices for the first time since 2018 and this change affected the 0.75+ carat stones and made 1-2%. This measure was due to the strong demand from the midstream against the background of both a reduction in the inventories and a strong demand for rough diamonds from a cutting and polishing sector.
At their first auctions in 2021, the major diamond miners raised the prices again in response to a rising demand during the post-holiday restocking and revival due to the upcoming Chinese New Year. The increase was justified, since the De Beers boxes, according to sightholders, were sold at a 5-7% premium in the secondary market at the beginning of the year.As a result, the De Beers diamond price rose by 4-5% on average while ALROSA increased the prices by 6-7% in an effort to bring them in line with the market trends and the confirmed demand. The large-size and high-end stones mainly showed the increase in prices. After the increase, the prices in these categories have returned to their pre-pandemic levels.
The rise in prices will continue thanks to active replenishing the midstream inventories, according to VTB Capital, which estimates that in 2021, the rough diamond price index will grow by 10%. The index shows the change in the prices of comparable stones without taking into account the possible correction of the assortment.
The monopolists raised the prices and retained their flexible terms of trade. The most flexible ones are offered by ALROSA, which allowed its long-term clients again to abandon 100% of their allocations during the January and February sales. Thus, its long-term clients can purchase rough diamonds according to their real needs. But the clients’ discipline is unlikely to suffer from this move because the company is holding its negotiations before concluding the contracts for the next season that will start in April 2021. Consequently, the buyers’ activity – even in the most liberal trade environments – will become the most important argument for obtaining a contract with the desired assortments.
TRADING SESSIONS IN EARLY 2021
It seems that the new pricing conditions have not affected the customers’ appetite so far. De Beers sold $650 mn worth of rough diamonds during its first sight this year held from January 18 to February 2 and it was the highest result since January 2018. The sum was 18% higher than a year ago and 44% higher than at the previous sight. The demand is encouraging as the midstream customers sought to replenish their reduced inventories to fulfill the retail orders amid the strong holiday diamond jewellery sales in the United States, De Beers CEO Bruce Cleaver said. The rough diamond sales are also supported by the anticipated demand in the run-up to the Chinese New Year and the Valentine’s Day.
In January, ALROSA sold its rough diamonds worth $430 mn, which is 6% higher than in January last year ($405 mn). Compared to the record data of December 2020 ($522 mn), the sales decreased by 18%, but the December result was influenced by one-off factors including the sale of a unique diamond, as well as an advance payment for January.
“The January sales results reflect the improved demand for jewellery in the main consumer markets – China and the United States. The demand for rough diamonds received an additional support due to no surplus inventories in the cutting and polishing segment. This, in its turn, is partly due to the fact that the cutters and polishers have the opportunity to make purchases only to satisfy their real needs,” commented ALROSA Deputy CEO Evgeny Agureyev.
TENDERS HELD BY SMALL DIAMOND MINERS
It is important that at the tenders held by small diamond miners – and they, as a rule, reflect the market realities more flexibly – the prices in January were even higher than those of the majors, Rapaport notes. This situation radically differs from the mid-2020 ones when the small diamond miners were selling their rough diamonds 25% cheaper than De Beers and ALROSA.
Mountain Province reported on the rise in its prices, and at its auctions in January, the comparable average price was 8% higher than the price in December. Moreover, the company expects the positive price trend to continue as the rough and polished diamond markets strengthen during the successful retail season.
Petra Diamonds also posted an 8% rise in comparable rough diamond prices at its tender in January noting a return to the pre-COVID-19 prices.BlueRock Diamonds described the results of its January tender where it sold several large-size stones as very positive, which confirms the information about a strong recovery in the rough diamond prices, according to the company.At the January tender held by Diamcor Mining, its revenue grew more than 3 times compared to that at the previous auction, to $267,000, and the average price grew almost by 1.6 times to $184 per carat.The rise in the rough diamond prices is based on the strong jewellery sales as part of a replenishment cycle that is larger than in 2019-20, VTB Capital notes.
The holiday jewellery sales in the United States were significantly higher than historical values, as the consumers, despite all the difficulties and barriers, “chose to spend on gifts that lifted the spirits of their families and friends and provided a sense of normalcy given the challenging year” (according to the report of the National Retail Federation, NRF). This federation estimates the growth of sales during the November-December holidays at the level of 8.3% YoY (compared to the forecast of 3.6-5.2%). The result is twice as higher than the dynamics of the previous five years when the consumer spending grew by 3.5% on average during this period. The online sales growth reached 24%.
According to the NRF, in the second half of December, the spending began to rise after the new US administration’s promise of a next round of stimulus measures and the news of the progress in the vaccines against COVID-19. The incentives, especially direct cash payments and the support for small businesses, will ensure the spending growth throughout 2021, the NRF said.
Customers constrained to travel during the pandemic are shopping more online, Tiffany explains its results as the company reported its record sales during the holiday season. The online purchases of the Tiffany goods showed a more than 80% increase. In total, from November 1 to December 31, 2020, the company’s sales increased by 2% YoY, including the sales in mainland China where the growth exceeded 50%, which compensated for the decline in Europe and America.
