While the global diamond industry suffered during the COVID-19 crisis, pushing sales down by 15 per cent in 2020 with most of the decline happening in the first and second quarters, demand returned during the fourth quarter.
In 2020, rough diamond production continued its downward trend, falling to 111 million carats. After peaking at 152 million carats in 2017, rough diamond production has declined by about 5 per cent per year. In 2020, production decreased by 20 per cent compared to 2019 levels.
The biggest decreases came from Russia, Canada, Botswana and Australia. In Russia, production levels were lowered at Botuobinskaya, Almazy Anabara, Jubilee and other smaller mines. Production in Canada declined due to suspended mining operations at Ekati* and Renard* in March. In Botswana, Jwaneng and Orapa decreased production by 26 per cent. Moreover, as planned, Rio Tinto shut the Argyle mine in Western Australia in November 2020.
Notwithstanding changes, the mix of diamonds remained largely constant, with medium and large diamonds accounting for 25 per cent of production volume in carats but around 70 to 80 per cent in value in US dollars.
These are among the findings of Bain & Company and the Antwerp World Diamond Centre’s (AWDC) tenth annual Global Diamond Report 2021.
Olya Linde, a partner in Bain & Company’s Energy and Natural Resources practice, said in 2020, the diamond industry as a whole unexpectedly benefited as consumers unable to spend on experiences or travel used those funds for items such as diamonds, which are considered a tangible physical investment.
“Our research found that more than 75 per cent of consumers intend to spend the same amount or more on diamond jewellery than before the crisis, indicating a strong, ongoing emotional connection with the diamond story,” Linde said.
Flexibility helped some industry players weather the storm
When the COVID-19 crisis began in the first half of 2020, many major mining companies cancelled sales and allowed clients to postpone purchases. This response helped midstream players weather the worst of the storm.
However, upstream inventories of rough diamonds grew to 65 million carats by the end of third quarter, before decreasing on the strength of the fourth quarter sales to 52 million carats, or +17 per cent to end of 2019 inventory level.
COVID-19 prompted structural changes in the diamond industry that will help it recover from the recession. Because of the crisis, midstream inventories are at healthy levels and better aligned with consumer demand.
There are more partnerships between upstream and midstream players in regard to technology, go-to-market strategies and marketing. A more transparent and digitally-enabled supply chain was created in the rough and polished diamond segments, with innovative new approaches to customer engagement. Bain is optimistic these changes will help the industry emerge from the crisis in a stronger position.
Parts of the diamond industry poised for rebound in 2021
The new year started on a strong trajectory and growing market confidence. Most miners reported a roughly 5-8 per cent improvement in rough diamond prices and sales in January, while additionally, major miners maintained a flexible sales policy which contributed to a strong start to 2021.
Bain’s perspective is that the Chinese diamond jewellery retail market will recover in early 2021, while other developed countries will reach pre-pandemic levels in 2022–23. Retail recovery in emerging countries will follow a year later.
There is still a lot of economic uncertainty ahead. The current crisis could be more severe than 2009, and a double-dip recession is possible. Full recovery and a return to historic growth trajectory isn’t expected until 2022–24. Three factors will impact the pace and shape of the recovery: epidemiology, government policy response and consumer response.
Encouraged by the year-end performance, the long-term outlook for the global diamond market remains positive. In volume terms, rough diamond supply growth is projected to be −2 per cent or 2 per cent annually. Following an accelerated short-term recovery growth, demand for rough diamonds is expected to fall back into its historic trajectory, growing at 1-3 per cent annually.
Looking at Australia, Bain expects minimum overall growth in production due to the closure of the Argyle mine.
“With no new major mines expected to come online, we expect the long-term supply of natural diamonds to remain flat until at least 2030 in the best-case scenario,” said Linde.
Overall, CEO of the AWDC, Ari Epstein, said the global diamond industry has shown remarkable agility in the face of a crisis and the pace of change has accelerated.
“Throughout the diamond value chain, players have adapted quickly and consumers of diamond jewellery have shown that they value the final product and are willing to invest in it, even in difficult times. We expect the industry to recover and emerge stronger from the storm,” Epstein said.
*Note: Both Ekati and Renard restarted mining operations by the release date of the current report
