De Beers separates ‘wheat from chaff’ as Russian
The world’s second-largest producer of diamonds is tapping blockchain to distinguish its stones in the market, as the world increasingly shuns output from Russia, the world’s top producer. Staff Writer, reports
In line with the rules of ‘commercial diplomacy’ De Beers has visibly been wary of commenting directly on the developments around its chief rival Alrosa, the part-Russian government-owned group hit by sanctions from the West due to the invasion of Ukraine.
Since a March 11 statement in which De Beers “encouraged retailers to engage with their suppliers to understand the origin of their diamonds,” the diamond giant has infrequently spoken explicitly on the impact of the Russian sanctions on the global diamond industry.
Behind the scenes, however, De Beers has been hard at work to ensure that its own diamonds sparkle amidst the turmoil caused by the war and subsequent sanctions.
While the United States and a number of its allies have sanctioned Russian diamonds, analysts have said the enforceability of this is difficult as the origins of polished diamonds or jewellery are difficult to ascertain for retailers.
The US sanctions do not tackle polished diamonds and jewellery, which is where the bulk of retail buyers access diamonds. Russian diamonds can thus and are being polished in Russo-neutral centres such as India and further processed into jewellery elsewhere before potentially entering the US, which is the world’s largest diamond market accounting for more than 50% of demand.
While the US has also sanctioned Alrosa itself – banning any trade that results in a benefit to the company – the nature of the global diamond industry means stones from Russia can be mixed with those from other sources such as Botswana and sold into the US.
Industry analysts have expressed concern that with diamond consumers particularly sensitive to ethical sourcing, the loopholes in the industry could lead to a broader distaste for the precious stones, a death blow for an industry built on the emotional symbolism of a rock which otherwise has little intrinsic value.
De Beers, which prides itself on ethically sourced and development-powering diamonds in countries such as Botswana and Namibia, has quietly ramped up efforts that began in 2018 to improve the traceability of its own diamonds.
Recently, the diamond giant announced that its three-year-old blockchain traceability initiative, Tracr, had been expanded to scale, covering the origin of stones from mine to shelf. Already De Beers has registered one-quarter of its production by value on Tracr in the first three auctions of the year held in Gaborone.
“With more end clients wanting to know the source of the products they buy, the deep meaning associated with a diamond purchase requires a technological step-change to meet their expectations,” De Beers said in a statement.
“The Tracr platform brings together a range of leading technologies – including blockchain, artificial
intelligence, the Internet of Things and advanced security and privacy technologies – to support the identification of a diamond’s journey through the value chain.”
De Beers CEO, Bruce Cleaver expects the expanded platform to “underpin confidence in natural diamonds” while the minerals minister, Lefhoko Moagi stresses that “confidence in diamond origin is extremely important”.
Both statements do not specifically mention the upheaval in the diamond industry caused by Russia’s invasion of Ukraine, but the De Beers’ move comes as more mid-market players turn their backs on the stones coming from Moscow.
This week, RapNet, the world’s largest diamond trading network with daily listings of diamonds valued at $8.7 billion (P107 billion), announced that it was banning Russian diamonds from being traded on its network.
“The ban applies to all diamonds sourced from Russia after February 24, 2022, and includes polished diamonds manufactured outside of Russia from Russian rough diamonds,” a statement emailed to Mmegi reads.
“The ban includes diamonds sourced from companies that are 50% or more owned by sanctioned entities. “Russia supplies about 30% of the world’s rough diamonds.”
Martin Rapaport, chair of the Rapaport Group which owns RapNet, touched on the industry’s need to distinguish Russian diamonds from the production coming out of other countries.
“Sanctions on Russia are fundamentally changing the diamond supply chain,” he said.
“Buyers want assurances as to the source of their diamonds.
“Ethical considerations are transcending legal requirements as buyers reject Russian source diamonds cut outside of Russia.”
De Beers’ move also has a financial benefit, as Bloomberg reported on Wednesday that rough diamond prices were surging due to the sanctions on Russia. According to Bloomberg, even De Beers is struggling to ‘crank out’ the extra production required by the market.
“The price of a small rough diamond, the type that would end up clustered around the solitaire stone in a ring, has jumped about 20% since the start of March,” Bloomberg wrote.
“The reason: Diamond cutters, polishers and traders are struggling to source stones after the US levied sanctions on De Beers’ Russian rival, Alrosa, which accounts for about a third of global production.”
Rapaport, in an email to Mmegi, projected that shortages of rough diamonds would hit the market ahead of its traditional peak holiday season, which occurs between Thanksgiving in the US (November) and the Chinese New Year ( January).
“Financial sanctions have stopped imports of rough diamonds to the cutting centres and natural diamond shortages are likely before the holiday season,” he said.
Meanwhile, Indian traders are also feeling the US pressure to reject Russian diamonds. The New Indian Express this week reported that diamond traders in Surat had disclosed that American merchants were demanding a declaration that polished diamonds were not from Russia.