Declining production and growing demand will support diamond prices growth - report
(Kitco News) - According to a recent reportby ALROSA, the diamond market has fully recovered from the pandemic, andstructural decline in production due to stock depletion, coupled with growingdemand from end-users, creates favourable conditions for sustained diamondprice growth in the long term.
ALROSA said that in 2020,diamond producers reduced their production by 20% from 2019 levels to 107million carats.
"The natural decline amidplanned decommissioning of large, depleted deposits was exacerbated by COVID-19and consequent lockdowns. A key milestone for the entire diamond industry wasthe closure of Australia's Argyle mine in November 2020, which accounted for upto 10% of global diamond production," the authors of a report noted.
By following a 'price overvolume' strategy during the crisis, diamond miners ensured the stability of theindustry until demand normalized, creating the conditions for the price growthrecovery, ALROSA added.
As a result, throughout 2020,polished diamond prices declined by about 3% year-on-year, and in the firstnine months of 2021 they increased by more than 10%, the report found.
The beginning of the pandemicaffected most sectors of the diamond industry. However, in the second half of2020, retail jewellery sales began recovering rapidly, leading to an increasein demand and the price of diamonds.
According to preliminaryestimates, global diamond jewellery sales could exceed $90 billion in 2021,showing a 23% year-on-year increase.
At the same time, ALROSAnoted that there is a growing interest in buying diamonds as an investment andfinancial hedging tool.
"Investment grade diamondshave higher price growth expectations than diamonds in general. These are largecolourless polished diamonds weighing 4 carats or more and fancy coloureddiamonds, which are declining in production at a faster rate. The supply ofcoloured diamonds to the market is very limited," ALROSA said.
According to the GemologicalInstitute of America (GIA, the most reputable industry body), only one out of10,000 carats of diamonds has a distinct, fancy colour. Due to limited supply,pink diamonds have seen a price increase of nearly 400% in the past 15 years.
The closure of the Argylemine, which accounted for 90% of the world's pink diamond supply in 2020, setsthe stage for further price increases for coloured diamonds and investmentgrade diamonds in general.
Therefore, ALROSA concludedthat depleting stock and closures of mining assets have resulted in decliningdiamond production, leading to a rough diamond shortage, which is expected topersist. Coupled with growing demand from end-users, this will support pricesfor rough and polished diamonds in the long term, particularly for investmentgrade diamonds.
By Vladimir BasovFor Kitco News
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