How COVID-19 Impacted the Diamond Industry?
Companies throughout the world have been impacted because of the limits and other steps that had to be implemented due to the Coronavirus pandemic. The diamond industry, as has been reported widely, was not immune to these detrimental consequences. Worse, the pandemic is likely to have far-reaching implications for our industry, communities, and partners for many years to come.
Resultantly, lockdown measures have to be implemented in countries all over the world. It resulted in limited travel and border restrictions, which severely impacted diamond mining and production and the supply chain; hence, the industry had to suffer a great deal.
Imports and exports were almost wholly halted as a result of border closures, and artisans tasked with cutting and polishing rough diamonds were confined to their homes. Sale stores were closed, and miners, despite continuing to work because of the importance of the mining industry, were subjected to social distancing rules and necessary hygienic measures.
Effects in Figures
With the spread of the virus, it seemed logical that the battle for survival would take precedence, resulting in a drop in demand for luxury things. De Beers, the world's second-largest producer, reported a 28 percent year-on-year fall in sales from $496 million in 2019 to $355 million during its second sales cycle (there are 12 sales cycles in a year) of 2020 in March. Despite the effect the lockdown measures had on the market, De Beers refused to drop prices to regulate their stock levels; instead, it reduced output, causing the diamonds to pile up, all to safeguard the market and value.
India, considered to have the highest concentration of polished diamonds, saw raw diamond imports fall to $1 million in April from $1.5 billion in February. Polished diamond exports also fell by 26% year on year (from $2.18 billion in August 2018 to $1.64 billion in August 2020).
According to RapNet Diamond Index (RAPI), which serves as the industry's benchmark for diamond prices, the price of one-carat diamonds was down 9.7 percent in the first quarter of 2020 and down 13.1 percent year on year, while the cost of 0.50-carat diamonds was down 4.9 percent in the first quarter of 2020 and down 9.5 percent year on year.
In African countries, artisanal, small-scale, and large-scale mining operations were impacted, with artisanal and small-scale mining suffering the most. As of April 2020, exports had almost ceased in Guinea, with diamond exports falling dramatically to 39,494 carats in the first quarter of 2020 from around 270,000 carats in the first quarter of 2019. Cameroon had likewise not exported any diamonds since the lockdown began.
Amid these circumstances, it was no surprise to find exploitative and opportunistic buyers taking advantage of the situation and buying at ridiculously low prices. For example, in Zimbabwe, diamonds purchased at SSL 5,000,000 per carat [approximately USD 515] before the pandemic were purchased at SSL 2,500,000 per carat, indicating a 50% drop in price. It was discovered that regular purchasers no longer had the funds to buy. Thus, miners got desperate and were forced to sell to these new, illegal players at half the price. Admittedly, it stands to reason that these shady customers were stockpiling diamonds to sell them at greater prices once trade restrictions were repealed.
Given the severe decrease in profitability and tight labor limitations, many of these artisanal miners were forced to forsake mining in pursuit of better prospects in other industries, including agriculture.
Blessing in Disguise
While the drop in prices is a source of concern for diamond producers and merchants, it appears to be the perfect moment for diamond buyers. The price of diamonds has risen, and there has never been a better moment to purchase diamonds while prices are as low as they are today. With the increasing relaxation of the lockdown in some nations, some wealthy investors have seized the chance to acquire huge, high-quality diamonds. Meanwhile, the ill-intentioned corporations demand and store up on inexpensive artisanal diamonds, which they intend to sell at a hefty profit once international supply interruptions are eased.
Despite the Covid-19 issue, diamond mining corporations, such as De Beers and Alrosa, protected their diamond market. They refused to drop prices to regulate their stock levels and slowed production, which is why the diamonds continued to pile up. "They've tried to restrict rough-diamond supply to protect the market and protect value," said Anish Aggarwal, a Gemdax partner.
Following the diamond industry's paralysis due to the epidemic, De Beers decided to lower the price of its diamonds. They reduced the pricing of their raw diamonds weighing more than one carat. According to De Beers, sales increased 11 percent year on year to $320 million during the August cycle, owing to an uptick in the diamond market. They, nonetheless, saw the most considerable number of sight purchases since January, as rough demand improves ahead of the holidays. Producers, producers, and merchants all over the supply chain are now concentrating on recovering from the Covid-19 epidemic. They also plan to expand, support the artisanal diamond industry, and close loopholes for illegal trading.
Several nations are gradually reducing Covid-19 restrictions as the outbreak subsides. Chinese shops have resumed business, and production in India has resumed at half capacity. In August, Belgium's polished exports increased by 6% year on year as demand increased. Retailers who can adapt their company to internet trading and commerce see increased sales.
Diamond miners in several nations have begun to look for new and inventive ways to preserve the diamond industry. Now, there appear to be signs of recovery in trading and a slowing in the drop of diamond prices compared to previous months.
Every participant in the supply chain is on the lookout for inventive methods to repair sectors that were left behind or debilitated in the months preceding up to the post-lockdown timeframe, such as the artisanal and small-scale diamond industry. Efforts are also being made to eliminate the possibilities for exploitative and illicit trade. Manufacturing has restarted by 50% in India, while commerce has returned in China and Belgium.
However, the final revival of the diamond business will be primarily dependent on increased demand for diamonds and the return of customers to jewelry stores.
This article does not necessarily reflect the opinions of the editors or the management of EconoTimes