02 Dec 2022
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Sustainability of the International Diamond Trade
Journey from War & Sanctions to Lab Grown & KP
By: Diamond World News Service
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May 4 2022 5:03PM
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Reference: 26304  

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“On the back of robust demand for rough diamonds in 2021 and jewellery sales in the first quarter of 2022, and reflecting continued year-on-year growth in consumer demand for diamond jewellery, demand for De Beers Group rough diamonds remained strong in the third sales cycle of 2022.”-BRUCE CLEAVER CEO, De Beers GroupUnited Arab Emirates and India are two of the major diamonds trading hubs other than China who have not takenany steps to ban imports of Russian diamonds. The gems and jewellery sector in India employs almost 6.5million people out of which many are engaged in the diamond cutting, polishing and trade. Nine out of every 10 rough diamonds in the world, it is said, are cut and polished in India, thus a major portion of trade is heavily dependent upon diamond imports. Trade restrictions and sanctions on Russian miner, Alrosa would spell doom for diamond traders and assume serious implications for India’s gems and jewellery sector and looking at implementing a payment methodology that would go around sanctions. Aljazeera reports Veteran diamantaire Nanubhai Vekariya, president of the Surat Diamond Association, as being positive that Western restrictions will not hurt his business. The concern among analysts and experts is that India’s non compliance to trade sanctions on Russia

could in the bargain fund Russian instruments of violence. Russia in the meanwhile has resumed shipments of diamonds to India; Colin Shah, Chairman of India's Gem & Jewellery Export Council elaborated, "Orders for these diamonds were placed in early March, according to the sightholding schedule of Alrosa. They are coming now." A report in Economic Times, by Sutanuka Ghosal dated April 11, reveals the synopsis of the situation in India. The reporter informs that workers at “Gujarat's diamond processing centres have been hit by the sanctions on Russia which has led to a drop in work for cutting and polishing units in Surat, Saurashtra and Bhavnagar due to a supply crunch. Working hours have been reduced to 8 hours from 12 hours and units have declared 2 days off each weekly, which is having a bearing on the wages of the 800,000 - 1 million workers engaged in cutting and polishing rough. Diamantaires have cut production as the supply of roughs from Russia has fallen.”

Ambiguity in Sanctions Open Doors for Trad
Loopholes in the statements that government officials have made have annulations of the so called strict sanctions. First of all, there is no process to identify if a diamond has been mined in Russia. Who said Russian diamonds were easily detectible? The origin of a diamond is debatable as it is not always traceable. Brands have made positive marketing campaigns about credible origin of diamonds so as to sell the product with higher credibility. Sanctions by US are specifically on imports of rough diamonds from Russia. However most of the rough stock goes to centres like India, Antwerp, Dubai and a few other countries where it is cut and polished and commonly traded as jewellery or polished stones with origin from the same countries, but not Russia. So when a Russian diamond is cut and polished in India, it becomes a made in India product. US generally imports cut and polished diamonds or diamond jewellery from various countries and since brand, they cannot be identified. Today diamonds of Russian origin are being bought and sold freely in the US itself. Since diamonds originating from Russia do not carry any identification, their traceability can be ambiguous. Rough stones could be banned, but cut and polished diamonds that are already in the stores and as part of jewellery are already for sale. For the sanctions to trickle down to the level of the retailer will take time and till then a lot of diamonds without origin could have entered the market through various means. The sanctions laid down by US would specifically apply only to immediate rough trade and those diamonds cut and polished in Russia, not the diamonds that are already in the pipeline or the supply chain. Thus, could one safely assume that Russian origin diamonds that are cut and polished outside of Russia are not under sanction? This ambiguity is a clear loophole in the sanctions laid down by the so called super powers against Russia. Almost 50% of demand for diamonds in retail originates in the US making it one of the largest consumer of diamonds and diamond jewellery in the world. The sanctions laid down by the US against Russia prohibit only the purchase and trade of rough stones from the warring nation and do not mention the significant cut and polished diamonds or diamond jewellery. International diamond cutting and polishing hubs are located in India, UAE, Belgium and a few other nations where some of those diamonds are converted into jewellery or exported to other centres to manufacture jewellery before entering US, UK or European markets. The origin of rough diamonds thus becomes ambiguous and that is how the pertinence of the Kimberley Process has entered the scenario

