(Matt Crooks & Aidan Miao)
The diamond market has been around for centuries. Originally used as a symbol of power & status due to their natural hardness and high index of refraction, low supply and a high cost of production meant that diamonds were almost exclusively owned by monarchs. However, today the diamond market has grown exponentially to value up to $80 billion a year.
This was mainly the work of the Oppenheimer family and De Beers diamond company, who in the 1940s began campaigns pushing for the sale of diamonds in engagement rings, spearheaded by the slogan “a diamond is forever”. These campaigns worked. By advertising the gem as an expression of true love, the campaigns convinced men that the size of the diamond on their fiancée’s engagement ring correlated to how much they loved them. Today, 84% of US brides receive a diamond engagement ring.
The diamond market is generally stable, with a relatively steady increase in market value and retail sales throughout the last 15 years. It has also proven a reliable hedge for investors – diamonds do not offer a yield, which acts as an advantage in times of crisis as the investment poses less risk to the investor. Additionally, the market responds relatively well to economic recessions. Evidence for this was shown in the aftermath of the 2008/09 financial crisis. Retail sales for diamonds hit a low of $59 billion in 2009 – down from $73 billion just 2 years before. The market value went as low as $64 billion in 2009. Once the world economy began to recover from the recession, retail sales managed to rebound to pre-2008 levels, hitting $71 billion as soon as 2011 – in which time the diamond market value increased by $10 billion. Ever since, the market has seen steady fluctuations, but largely kept its value – until this year.
In the largely unprecedented time of Covid-19, where large populations have been quarantining in their homes, businesses have shut, and jobs have been lost, the diamond industry has been struggling on all levels of production. Those selling the diamonds as jewellery are struggling; people buying diamonds generally prefer to assess the cut and quality of the diamond in person rather than buying online, and this has been restricted through closed stores and lockdown rules. Additionally, rising unemployment rates caused by stores closing have led to many people holding back on spending money on luxury goods such as diamonds. As a result, the diamond market has essentially ground to a halt.
Atop the production chain, the factories of India and mines of South Africa and Russia have struggled to remain open, as the jobs involved require close personal contact and human handling, both ways to spread the virus. Lockdowns in India meant many had to leave their jobs at diamond polishing factories, leaving some operating at just 10% capacity. Alrosa, the world’s largest producer of rough diamonds, announced that first-quarter net profits this year had fallen by almost 90%. De Beers, the second largest miner, announced plans to decrease diamond production this year by 20% of its prior projection. It seems like plans for reopening stores and getting the diamond industry to full production capacity could take until the end of 2020 at the earliest. So where does the diamond market go from here?
Companies at every stages of production react to the huge losses during the pandemic differently. In South Africa, the sixth largest diamond producing country, people were ordered to go into a 21 days lockdown on 23rd March, and most companies were forced to shut down its business. Petra Diamonds took initiatives to put one of the world’s biggest gem mine in South Africa into a state of care and maintenance throughout the duration of the lockdown. Mining company Anglo American was committed to be paying salaries of all its 47 thousands workers in South Africa during this 21 days. Diamond mining in Lesotho is also affected by South African lockdown, as it is an independent kingdom that is completed surrounded by South African soil, transportation of rough diamonds is hugely affected. Therefore companies in Lesotho, such as Lucapa Diamond, Gem Diamond and Firestone Diamond have either chosen to cut down production or completely shut down their mines. The Russian diamond mining company Alrosa did not shut down its business but took a list of precautions among its employees, such as remote working, cancel travel plans, improve sanitation quality, and impose self-isolation. Although production is not completely shut down, these precautions still reduce the company’s productivity greatly. As the production of rough diamonds are slowing down, sales of refined jewelries have decreased and sales this year is suffering a great loss as people are stuck at home and not purchasing any diamond products. Most retail companies such as Tiffany and Co., Cartier, or De Beers have chosen to follow the government guidelines and have most of their stores shut. Diamond product is not like other products which can be easily browsed and chosen online, the stores still need to wait for the pandemic situation to improve so that people can shop again.
However, there might be a silver lining for the diamond market. As the second largest diamond consuming market, China has reopened its economy slowly since late March, and there has been a spike on sales of luxury goods. The so called “revenge spending” after a two months of lockdown amongst the Chinese consumers lead to an increase of consumption in April and May. Tiffany and Co.’s sales saw an increase of 30% in April and 90% in May compare to last year’s sale. Many other major luxury brands are reporting the same trend, such as Burberry and Richemont. There are many evidences suggesting that China is in recovering mode. Despite domestic political controversies and social instability, the biggest jewelry consuming economy, the United States, has also reopened its economy and most stores have opened for business. Although many consumers might still be very cautious about going outdoor to shop, we can expect the industry to slowly go back to normal as consumers start purchasing. The reopening of the world’s two biggest economy brings hope to the diamond industry, but this optimism must be taken carefully as countries where diamond are produced and refined are still facing challenges in containing the virus, and might not allow factories and mines to start working so soon. We also can’t assume that American consumers are ready to purchase these luxury goods immediately after the pandemic, as we have seen a huge unemployment rates and a lower disposable income would mean a reduction of demand. Therefore we cannot make the conclusion that a reopened economy would definitely equal more sales.
We can expect business to go back to usual sometimes in the future, but when that would happen is still very unclear. For now, it is obvious that the economy right after the pandemic would still be suffering from the damages and sales are likely not returning to pre-pandemic levels globally. What is happening in the Chinese market might not happen in other places. We must view the optimism with criticism, and there are still great uncertainty for the diamond market overall.