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THE DIAMOND MARKET

WITH THE DAWN OF A NEW YEAR,
A LOOK BACK AT LIFE IN THE SHADOW OF COVID

 

As the curtains come down 2021 and 2022 stands waiting in the wings, the world appears set to begin its third year in the shadow of the coronavirus pandemic. And while the level of panic that had characterized the early days of the crisis, not much more than 21 months ago in late February and March 2020, few would have predicted the scenario of record-high infections that we are experiencing at present.

COVID-19 is here to stay, at least foreseeable future. The question is – how well have we learned to live with it? Looking at the diamond industry, it’s a fair to say that, on balance, it’s managing to do so pretty well.

Indeed, based on current sales data from the United States, jewelry is outpacing other categories during these all too important penultimate days of the year.

According to Mastercard SpendingPulse, holiday spending in general rose 8.5 percent compared with a year ago, the biggest annual increase 17 years. Jewelry were up 32 percent, second only to sales of apparel, which rose by 47.3 percent. In fact, jewelry sales were up 26.2 percent when compared with the holiday season in 2019, before the onset of the pandemic.

Reliable results of diamond jewelry sales are several out yet, but they can reliably be expected to at least match those of jewelry in general. De Beers’ latest Insight Report had been optimistic about the prospects for the at the end of the year.

COVID-19 lockdowns, coming at a time when the major diamond consumers economies, left many with more cash in hand than they would have expected, and most probably boosted jewelry sales.

EXPLAINING THE DIAMOND’S RESILIENCY

How does one explain the resilience of the diamond market during the COVID period? There is  most probably not a single cause, but several.

COVID-19 struck when the state of the world’s two largest economies – namely the United States and China – was generally sound. Thus, while there initially was an almost complete halt in economic activity during the second quarter of 2020, when business began picking up during the second half of the year, the market was primed.

According to a study by Deloitte, in 2020, American households saved some $1.6 trillion more than had been before the pandemic. Some of that cash went into investments, but many households had a great deal more cash on hand now than they normally would want.

According to Deloitte, the pandemic sparked a remarkable change in consumer spending patterns. Spending on durable consumer goods in the United States rose by $103 billion in 2020, while spending on services was down $556 billion. Products, like diamonds substituted for restaurants, entertainment and travel.

That was not the only positive impact of the crisis on the diamond sector. Another was the decision by the Indian diamond industry, quite early during the second quarter of 2020, to declare a moratorium on rough diamond imports, during a period in which most of its cutting plants were lying idle.

The result of the Indian’s actions was that the diamond pipeline, which before the onset of the crisis was experienced a quite substantial overhang of rough goods managed to clear out the surplus supply, assisted in no small part by the major mining companies, which either suspended sales activity and, in some cases, production as well.

The diamond industry exited 2020 leaner and meaner than it had been in years.

WILL THE BUOYANT MARKET BE SUSTAINABLE IN 2022?

But is current situation sustainable, as we enter 2022 and COVID infection are soaring?

As mentioned earlier, anecdotal evidence from the markets suggest that the end-of-the-year shopping season should act as decent springboard in 2022. Still, concerns about the pandemic remain, but at the same time the industry is today considerably more experienced and confident about what it needs to do than it was early on in the crisis.

“Rough diamond demand is expected to remain strong in 2021 and into 2022,” wrote De Beers in its 2021 Insight Report, released in October. “The midstream is operating at lower rough diamond stock levels; producers have reportedly already destocked considerably and supply of rough diamonds in H2-2021, and potentially into 2022, will remain constrained by lower

COVID-19 has accelerated the transformation that was already underway in retail: increased omnichannel, personalization, greater e-commerce sales and better inventory management. This shift has created a more efficient and healthy diamond pipeline”

But, at the same time, some of the relative advantages that diamonds and diamond jewelry have enjoyed over the past two years will begin to fall as certain service sectors, and most notably travel and tourism, begin to pick up again.

According to the Deloitte study, over the next few years, durables spending will slowly fall, because consumers no longer need to acquire durable goods, and they consequently will increase the share of their income going to services.

Consumer spending on services, rather than durable goods like diamond jewelry, are expected to pick up when air travel becomes more commonplace once again.

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