It is time to talk about diamonds!

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As the global economy continues to recover from the catastrophic consequences of the coronavirus, the jewelry market sees a surge in demand all over the world. Thanks to a shortage of supply, travel restrictions, anti-smuggling, and anti-money laundering initiatives initiated by the Chinese government, in the first 6 months of 2021, diamond transactions on the SDE reached $3,821 billion, thus registering an 86.39% increase over the same period of 2019. At the same time, annual diamond imports to China in 2021 are on their way to surpass the 2019 levels.

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Belgium’s polished-diamond exports, on the other hand, more than doubled YoY to $555 million in May as the country’s trade bounced back from last year’s pandemic-induced slump. Long story short, positive sentiment in the diamond market means that polished prices will continue to increase. Additionally, help shortages in certain categories and high rough costs.

In this context, it is worth mentioning that Alrosa’s second-quarter diamond revenues exceeded pre-pandemic levels. To be more precise, rough and polished sales increased to $1.18 billion for the period ending June 30, compared with $87 million a year earlier. The figure was 46% higher than in the same quarter of 2019. As we previously discussed, one of the reasons for such astonishing results could be the lack of “goods” to meet the buoyant appetite from manufacturers. In this context, Alrosa’s average rough-price index rose 3% Year-on-Year.

In the US, meanwhile, the recovery of the wedding industry has boosted demand in engagement ring sales. According to CNN, a spike in demand and sales in April and May could be partially explained by access to Covid-19 vaccinations throughout the country.

Overall, a spike in diamond prices sounds optimistic, but the feeling starts to appear that the market could be heading into another bubble. What will happen when travel restrictions are finally lifted? Could the resolution of the supply bottlenecks decrease the average price of diamonds? Only time will tell.

As of now, McKinsey analysts believe that in the next few years, the jewelry and watches industries will rebound from the COVID-19 pandemic and grow globally at 3 to 4 percent per year (fine jewelry) and 1 to 3 percent per year (watches). They expect demand to increase from younger consumers as well as in domestic markets amid continuing restrictions on international travel and the rise of domestic duty-free zones in China.

Finally, the question emerges, – how attractive are diamond companies? ALROSA shares are close to all-time highs. A similar situation is observed in the case of Anglo American plc and Rio Tinto Ltd. Assuming the positive price and volume news continues, the above companies may rally slightly, but remember, with every upswing comes a fall.



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