Diamonds Originating from Blood & Conflict
The Kimberley Process is a nonpolitical peace initiative that focuses solely on ‘conflict diamonds’ and is chaired by Botswana this year. There are almost 82 member countries and NGO’s participating. KP defines conflict diamonds as rough diamonds used by rebel movements to finance wars against legitimate governments and the Central African Republic supposedly, the only country where conflict diamonds originate. Russia’s offensive on Ukraine is not peaceful and thus all trade profits sustaining on rough sourced from the Kremlin would fuel conflict or war. With this logic and proposition and the loopholes of the sanctions the diamonds are already on the shelves of US, UK and European retailers, the consumer nor the retailer is aware of its origin and with booming diamond sales across the globe, we are already funding the Russian government and subsequently its military forces. Ukraine is a member of the Kimberley Process yet there is no apparent advantage to the country. Russian diamonds which are “sustainably transformed” away from its origin, are already on the sales counters of many. None of the important KP members including the Kimberley Process Civil Society Coalition, the alliance of human rights organizations, US nor the EU have solicited a blanket ban on Russian diamonds.

KPCSC’s statement released on March 14, simply states to maintain “diamonds produced in Russia or by Russia’s stateowned diamond miner, Alrosa do not contribute to financing conflict.” Michel Yoboue who is currently Chairing the KPCSC’s and also heads GRPIE, a Côte d’Ivoire–based NGO has clearly denied a ban. “The situation between Russia and Ukraine is a political situation. We work on conflict diamonds. What we want is for the KP to have a position about Ukraine. We would instead support a monitoring mechanism” like the one running in the Central African Republic. Averse to the term “conflict diamonds” referring to those of Russian origin, he said “My view is we should put on the table a monitoring mechanism of Russian diamonds to make sure they are not financing conflict.”

Changing Dynamics of the Industry
Alrosa has till now been acquitted from the World Diamond Council, Responsible Jewelry Council and other major associations that it was a member of The Moscow Bourse has suspended its membership from World Federation of Diamond Bourses; Australian Miner Rio Tinto imposed trade restrictions over its fuel and aluminium trade with Russia on March 10; Canadian miner Kinross Gold was reportedly in talks to divest Russian assets that include Kupol gold mine and the Udinsk development project. One’s loss is another’s gain. Diamond sales have not plunged, settled or shown any signs of rebate and banning Alrosa’s rough has opened the doors for other players in the field. At advantage are competitive suppliers of diamonds and the lab-grown diamonds sector. At the recent De Beers sighting, Bruce Cleaver, CEO, De Beers Group was optimistic about diamond sales when he said, “On the back of robust demand for rough diamonds in 2021 and jewellery sales in the first quarter of 2022, and reflecting continued year-on-year growth in consumer demand for diamond jewellery, demand for De Beers Group rough diamonds remained strong in the third sales cycle of 2022.” Management consultants Bain & Company headquartered in Boston reported a growth in rough and polished demand higher than the prepandemic period in 2022 and a return to historic growth pace by 2023–24. It noted “Industry players must continue to pursue operational excellence programs, invest in digital technologies, and advance marketing concepts and the diamond jewellery value proposition to prepare for potential changes in market conditions.” Bain reported Lab-grown diamonds would diverge into a separate, more affordable jewellery category. “The segment saw continued demand growth and price decreases relative to naturalmined diamonds as lab-grown diamond supply increased and technologies advanced; the average polished lab-grown retail price declined to 30% and the average wholesale price to 14% of natural prices, down from 35% and 20% in 2020, respectively,.” Noting that affordability of Lab-grown diamonds was driving sales. Ditching Diamonds-Au-Naturel!
Disruption in the supply chain due to war sanctions and increasing demand for diamond and diamond jewellery has created a perfect scenario for consumers across the globe to move swiftly towards the cheaper and easily available option of Lab-grown diamonds. Retailers and manufacturers who have stopped buying rough from the sanctioned Russian miners to avoid sponsoring terrorism, are helpless as the Alrosa is still able to collect revenue due to the lack of a comprehensive banding together of consumers,businesses, and governments against the trade of its diamond supply. Advantage that Lab-grown diamonds have over natural ones is firstly, affordability and importantly, they are reckoned for being ethically sourced without the complications associated with naturally sourced blood or conflict diamonds. International market value of the lab grown sector in 2020 was US$19.3 billion and estimates increase to US$49.9 billion by 2030. Though industry experts have disregarded this trend towards buying lab-grown diamonds, stating that the long-term effects of war would not last long; one cannot deny an apparent shift in consumer behaviour. Presuming a massive shift in consumer preferences towards lab-grown diamonds simply to avoid Alrosa diamonds, a remarkable change could be unsuspectingly projected. Ultimately, consumers would prefer what suits their budget and their conscience!

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