Consultancy Bain & Company and the Antwerp World Diamond Centre (AWDC) report that the diamond industry is experiencing a “spectacular” rebound after a decline in 2020 as a result of the Covid-19 pandemic, when diamond jewellery sales fell by 14% and rough diamond sales by 31%.
The eleventh yearly ‘Global Diamond Report 2021-2022’ – compiled and released by Bain and the AWDC on February 7 – finds that, throughout 2021, diamond mining-derived revenue increased by 62%, 55% for cutting and polishing and 29% for diamond jewellery retail –rising above pre-pandemic levels by 13%, 16% and 11%, respectively.
For diamond jewellery retail, the report reveals that 2021 started with a strong Chinese New Year and Valentine’s Day season – two of the industry’s biggest yearly revenue draws.
In this regard, customers’ need for emotional gifting, increased savings and expansion of stores into additional cities, boosted diamond jewellery buying.
As a result, online retailers also experienced growth in sales, especially in Asia, as new channels opened for diamond jewellery sales.
The report also finds that demand grew even higher during the second half of 2021, in preparation for the winter holiday season.
In addition, retailers also placed orders earlier than usual to refill depleted inventories in the second half of 2021, with this strong demand for diamond jewellery and depleted inventories from 2020 translating into price growth.
Report author, Bain & Company energy and natural resources partner Olya Linde says 2021 was a year of new highs in the diamond industry as retailers, cutters and polishers, and miners all saw an increase in demand and revenue growth.
“Throughout the value chain, the industry experienced a recovery and boom at an unexpected speed, which has taken insiders by surprise.”
CUTTING AND POLISHING
In 2020, diamond jewellery production was limited owing to a decline in demand, with cutting and polishing players in India relaunching production in the first and second quarters of 2021 and starting to actively buy rough diamonds.
As a result, robust consumer demand, depleted inventories and strong balance sheets in the midstream contributed to higher demand for rough diamonds across the entire assortment range. Here the report finds that even previously-underperforming small and near-gem-quality diamonds sold well.
Overall in 2021, after a 7% decline in 2019 and 11% in 2020, rough diamond prices grew by 21%.
Prices for polished diamonds, which declined 3% in 2019 and 5% in 2020, increased by only 9% year-on-year in 2021.
By the end of 2021, both rough and polished prices were nearing pre-pandemic levels and historic averages, but remained below their historic highs.
In addition, the report finds that, for the first time in several years, there was no shortage in diamond financing.
With more liquidity, the report reveals that midstream players moved to cash sales and decreased their reliance on bank loans, reinvesting their profits into the business. Financial institutions extended financing with confidence in the industry.
Some larger traders shifted their focus, making finance provisioning one of their largest sources of income.
ROUGH DIAMOND PRODUCTION
Since the start of the pandemic, rough diamond production has not increased much and has been relatively limited compared to previous years, thereby leading to rough diamond inventories being at minimal technical levels.
Key trends continued their pre-pandemic trajectories, namely the divergence of lab-grown diamonds from natural-mined diamonds and an increasing emphasis on environmental, socialand governance agendas.
Profit margins across the value chain quickly recovered to pre-pandemic levels, with upstream margins increasing roughly between nine and 11 percentage points, reaching 2018/19 levels.
The midstream and retail segments both achieved decade-high profitability, growing three to five percentage points and six to eight percentage points, respectively.
Combined, mining and retail players generated $7-billion more profit in 2021 compared with 2020 as a result of improved market conditions and operational excellence programmes the industry undertook to combat lockdowns and competitive threats.
The downstream also benefited from growth in more profitable regions, and an increase in online buying contributed to faster inventory turnover and lower operating costs.
AWDC CEO Ari Epstein says the future of the diamond market will depend on a strong market that connects all stakeholders, from miner to retail with a strong focus on compliance, sustainability and innovation.
Going forward, demand for diamond jewellery and polished and rough diamonds is expected to continue to grow through the first half of this year, with the market anticipating a strong holiday season and limited supply of rough diamonds.
In the medium term, the report suggests that demand for diamonds could be affected by government policies surrounding economic stimulus and travel restrictions, including lockdowns owing to the ongoing epidemic situation.
Nonetheless, the market this year is expected to demonstrate growth higher than the pre-pandemic period and return to historic growth pace by 2023/24, the report alludes.
