H
ow would one build the diamond
industry if one could do so from
scratch? Given a clean slate, the supply-
chain dynamic would almost certainly
be different, ensuring greater efficiency and
profitability for all stakeholders.
In some sense, the coronavirus crisis has made
that possible, as many of the initiatives that had been
developing slowly prior to the pandemic have now
been accelerated. There is a recognition that urgent
change is necessary, and a conscious effort to do
things differently. That’s partly because the industry,
like other business sectors, is being forced to adapt to
the reality of the pandemic. But it is also because the
diamond trade has been doing business in a way that
simply does not align with the modern economy.
The industry needs to transition from being a
supply-based market to a demand-driven one. That
is no simple task, given the nature of rough-diamond
mining and polished selling. Typically, miners take
their run-of-mine production and sell as much as
they can to manufacturers, who convert the rough
into polished and sell to jewelers, who thenmarket
the product to consumers.
The problem is that while consumers can pick
what type of diamonds they like, miners cannot
choose which stones to bring out of the ground.
Manufacturers are consequently coerced into buying
a broader range of product than they need.
That each diamond is unique is a blessing
that enhances the product’s appeal. But it also
presents challenges, since some categories are
more appealing than others. Unlike commodities
such as gold, platinum or silver, diamonds have no
standardization of demand or pricing.
With so many character traits distinguishing each
diamond — shape, size, color, clarity, cut, polish,
symmetry and fluorescence, among others — it’s as if
each category has its ownmarket. That complicates
the supply chain dynamic, particularly for buyers
and sellers of rough. The structure of the diamond
trade is such that manufacturers must buy some
diamonds for which there is insufficient demand.
The solution is either to widen the range of
desirable categories, or to streamline supply so that
diamonds are sold (or rather, bought) only when
there is demonstrated demand. Covid- has given
the industry an opportunity to do both.
Regarding the former, the trade has been able to
rethink its marketing and consumer-engagement
strategy. There is great hope for the new global
advertising campaign that the Natural Diamond
Council (NDC) plans to debut inmid-September.
And in terms of streamlining supply, innovation
is creeping into the roughmarket. In a letter to
the industry, Eira Thomas, the CEO of Lucara
Diamond Corp., called Covid- the tipping point
that “compounds the rationale behind our industry’s
need to modernize.” Lucara sees its Clara platform
as an effective solution, because it supplies rough
based on the desired parameters for polished.
Meanwhile, De Beers and Alrosa — the main
companies that set the tone for the market —
have played an important role in easing industry
pressures during the pandemic, allowing clients to
refuse or defer supply while keeping prices high.
That changed in August, when an improvement
in the polished market gave both companies the
confidence to reduce prices — their first adjustment
since the crisis started. Despite their deep pockets,
the miners also need to stimulate sales; there is
a limit to how long they can incur costs without
revenue. Besides, there was genuine demand in
August, with scarcities in certain categories due to
the lack of manufacturing, and cutters needing to
prepare for the holiday season.
That said, the rise in rough demand reignited
concerns that the trade would quickly return to its
old habits of buying rough just for the sake of doing
so, putting a strain on liquidity and polished prices.
With that inmind, India’s Gem& Jewellery
Export Promotion Council (GJEPC) urged
manufacturers to buy only the goods they needed.
“A good part of the inventory is not moving,” the
council stressed. “The trade should be cautious and
take steps to reduce inventory further.”
The market will be tested in the coming months,
because the miners will want to create some revenue
momentum and the lower price levels may be
enticing. Manufacturers will need to make a careful
assessment of how far polished demand is likely to
rise in the fourth quarter as the coronavirus lingers,
or they risk being left with additional inventory they
won’t be able to move.
The diamond trade must change its mind-set
as it rebuilds from the coronavirus crisis. That will
require manufacturers to curb their rough buying
and streamline their polished inventory. The trade
was forced to do this whenmarkets shut down, and
it can use that experience to enact a new approach
for the long term. The diamond industry will emerge
fromCovid- with a different dynamic than the one
with which it entered. The most significant change
should be how the roughmarket operates.
AVI KRAWITZ
N E W S E D I TO R
THE TIPPING POINT
N E W S
SEPTEMBER
DIAMONDS.NET
