Jeweller - October 2022

Understanding Uncertainty| DIAMOND FEATURE
Vrai
Suzanne Kalan
Lark & Berry
as a result of Russia’s exclusion from a significant portion
of the international market. However, at the same time
as sanctions have been installed against Russia, the
economies of the US, Australia and other western nations
have been weakened for a range of reasons - perhaps the
most prominent of all being inflation stemming from the
stimulus measures which kept consumers active during the
lockdowns of 2021.
Inflationary pressure leads to a decrease in consumer desire
to spend on luxury items such as diamond jewellery, and as
demand falls, so do prices – which when combined with the
tension of supply shortages, leads to a contradictory and
difficult to read market.
“Tighter rough supply implies higher prices, however,
weaker demand for polished diamonds leads to lower
prices. There’s a conflict here and that’s the reason why
things seem so confusing right now,” Rapaport says.
“Prices are set during an interaction between supply and
demand and we must remember it’s mostly demand that
sets price.”
Bifurcation
Bifurcation became a hot topic in the diamond industry
during 2022. Never heard of the word?
Birfurcation is the separation of one entity into two distinct
segments, and in terms of economics, this traditionally
involves definitions of high and low value, which is why it
started to become a talking point among diamond experts.
Market bifurcation occurs when disjointed market
movements move in opposite directions, or when high
and low quality securities move out of sync, causing the
two segments to operate and perform independently
within the market.
One example of birfucation is US clothing retailer GAP
announcing that the Old Navy brand would be separated
from stores and sold independently. At the time, GAP
executives said the move would allow Old Navy to expand
under a separate individualised business strategy.
Other examples to consider are luxury and economy
brands of cars; think Toyota with Lexus and Hyundai
with Genesis.
A number of voices in the diamond industry are
predicting significant bifurcation within the market –
for a range of reasons.
Talking Heads
Martin Rapaport
Rapaport Group
"We need to get used to
the fact that things work in
cycles and that we are now
involved in a far greater
economic system which
involves factors such as
inflation, interest rates,
levels of disposal incomes
and the wealth effect."
Paul Zimnisky
PZ Diamond Analytics
"However, if we have a holiday
season that is anywhere
near par with that of last
year, I think the industry will
run into natural diamond
shortages as the industry
restocks in early 2023."
Edahn Golan
Diamond Research & Data
“A sizeable chunk of American
consumers are continuing
to display a healthy appetite
for jewellery, with a specific
craving for higher-end goods."
One of those voices is analyst Paul Zimnisky, who recently
espoused the view that in five years time the market will be
significantly separated, specifically from a retail perspective.
“In general, I think natural diamond prices will be higher
and I think lab-created diamond prices will be lower by
the time we reach 2027,” Zimnisky says.
“I think the differentiation between the two products will be
more apparent in the eyes of consumers five years from now.
“Speaking of natural diamonds more specifically, I think
most medium and larger stones will be sold with a
certificate of origin, and the supply chain will be
bifurcated between Russian and non-Russian goods.”
Internal
Rapaport forecasts a similar level of separation for
consumers. Cheaper and common diamond products are
susceptible to change based on economic forces such as
inflation and strong or weak consumer confidence, while at
the luxury level, these pressures are less impactful.
“Inexpensive diamonds will be very sensitive to price
increases. Then you’ll see the bigger diamonds, where
people just don’t care about the prices,” he explains.
“If the prices increase, they’re going to want to buy more
of them in an inflationary environment. So we’re looking
at interesting market scenarios here. We’re looking at
changes. We’re looking at a bifurcation or separation of
markets.”
External
With Russia excluded from the international landscape,
Chaim Even Zohar warned of a divided market in IDEX’s
report, Lamenting the natural diamond producers’
missed income.
“It is clear that for the diamond industry, sanctions are here
to stay and the industry needs to be ready for the long haul,
and choose which side to take. The sanctions will probably
continue even after the conflict stops,” he explains.
“In the event that the industry transitions into a multi-polar
environment, companies clearly need to take sides, having
to scale down their business in order for them to continue
being compliant.
“With the current regulations in place, the industry is likely
to be split down the middle, with some companies abiding
by the sanctions and other companies dealing in Russian
52 | October 2022