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2020 MAY HAVE BEEN A BLESSING IN DISGUISE, SUGGEST AUTHORS OF CAREFULLY-WATCHED PIPELINE REPORT

 

Whereas 2019 and 2020 have shown themselves to a be a  game changer for the entire world, the process may have been even more dramatic for the diamond industry, which after a gradual restructuring process finally saw the development of a real demand-driven business, this new environment, the perennially profit-squeezed midstream is more able to act purely in its own “economic, financial, and commercial self-interest, less burdened by producer pressures to ‘relieve” them of their stocks,” write Pranay Narvekar and Chaim-Even-Zohar in the 2020 edition of their annual diamond pipeline report, published by IDEX.

Already in 2019, rough diamond producers were facing with considerable resistance from clients to purchase the rough parcels allocated to them. In February 2020, the report noted, before the full extent of the pandemic had become apparent, the heads of both De Beers and Anglo American announced said that would be changing the allocation system that traditionally has pressured customers into buying what is offered.

But then the pandemic and the resulting lockdown struck, and the industry took matters into its own hands. Unsurprisingly it occurred in India, where the industry announced a voluntary moratorium on all rough diamond purchases, which as it turned out was respected by most of the industry.

“While the frustration of the producers is understandable, what is clear is that the entire pipeline has now become more market driven and rough producers would also be subject to the same vagaries of the market,” wrote Narvekar and Even-Zohar. “After nearly a century of a controlled pipeline, the midstream has realized that the emperor has no clothes, and the entire pipeline is at the mercy of the market.”

THE DIAMOND PIPELINE IN 2019

According to the report’s authors, the retail value of diamond jewelry sales in 2019 was $76.05 billion, with more than half of those, $39.12 billion worth, being made the United States and Canada. The greater Chinese market, including Hong Kong and Taiwan, was worth $10.59 billion, and it was followed by Turkey and the Arabian Gulf at $6.25 billion. Europe was next, with diamond jewelry sales at retail equaling $5.91 billion, and then India at $5.13 billion.

The value of diamond content in the jewelry sold at retail equaled $20.22 billion, just 26.6 percent of the value of the finished jewelry sold. Clearly, jewelry retail remains the most lucrative sector in the industry.

The contrast is the midstream, which according to the report used $13.69 billion worth of rough to produce $17.3 billion of polished, which translated into sales of loose goods worth $17.93 billion. India by itself accounted for 77.6 percent of all the rough produced, in terms of value.

“Lab-grown diamond is a high margin category that consumers are reacting to positively,” says Marty Hurwitz, CEO of MVI Marketing, which produced the in-depth report.

Hanging on to one product that sells love may not be a good idea. Present consumers with a choice, present both mined and lab-grown diamonds, and make money with the products they value and see as love. Let them choose.”

It was the moratorium on rough diamond imports declared by Indian manufacturers that had one of the most dramatic effects on the diamond pipeline is recently memory.

UNKNOWINGLY, 2019 PREPARED THE INDUSTRY WITH A TOUGHER 2020

2019 was a year of deliberate belt-tightening, with the industry intending to reduce clutter in the pipeline, setting the stage for what they hoped with be a healthier year in 2020, the report’s authors wrote.

But then the COVID-19 crisis struck, dashing plans for what many had hoped with be a dramatic market recovery.

But, in the opinion of Narvekar and Even-Zohar, “2019 did prove a blessing in disguise for the industry, in a manner of speaking.” As a result of the belt tightening, companies were holding on to less stock than they otherwise may have when COVID shut down the markets, albeit temporarily.

Furthermore, they point out, companies in the midstream had worked on cutting costs throughout 2018 and 2019, leaving them in better shape.

“After a disastrous 2020 we face an uncertain future,” they write. “But we should still be thankful for 2019. It was a tough, there’s no question about that. However, it left us in a stronger position to face what’s coming… as we become a truly market-driven industry.”

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