Jeweller - August 2022

Diamond Industry Update | FEATURE
CHART A: SEASONALLY ADJUSTED CONSUMPTION EXPENDITURE BY CATEGORY ($US BILLION)
Source: Bureau of Economic
Analysis, US Department of
Commerce
Chart adapted from IDEX
Jewelry and watches
Durable goods
Nondurable goods
Financial Services, Insurance & Non-profits
Personal consumption expenditures
Housing, Utilities, Healthcare & Other Services
Food, Accomodation & Personal Care Services
Transportation, Recreation & Personal Care Services
Additionally, LGD sales also increased significantly, often
providing better margins than the natural product.
Due to the bull-whip (or ripple) effect in the polished diamonds
pipeline, polished increased by about 55 per cent compared
to 2020 to reach $US22 billion. This was despite the fact that
retailers sold down from their existing inventories.
Part of this increase is attributable to the rise in prices, which
averaged about 10-15 per cent for the year. However, there
were specific areas that had a much more substantial price
rise.
The Argyle mine, which provided about 2-3 million carats
of mainly smaller and cheaper quality polished, closed in
late 2020 and by 2021 all rough from the Argyle mine was
exhausted. These goods were generally used in jewellery
mass-produced for the US market.
The prices for these goods remained manageable for a major
part of the year; however, in the last quarter, as polished
stocks from Argyle rough were used up, prices moved up
to levels that were about 30-40 per cent above that in the
previous year.
As previously mentioned, a big chunk of the business lost due
to the non-availability of the product from the Argyle mine was
made up by the LGD industry, for which 2021 was even better
than the previous year.
The penetration of LGD in the US market significantly
increased as more stores started experimenting with
maintaining LGD stock, and the LGD market suppliers have
made the most of the opportunity.
Unlike previous predictions of LGD being restricted to fashion
and lower-priced jewellery, bridal customers were also
purchasing LGDs in significant numbers.
This implied that larger stones, including in the 2-carat plus
range, remained in demand. What became apparent was that
retailers were offering customers a larger LGD in the same
budget, making it a value offering for customers.
At the lower end of the market, LGD jewellery could offer
a better-looking product than the jewellery with polished
diamonds from Argyle.
DI A MOND FIGURES
Going Deep
60%
Polished diamond
sales, in US
Dollars, for 2021.
26%
of the world's
rough diamond
supply by value
comes from
Russia
50%
of polished
diamonds used
in jewellery are
sourced from
Alrosa
95%
of diamonds
produced in
Russia are mined
by Alrosa
Change coming
While the market share of LGD-based jewellery is
constantly increasing, a good portion of the wholesale
demand for LGDs still continues to come from the
introduction in new stores, rather than end-product
demand.
But this will change because of the sophistication and
effectiveness of LGD promotions, including the marketing
spend by Lightbox.
Also, most of the suppliers of LGD jewellery come from
a natural diamond background and many of the same
practices such as memo offerings have started to be used
in the LGD industry to push sales.
Due to the bull-whip (or ripple) effect in the polished
diamonds pipeline, polished increased by about 55
per cent compared to 2020 to reach $US22 billion.
Actually, the same emotional love message, used for
natural diamonds, is now also applied to the LGD product.
Diamond polishing has been a highly competitive business
with very slim margins for most of the past decade.
However, 2021 was a pleasant exception. The generally
increasing polished prices meant that polishers were
generally able to enjoy much larger margins.
Apart from the margins, polishers also were able to ‘rightsize’
their inventory. The high demand enabled them to sell
‘non-moving’ stock, and almost all types of goods found
buyers at an acceptable price.
The increased turnover and profits, along with the rightsizing
of the inventory, meant that many businesses in the
midstream were able to significantly reduce their leverage.
The total debt in the midstream was estimated to be a little
above $US10 billion.
While this was an increase over the previous year, it came
on the back of significantly higher turnovers. With lowinterest
rates, the industry would have wanted to take on
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96 | August 2022