Cheaper diamonds fire life into gem trading

For the past six months, the global diamond hubs in Antwerp, Belgium and Mumbai have been at a standstill, with cutting and polishing factories closed and trading floors shuttered. Now, a capitulation on prices by the biggest miners is sparking the industry back to life.

After refusing to budge on diamond prices during much of the pandemic, De Beers and Russian rival Alrosa PJSC decided last week they saw enough signs of recovering demand and seized the opportunity, cutting some prices by almost 10 per cent. The impact was instant, as rough diamond buyers snapped up about half a billion dollars in uncut gems, according to people familiar with the situation who asked not to be identified because the information is private.

The resurgence came the same week Tiffany & Co said its jewellery sales were improving monthly, adding to optimism the entire industry is rebounding. The developments will bring relief to a supply chain that's been paralysed since the pandemic hit, with jewellery stores closed, cutters and polishers stuck at home and traders locked out of key producing countries.

"The worst I think is past us and there are reasons to be encouraged," said Stephen Lussier, head of consumer and brands at De Beers. "There is some real consumer data which underlines the midstream's belief that business is coming back for them. The industry is in a healthier place than it has been for some time."

The diamond industry's engine room is dominated by small and private family-run businesses that cut, polish and trade the stones. They form the invisible link between African mines and jewellery stores in New York, London and Hong Kong. It's a secretive business and goes largely unnoticed outside the closed world of diamonds, but their fortunes are often a bellwether of the wider industry.

"The pipeline has been starved, and people were worried that they would not be able to get their hands on rough, missing out on sales when polished demand comes through," said Anish Aggarwal, a partner at specialist advisory firm Gemdax.

The fortunes of the diamond industry ultimately will be decided by retail demand, and so far that's been patchy. The Chinese market has rebounded strongly, with Chow Sang Sang, one of the country's biggest jewellery retailers, saying its domestic sales as of June were at 95 per cent of last year's levels. That recovery was helped by consumers being unable to travel abroad, where they've traditionally been big buyers in cities such as Hong Kong, London and New York.

Yet US sales, which account for almost half of all diamond demand, remain under pressure as the pandemic keeps shops closed, millions are unemployed and the country posted its biggest quarterly economic contraction since the Great Depression.

De Beers likely sold about $300 million in rough diamonds last week, according to people familiar with the situation. That's less than a traditional sale, but it's the biggest offering since February and amounts to about six times its total sales in the whole second quarter. The company could have sold more but held back some sales to prevent overwhelming the nascent recovery, the people said. Diamond buyers estimate that Alrosa likely sold about $200 million, the people said.

Alrosa chief of sales Evgeny Agureev declined to say how much the company sold.

"In August the rough diamond market showed clear signs of revival after being frozen for several months," he said. It's not yet at pre-pandemic levels though, as "external factors, including international travel restrictions, continue to weigh on negatively on the market," he said.

High-quality diamonds, used as solitaires and for bridal rings, are where demand is strongest, and it was for these type of stones that De Beers cut prices.

It's another story for lowerquality stones, where there is little demand from retailers or traders. De Beers refused to cut prices here, accepting it would sell few stones. The company would have had to lower prices by as much as 20 per cent to find buyers able to make a profit, according to people familiar with the matter.

Yet many diamond traders remain nervous about the strength of any recovery.