Rapaport Magazine
Markets & Pricing

Impressive growth in an erratic year

Despite the topsy-turvy nature of the market and ongoing Covid-19 disruptions, the diamond and jewelry industry enjoyed its biggest boom in over a decade in 2021.

By Avi Krawitz
Overall, 2021 was an excellent year for the diamond and jewelry trade. The industry registered its steepest polished price increase in a decade as jewelry sales surged despite — or because of — the lingering coronavirus pandemic. But it was anything but a smooth journey toward growth.

The year was characterized by Covid-19 lockdowns, shortages, supply bottlenecks, and surging rough costs. Ultimately, however, the increase stemmed from a recovery in consumer spending after the slowdown of 2020, and a resurgence in demand for diamond jewelry. That spurred polished trading and led to a rise in diamond prices, as is evident in the following pages of this Rapaport Diamond Price Statistics Annual Report.

The RapNet Diamond Index (RAPI™) — which tracks the average asking prices for polished diamonds on RapNet — rose 17.4% in the 1-carat category for the full year, as the graph on Page 49 illustrates. The Rapaport Diamond Index (RDI™), which is based on changes in the Rapaport Price List, rose across all ranges presented in this report — with a few exceptions, such as 0.50- to 0.70-carat, D-color, IF-clarity goods.

There were three main factors driving the improvement in polished prices: good demand, cautious supply, and high rough prices.

Better demand

The year saw a release of the demand that had built up during the earlier phases of the pandemic. US consumers gained the confidence to go out and shop again as the vaccination drive gathered momentum and as government stimulus checks expanded people’s purchasing power.

Jewelry gained market share from sectors such as the travel industry, which were still limited by lockdowns and border closures. The experience economy that defined economic progress over the past decade has been on hold since the initial Covid-19 lockdowns in the second quarter of 2020. Instead of spending on vacations and adventures, consumers have sought out meaningful gifts and products, both for loved ones and as a reward for themselves.

The jewelry market effectively tapped into that narrative through branded storytelling, stronger content on social media, and greater efforts to showcase companies’ environmental, social and governance (ESG) programs, which have become more important to consumers.

Initial estimates suggest retail jewelry sales grew by double-digit percentages over pre-pandemic levels. The figures for November 1 to December 24 rose 32% year on year and 26% compared to 2019, according to Mastercard SpendingPulse. The improvement trickled down to the trade, since jewelers needed to refill their display cabinets after selling their holiday stock.

However, the midstream was dealing with a challenge it wasn’t quite used to: There wasn’t enough supply to meet demand.

Supply challenges

The year began with strong rough sales, since manufacturers had diminished their polished inventory during 2020 when the trade shut down. The rough market started to recover in August 2020 as the holiday season approached, but De Beers and Alrosa sales spiked in earnest from December 2020 through the first quarter of 2021.

The midstream went into 2021 with high liquidity and low inventory after good sales and limited polished production in the second half of 2020. Factories started to ramp up operations again. Grading laboratories received record submissions in the first quarter of 2021 as manufacturers produced large volumes of polished from the rough they had bought.

However, India’s manufacturing sector shut down again around April as Covid-19’s Delta variant swept through the country. The Mumbai lab of the Gemological Institute of America (GIA) saw backlogs of over six weeks as it, too, restricted operations due to the pandemic.

This caused a bottleneck in the supply chain. The midstream was facing an inventory-management dilemma: There were a lot of goods in the pipeline, but they weren’t being released quickly enough. Despite the earlier strong rough supply, the delays were leading to shortages in the polished market. Manufacturers grew cautious about buying large volumes of rough to raise polished output, since they were uncertain when the GIA and other labs would reduce their backlogs and release goods to the market.

The rough response

Rough sales volume dipped slightly in the second and third quarters, but prices remained high. De Beers and Alrosa carefully raised prices at strategic junctures during the year, citing the positive retail trends but likely also considering the supply dynamic in the polished market.

Meanwhile, the mining companies were facing production challenges of their own, with sporadic Covid-19 outbreaks delaying operations. They were also cautious about increasing production too quickly, given the prevailing market conditions.

By the third quarter, there wasn’t enough rough available to satisfy demand. Alrosa bought goods from Gokhran, Russia’s state gem repository, to help fill its supply gap. Scarcities spurred further increases in rough prices, putting a squeeze on manufacturing profit margins. Rough prices grew an estimated 23% for the full year, and manufacturers held their polished prices steady — or raised them — to protect their profits.

That made things difficult for polished buyers, who complained that desirable, top-quality diamonds were both more expensive and harder to find, even with overall inventory levels rising.

“Diamantaires took their year-end break optimistic that the positive momentum would continue”

Unusual polished dynamic

The number of stones on the market continued to climb as the GIA gradually reduced its backlog. RapNet saw record listings toward the end of 2021 — exceeding even the levels of 2019, when the market slumped due to excess supply. The increase was mainly due to an influx of certified goods in the 0.30- to 0.50-carat range, for which demand had slowed and prices had flattened in the second half.

The supply of 1-carat and larger stones was relatively stable. Orders for these goods were improving amid strong engagement and bridal sales and as jewelers prepared for the holiday season. The JCK Las Vegas show, which had been postponed from late May to August due to Covid-19, confirmed the strength of the US market and fueled expectations among jewelers and diamantaires for the important fourth quarter.

Holiday sales didn’t disappoint. Many retailers reported a record season, and diamond dealers were busy filling orders until the last minute. Diamantaires took their year-end break optimistic that the positive momentum would continue into the new year.

Still, there were concerns that inflation and the rapid spread of Covid-19’s Omicron variant would dampen consumer confidence. The trade was also worried about rough price levels, rising inventory, and the challenge of bringing the right goods to the market at the right time. At the start of 2022, the industry finds itself with both shortages and excesses. But there is a sense that the dynamic will find a balance, as long as demand grows like it did in 2021.

Article from the Rapaport Magazine - January 2022. To subscribe click here.

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Tags: Avi Krawitz