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DIAMOND MINING

GLOBAL ROUGH PRODUCTION RETURNS TO PRE-COVID LEVELS,
BUT ONLY IN TERMS OF VALUE

 

The Kimberley Process has released global rough diamond production totals for all of 2021, and while they indicate a general recovery to the levels that existed before the onset of the COVID pandemic, they also suggest that a trend of lower rough diamond production that was already evident latter part of the last decade has continued.

According to Kimberley Process statistics, the value of rough output globally equaled $13.99 billion during 2021. This was considerably above the $9.24 billion produced in 2020 – a year that is considered a statistical anomaly because it was significantly interrupted by COVID and its economic aftermath. But it marginally exceeded pre-COVID’s 2019’s total of $13.57 billion.

However, the U.S. dollar totals, which in large part were inflated by a steady rise in the average price per carat of rough diamonds, somewhat concealed what has become a steady decrease in the number of rough goods entering the pipeline, even though there was an uptick from 107.1 million carats to 120 million carats between 2020 and 2021, a period characterized by lockdowns and closures of numerous mines.

By volume,  the 120 million carats of  production last year was 13 percent below the 138.1 million carats reported by the Kimberley Process in 2019. World rough diamond production had peaked at 152 million carats in 2017, which is fully 21 percent below the amount that was reported in 2021.

SHIFTS IN PRODUCTION RANKINGS

Part of the fall in production can be attributed to the closure of the Argyle Mine in Western Australia, which for many years was a massive of producer of mostly lower quality rough diamonds. It shut down operation in November 2020, after 37 years of continuous production, during which it yielded 865 million carats of diamonds.

Botswana was the largest diamond producer in terms of value in 2021, with rough exports worth $4.66 billion, 35.5 percent more than the $3.46 million that it reported in 2019. But in terms of volume, it was far outpaced by Russia, which exported 31.9 million carats, 16.2 million more than it African counterpart. Russian exports will still 13.7 percent lower in carat terms than they were in 2019.

Creeping up as a major diamond producer in 2021 was Angola, which saw its output rise in value to $1.63 billion, 28.3 percent more than the $1.27 billion worth that it exported in 2019. But in terms of volume its exports actually, from 9.1 5 million carats in 2019 in 2021.

The closure of the Argyle Mine in Western AustralIa, in November 2020, after 37 years of continuous production, removed a major proportion of lower-quality diamond supply from the market in 2021.

Another country which has moved rapidly up the ranks is Zimbabwe, which in 2021 produced 4.3 million carats worth $670 million. This was dramatic improvement from 2019, when its annual production was reported as $141 million, with 2.1 million carats mined.  As result it moves up the production rankings from tenth place in 2019 to seventh place in 2021.

Underground an Alrosa diamond mine in northeastern Siberia. It is not clear at this stage whether diamond from this source will be permitted access into the pipeline in 2022.

ANOTHER ANOMOLY YEAR EXPECTED

2021 foreshadows what is likely to be another anomaly year in 2022 – if not in the volume rough goods produced, then almost certainly in the breakdown among producing countries. The reason, of course, is the war Ukraine and the sanctions imposed by numerous governments against Russia and its dominant diamond mining company Alrosa.

As mentioned, in 2021 was the largest global producer of rough diamonds by volume and second largest in terms of value, but it exports are likely to significantly lower in 2021, mainly as a result of the sanction imposed by the U.S. government, and the consequent reluctance of many in the industry to risk attracting the attention of American legal authorities.

While nobody at this stage could tell you how long the sanctions against Alrosa are likely to affect the market, it is almost certain that the lasting impact will be considerable. In the absence of production from Argyle, Russia stood alone as a reliable supply of melee, with the average price of the per carat of its output reported to be $68, compared to $204 per carat for goods from Botswana. At present there is no other major producer supplying large volumes of such goods in this price range.

This could indicate the opening of a gap in the market in the more moderately prices jewelry ranges, and with no other rough diamond producer able to fill it, the opportunity may be provided to laboratory-grown diamond producers to step in. They not only can develop the capacity to produce larger volumes of smaller sized goods, but also larger diamonds which they may sell at price points normally associated with melee.