The momentum in the industry fizzled out in March. It was unclear whether this was a direct result of Russia’s war in Ukraine or just a correction after months of heightened activity. The geopolitical crisis created several concerns: Would governments ban Russian diamonds, such as those from Alrosa? Would consumers boycott those goods? Would the uncertainty impact trading?
The answer to all three questions contained an element of “yes.” The US banned importing diamonds of Russian origin, but the sanctions exempted stones that had been cut and polished in other countries. A number of retailers, including
Signet Jewelers,
Tiffany & Co., and
Brilliant Earth, stopped handling any Russian diamonds. And the midstream became increasingly worried that the sanctions would expand and public opinion about Russia would worsen.
The other market-dampening force was the realization that prices and trading volumes had become unsustainable. This was especially true on the open rough market, where goods had been commanding almost unprecedented premiums.
“There was excess liquidity in the market, [as] everyone thought that rough [was] going to be less [plentiful] and demand [was] going to be there,” a manufacturing executive said March 24 on condition of anonymity. “So a lot of people chose to leave their goods in the safe, whether it was rough or polished. And this was pure speculation, which I think is unwinding right now.”
A timely correction?
Prices decreased across many parts of the supply chain, though the diamond sector was still stronger than during the 2020 downturn. The RapNet Diamond Index (RAPI™) for 0.30-carat polished slipped 1.8% between March 1 and 27, while the 0.50-carat category saw a drop of 0.1%. The index for 1-carat diamonds climbed 1.7%, with 3-carat stones up 1.3%. Despite the declines in some categories, prices were significantly higher than six months earlier.
In January and February, rough branched off into two markets: Prices at tenders and auctions skyrocketed amid supply shortages, while Alrosa and
De Beers implemented more modest increases at contract sales. But as the boom unraveled in March, tenders and auctions saw heavy drops, according to dealers. Prices on the secondary market — resales of De Beers and Alrosa contract goods — declined by 10% to 40%, with the smallest melee seeing the sharpest slumps, one manufacturer reported.
Prices at the large miners’ contract sales were stable, however, reflecting the fact that this segment had not experienced the dramatic rises the open market had. Alrosa maintained steady pricing at its March contract sale, clients said. De Beers’ March-April sight was still ongoing at press time.
Payment solutions
Alrosa’s customers, most of which are in India or Belgium, were willing to buy, despite some caution about the market trajectory and the future status of Russian merchandise. They used various solutions to circumvent Western financial sanctions on Moscow, such as paying in currencies other than US dollars. “The Indian players appear not to be blinking before buying, whereas the Belgian ones are blinking, at least. But I think they will end up buying,” an insider said.
Ultimately, the major retail markets will determine the success of the industry. The US consumer seems to be splurging, but high inflation has raised some warning flags. China has shown signs of improvement following a relatively sluggish 2021, with January and February retail sales reportedly exceeding analysts’ expectations.
“American consumers appear reasonably well positioned to keep spending, supported by recent massive job gains and high household savings,” wrote Sal Guatieri, senior economist and director at investment bank BMO Capital Markets, in a mid-March note. “This assumes, of course, no further major blows to fuel and food costs, confidence, and financial conditions stemming from the Russia-Ukraine war.”
Article from the Rapaport Magazine - April 2022. To subscribe click here.