Are diamonds still forever?

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s with much of the world, the diamond market has undergone something of a turbulent year. A report from Antwerp World Diamond Centre (AWDC) and Bain & co showed that production of the gem was strong at the beginning of 2019, though as the pandemic began to rear its head, closures and declining demand rippled across the sector.

China was a good indication of the global downwards trend, with an estimated 75% of jewelry stores on the mainland shutting down as lockdown measures were introduced.

Concerns over ethical practice have consistently dogged the diamond industry, something that has only been magnified in some areas by the pandemic. For instance, IPIS research found the number of children under 15 working in minerals production in the western Central Africa Republic has risen since the Covid-19 outbreak.

The average number of children per site was 10 in 2019, but rose to 15 in 2020 as school closures pushed adolescents into the mines. With all this at play, it’s clear that the diamond industry still has some hurdles to face in its path to a full recovery.

Paul Zimnisky, a diamond industry analyst, says that the diamond sector had been on something of a downwards trajectory for a few years due to depleting stocks of multiple ‘legacy mines’, as well as minimal new production offsets - an inevitable trend that the pandemic only served to exacerbate.

“Pandemic-related production suspensions and curtailments across the industry accelerated this decreasing supply trend,” he says. “More specifically, in 2020, I estimate that global diamond production volume decreased by over 20% to about 113 million carats. This is the lowest output since the 1990s.”

Karen Rentmeesters, senior manager of communications from AWDC, says that the sector took a major hit from restrictions caused by the pandemic - particularly in Israel, the UAE, and India.

“All across the diamond pipeline, from mines that were temporarily closed, flights transporting diamonds that were cancelled, diamond polishing factories that closed, no international diamond trade fairs, to the jewelry retailers that closed shop - business came to a virtual standstill,” she says.

The few transactions still taking place were done so at significantly lower prices, with IPIS reporting that the price of diamond per carat had dipped by half since its 2019 survey.

The pandemic also served to accelerate the rise of e-commerce in the industry, a trend that was already emerging as a new player to shape the sector. Of course, with the pandemic causing financial strain on most people, demand for rough and polished diamonds took a hit, even in the online sphere.

With retailers tentatively opening their doors once more, promise is beginning to glimmer for the gemstone, though expectations remain relatively subdued for how long it may take for a full return.

“Latest analysis indicates [prices] have returned to the level of January 2020, which also is a good indicator of a recovery in the market,” says Rentmeesters. “Mind you, 2019 was a bad year for the entire industry, and it will of course take more time to reach a full recovery.”

So where does the industry stand now?

“As the global economy began reopening, coinciding with the upcoming holiday season, demand for diamonds returned, quite strongly I might add,” says Zimnisky. “This has continued through the end of 2020 and into 2021.”

Indication of a market recovery has been hinted at by stockists, and Rentmeesters adds that prices are stable, and there “is optimism about the rest of the year”. However, the knock-on impacts of this re-injection of wealth back into diamonds is not yet clear, and Zimnisky warns of the possible dangers of this market fluctuation.

“Financial markets are at all-time highs. It's pretty incredible (and sad) what's happening right now as far as wealth dislocation,” he says. “People are converting fiat currency to ‘things’, whether it be stocks, precious metals or precious gems. I think there is legitimate concern of currency debasement and inflation given the recent level of stimulus and artificially low interest rates globally.”

In addition, the IPIS research cautions that the rapid shifts in prices during the pandemic could cause ‘another economic crisis for artisanal/small-scale mining (ASM) in the Central African Republic’ further down the line.

While ASM is far less common in the diamond industry than in other sectors, according to the Diamond Development Initiative it still makes up between 15%-20% of the sector by volume. As it is typically this part of the industry that is hardest hit in times of uncertainty, it is here that many initiatives have turned their attention to help with Covid-19’s knock-on effects.

Following the pandemic’s outbreak, the EU stepped up governance efforts in the Mano River Union’s diamond sector to combating smuggling and ‘develop alternative livelihoods’ for ASM communities.

DeBeers also has an initiative called the GemFair programme, established with the aim of formalising the ASM diamond mining industry. Operating in Sierra Leone, one of the main issues GemFair has found was ASM workers’ access to finance. Many of the miners receive ‘pre-financing’ from local investors, who themselves came under financial strain during the pandemic.

“The interdependence on these often informal, complex, and opaque financing arrangements often creates a cycle of debt and dependency in normal times, which was further exacerbated by the pandemic,” says Peta Gabriel, media relations manager at DeBeers.

“The engrained dependencies and vulnerabilities within the ASM sector have been further laid bare by the far-reaching impacts of the pandemic. While this is a challenge that requires a collaborative approach among stakeholders within the sector, GemFair is also looking at what we can do to help create fairer and more sustainable access to financing among our members.”

Food security was also a major concern for ASM communities as a result of border closures and poor harvests, meaning the provision of food parcels became GemFair’s operational focus in 2020. In addition, digital training for workers on operational standards was rolled out for those unable to attend in-person sessions and spot-checks of mines within the program were boosted to ensure regulations were being followed.

While the pandemic had unprecedented effects for both ASM workers and larger corporations alike, efforts to create a formalised and sustainable supply chain have long been an industry priority, with public perception placing the diamond sector under the microscope years ago.

Rentmeesters points to mechanisms such as the Kimberley Process and the System of Warranties as having long provided stable frameworks for a transparent production line. As with all businesses, the pandemic only served as a reminder of the importance of extending systems of support to vulnerable workers as the industry works towards a full recovery.