Up, Above, Rough Prices So High!-What effect will increasing prices of rough diamonds have on the market?

Prices of rough diamonds will hopefully stabilise in the coming months. At present this hike has affected the manufacturers of cut and polished diamonds alone. It hasn’t affected retail demand for diamond jewellery. Nilesh Chhabria, Finestar DiamondsThe world’s biggest diamond producers both De Beers and ALROSA raised prices of rough diamonds – once again pushing the diamond-supply chain out of gear. Confirms Vipul Sutariya of Dharmanandan Diamonds Pvt Ltd, “Yes, prices of rough diamonds have been increasing in recent times. High premiums also exist in the secondary market.” Explaining the probable cause of this price hike, Nilesh Chhabria of Finestar Diamonds says, “Mining companies usually keep a close watch on demand for cut and polished diamonds and retail demand as well. Therefore, their prices change based on the market trends that they study.”

Prices are a reflection of demand-supply dynamics
Whereas Evgeny Augureev, Deputy CEO, ALROSA explains, “Rough diamond prices dynamics mirror the real, confirmed demand from the midstream sector. We saw a double digits growth in jewellery demand in the second half of 2020 and a good demand in early 2021 driven by both improved consumer sentiment and a pent-up demand.” Rough diamond prices will depend on demand and supply balance while being linked to polished prices’ dynamics. ALROSA always makes sure that prices reflect the actual market trends and a confirmed real demand. In recent months, the industry is evidencing a promising market development. The demand for rough diamonds is solid and all prerequisites for price recovery are in place.

Rough diamond dynamics will depend on demand and supply balance while being linked to polished prices’ dynamics. ALROSA always makes sure that prices reflect the actual market trends and a confirmed real demand. Evgeny Augureev, Deputy CEO, ALROSAEffect on the diamonds’ supply chain
Will this price hike lead to increase in prices of polished diamonds? To which the industry is hopeful that it doesn’t. However, according to Hasmukh Ramani, wholesaler and manufacturer KGK Diamonds, Antwerp says, “Eventually prices of polished diamonds will increase as availability of certain sized polished diamonds are difficult to procure.” Whereas, Sutariya believes that most producers of polished diamonds will not let the prices of polished diamonds to increase as it will have a cascading effect of demand for diamond jewellery at the retail level and could put the whole diamond industry at a disadvantage. While Chhabria says, “Increase in prices of roughs after a point may affect prices of cut and polished diamonds as well.”

As prices of rough diamonds are dependent on prices of cut and polished diamonds and retail demand as well, Ramani opines, “Normally price rise will stay up for a period of time, but again this is always unpredictable.”

Uncertainty on an all-time high
At present uncertainty rules the global market. This uncertainty is owing to the pandemic – as the diamond industry never expected a good demand for diamond jewellery in the last quarter of 2020, but everyone was pleasantly surprised.“Therefore it would be difficult to predict if prices of roughs will fall in the near future. They may surely stabilise for some time,” explains Chhabria. Till the second quarter diamantaires need to watch the fluctuating prices of rough diamonds.

Normally price rise will stay up for a period of time, but again this is always unpredictable to say what’s going to happen with this covid situation. If prices are increasing constantly demand may eventually go down. Hasmukh Ramani, KGK DiamondsEventually prices have to stabilise
According to Sutariya, thereafter in the third and fourth quarter these prices may fall marginally and stabilise to some extent. “First the premiums may come down and then the prices of rough diamonds produced by mining companies may come down,” Sutariya informs.

The year 2021 has begun on a decent note, news of the vaccine has broughtcheer among the masses and uplifted the hopes of millions of people. In the United States owing to a good fiscal stimulus by the American government their business are again cash rich and therefore demand for diamond jewellery still sustains. China, on the other hand overcame its Covid19 crisis earlier than may countries of the world and therefore their markets have opened and there is demand for cut and polished diamonds. “All the same, no one can predict prices of rough diamonds throughout the year – it would be ideal to have stabilised flow so one can plan accordingly but that is not possible,” says Chhabria. While both Ramani and Sutariya are hopeful that prices will stabilise by the third quarter of this year.

Demand goes through its cycles
Fall in demand is something that every business owner has to take into account while drawing up a business plan. Everyone is scared of an unexpected demand crunch. Says Chirag Jogani of Anita Diamonds, “Now that we are slowly coming out of the health crisis the producers are bringing rough prices back to where they were pre-pandemic. This trend could continue a little longer but we do not expect drastic price hikes.”

Mining industry too had its low points Over the last two years, the industry has decreased its stockpiles significantly, and the diamond value chain has regained its balance. At the same time, supply of rough diamonds is structurally set to decrease from 2010s peaks due to mines’ depletions. “We assume that in 2020s supply will be 20-25 per cent below the pre-COVID levels, and our clients understand that diamonds are finite and scarce resource,” informs Augureev.

Now that we are slowly coming out of the health crisis the producers are bringing rough prices back to where they were, pre-pandemic. This trend could continue a little longer but we do not expect drastic price hikes. Chirag Jogani, Anita DiamondsLGDs will be an option
What also needs to be observed here is that there has been a simultaneous change in certification of lab grown diamonds – where they too can be declared as ‘real’ diamonds in certificates of authenticity accompanying purchase of such diamonds. While Ramani, ardently explains, “I agree about the price and demand situation but what I always disagree is that a real diamond lover or a real investor will never go for a CVD diamond or a HPHT diamond because it’s like buying a fake Rolex or a fake Hermes, so that’s not worth it.”

demand situation but what I always disagree is that a real diamond lover or a real investor will never go for a CVD diamond or a HPHT diamond because it’s like buying a fake Rolex or a fake Hermes, so that’s not worth it.”

As technology develops and becomes cheaper, lab grown diamonds are more and more actively used to produce fashion jewellery and accessories. This niche stands apart from natural diamonds’ main segment. Natural diamonds are emotionally charged items symbolizing precious moments or important achievements. Thus, the demand for them depends not just on price but on other factors, including guaranteed authenticity and provenance. Says Augureev, “We welcome the fact that end-consumers always have a choice. Indeed, there is enough room at the market.”

Natural and LGDs have separate supply chain

Naturally mined diamonds always will be sold for their emotional connect with clients, who will buy such diamond jewellery irrespective of their prices. LGDs will also thrive among a separate sections of clients, who want to flaunt the quality jewellery regardless of the fact from where the diamonds were sourced. World over LGDs have a different clientele altogether. They cannot and should not be mixed with naturally mined diamonds without appropriate knowledge of the buyer. That is where the line needs to be drawn.

Erstwhile dealers of naturally mined diamonds Jogani opines, “There will inevitably be a parallel market for fake diamonds for those who don’t understand the inherent value of the real deal. Manufacturers will be drawn to easy margins but the value of synthetic diamonds can only go downwards since its production becomes cheaper over time.”

Therefore, what needs to be noted here is that diamantaires aren’t willing to let the price of diamond jewellery sold at the retail level increase despite the currently steep prices of rough diamonds. All diamantaires agree on one fact that – LGDs can be sold to buyers who are willing to buy those, but they can never replace naturally mined diamonds – both are totally different types of diamonds with a separate supply chain and all players therein are aware of the fact that the twain do not meet.