The Signet’s comparable store sales, including online sales, increased by 5.6% year-on-year during the holiday period (nine weeks ended January 2, 2021). The cumulative result of the holiday sales was in line with the previous year as the company is reducing its chain of stores. At the same time, its e-commerce sales grew by about 61% YoY. Signet expects the comparable store sales to grow by 4-5% in Q1 2021.
In Asia, the holiday sales season was also successful – so, the sales almost reached their pre-pandemic levels in China in December.The Chow Tai Fook’s comparable diamond jewellery sales were 8% up in Q4 2020 showing a significant improvement from the 2-13 percent declines in Q3 and Q2, respectively. The total sales in comparable stores in mainland China rose by 12% YoY amid an improving COVID-19 situation, while the sales in Hong Kong and Macau declined by 31% YoY, which is still less than the drop in the previous quarter (minus 53%). The average price of jewellery with precious stones in China increased by 7% YoY.
Strong holiday sales will spur a significant replenishment of the polished diamond stocks in 2021, especially as the jewellery retailers in the United States entered the holiday sales period with stocks below normal, VTB Capital said.
SHOPPING CENTRES’ STATISTICS
The rough diamond imports to Belgium – after a 33% increase by value in December (to $866 mn) – was corrected to $628 mn in January 2021, which is 24% lower than in January last year, according to the statistics provided by the Antwerp World Diamond Centre (AWDC). At the same time, the average price of the rough diamonds imported to Antwerp rose sharply in January – by 35% to $108.5 per carat. The polished diamond exports fell by 10% to $547 mn, following a 9% increase (to $634 mn) in December.
In January 2021, the rough diamond imports to India grew by 65% YoY to $1.26 bn. The polished diamond exports from the country increased by 9.4% YoY to $1.8 bn. In India’s diamond cutting and polishing hub of Surat, the factories attract the workers with higher wages and benefits as they plan to increase their output. The India’s diamond cutting units reached their full capacity due to the diamond shortages in the market and the stock replenishment in the midstream, which boosted the demand for rough diamonds.
One of the reasons for the rapid diamond market recovery in the second half of 2020 was that the supply was hit by lockdowns and operational disruptions just as much as the demand was hit by anti-virus restrictions and the shift to a conservative consumption model. In 2020, the global diamond production fell by 19% to 112 mn carats, the lowest level in 30 years. Even in encouraging Q4, the diamond production was by 28% lower than a year ago and totalled 24 mn carats. The mining companies were unable to quickly ramp up their production amid the improving market conditions; the diamond production of De Beers, for example, turned out to be at the lower limit of the forecast.
Nevertheless, some diamond miners are preparing to resume their mining operations suspended during the pandemic.Diamcor Mining has resumed the operation of its Krone-Endora project, South Africa, mothballed in March 2020, where the production is carried out using the tailings of the De Beers’ Venetia mine. This decision was taken thanks to the company’s good diamond sales at the beginning of the year.Lucapa Diamond has resumed its operations at the Mothae mine in Lesotho after a two-week nationwide lockdown, anticipating strong diamond market dynamics in 2021.Dominion Diamond is preparing to start its production at the Ekati mine after a 10-month downtime.
The diamond mining giants did not stand aside. After its strong sales in September-December, ALROSA is returning part of its production capacities from a seasonal mode to a full-fledged one, the company CEO Sergei Ivanov said in early January. In the summer of 2020, when the demand for rough diamonds was minimal, ALROSA switched the Aikhal mine and the Verkhne-Munskoye one – which accounts for about 11% of the company’s total production – to the seasonal mode of operation, and also suspended the Zarya and Zarnitsa open pits (about 2% of the company’s production). The company now has the opportunity to increase its output, as the inventories are nearing their minimum levels, having dropped sharply in Q4 to 20.7 mn carats from 30.6 mn carats three months earlier.
“Even if there are some difficulties in the second quarter, we still believe that the rough diamonds that we will produce will be in demand in the fourth quarter or in the long run, as the markets recover,” Ivanov believes.
The willingness of the diamond miners to work to make stocks, despite the possible slowdown in demand, certainly is an important indicator of the sustainable market. Hopefully, its key players have learned a lesson from the previous cycles of the declining demand. We still remember the situation in January 2020 when the diamond miners – trying to catch up for their losses during the ‘perfect storm’ – rushed to bring over $1 bn worth of the surplus rough diamonds to the market. The roughs were soon absorbed by the midstream in the hope of a speculative rise in prices on the eve of the official start of the pandemic, and then they were a dead stock for almost six months.
An alarming signal could be a declining interest in the Google trends, which have proven to be a good indicator of the demand for polished diamonds, BCS notes. The American consumer appetite for polished diamonds weakened markedly in Q2 2020, when the demand for jewellery and the diamond sales collapsed due to the pandemic and lockdowns. By the end of the year, the interest as well as the demand recovered from the April lows thanks to the sales, which is generally a usual thing and is in line with the seasonal trends of the previous years.
In late December and early January, there was a decline in the American consumers’ appetite, which may be a signal to limiting the diamond price rise. BCS writes that the seasonal cooling of the American consumer interest in polished diamonds after the New Year holidays casts doubt on these expectations [of continued positive price and sales dynamics]. Given the US market size accounting for about 50% of the global diamond consumption, the decline in the popularity of the ‘diamond ring’ search on Google, we believe, suggests a limited upside potential for the rough and polished prices if this trend continues.