Rapaport Magazine
Markets & Pricing

Ukraine war heralds uncertainty

As the US places sanctions on Alrosa, the industry is waiting to see whether trouble in Europe will hamper the market’s recovery.

By Joshua Freedman
The diamond industry remained buoyant in February even as threats loomed. Rough and polished prices continued to rise — a reality that was good for sellers but less so for buyers. Companies across the supply chain reported strong results for 2021 and for the first weeks of 2022.

The challenges came chiefly from the war in Ukraine. Russia invaded its neighbor on February 24, leading to US sanctions on several entities with connections to the state, including diamond miner Alrosa and its CEO, Sergey Ivanov. While American businesses are still allowed to transact with Alrosa — the world’s largest rough producer by volume — the situation injected uncertainty into the global market during a time of recovery.

Slow movement

Slow growth in China was also playing on traders’ minds, with the recent Lunar New Year failing to offer the same sales boost that the jewelry market had seen a year earlier.

“There’s no question that people are not traveling as much between the big Chinese cities and coming into the big Chinese cities to buy as they might have been,” De Beers CEO Bruce Cleaver told Rapaport Magazine during February’s Dubai Diamond Conference, citing Covid-19 outbreaks as a reason. “In a sense, it could have been a bit better, but the early data I’ve seen is that it’s been an average to reasonable New Year.”

Virus waves in many key markets started to ease, though the pandemic continued to restrain tourist spending globally. Meanwhile, rising inflation in the US created anxiety about consumer sentiment.

Still, demand was robust across the board as US retailers restocked following strong sales during the fourth-quarter holiday season and the Valentine’s Day period.

Polished prices continued to increase in all major categories. The RapNet Diamond Index (RAPI™) for 1-carat diamonds rose 5.5% between February 1 and 27. RAPI for 0.30-carat items gained 6%, while 0.50-carat goods saw a 6.7% jump. The index for 3-carat stones climbed 5.7%.

Secondary problems

Rough prices accelerated at a faster pace, reflecting both the strong demand and a significant lack of supply. De Beers increased its prices by around 5% for smaller diamonds at February’s sight amid growing premiums on the secondary market, contract customers told Rapaport Magazine. That followed an 11% increase in the miner’s rough prices on average for 2021 compared with 2020, according to its end-of-year results. Rates on the open market were higher still as cutters scrambled for goods.

This dynamic exacerbated manufacturers’ concerns about thinning profit margins.

“Rough prices are outpacing polished prices, so anyone who buys rough at those prices is not going to make a profit,” a polishing executive said on condition of anonymity.

The question on many dealers’ minds was how long this upturn in prices could persist. The trade enjoyed the rebound in the meantime, though many complained about difficulties replenishing the inventory they’d sold.

Overall, predictions for the year remained positive. Lucara Diamond Corp., which operates the Karowe mine in Botswana, reported solid 2021 revenues and projected continued strength. The company has enjoyed a “full recovery from the challenges of the pandemic,” said CEO Eira Thomas, noting a “much better outlook for 2022 and beyond as we continue to benefit from one of the strongest diamond markets we have seen in the better part of a decade.”

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

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