Visit rapaport.com/sanctions for facts and support. Martin Rapaport will fast for three days next week — Tues.-Thurs., Nov. 7-9 — to protest WDC’s support for Kimberley Process that certifies Russian diamonds. Trade is urged to fast for one day, Tuesday, Nov. 7, as WDC and KP meet in Zimbabwe. Prices of rounds stabilizing; 1 ct. RAPI +0.3% this week but -2.2% for Oct. Fancies still falling. Surat factories to close for three weeks over Nov. 12 Diwali holiday. NY DDC to hold Israel trade week Nov. 27-30.
The diamond sorting center in Mirny, Sakha Republic, Russia, November 14, 2013.
De Beers has put its weight behind the World Diamond Council (WDC) plan for sidelining Russian goods amid continued controversy over the competing proposals.
“In pursuit of a collaborative, coherent and collective solution that supports the aims of the G7, we have joined with 22 diamond-industry organizations through the World Diamond Council to progress the ‘G7 Diamond Protocol’ proposal,” De Beers CEO Al Cook wrote in an open letter to Group of Seven (G7) leaders on Thursday. “
The protocol — one of a few plans for keeping Russian diamonds out of G7 nations — calls for importers to declare on invoices that stones do not originate from mining companies operating in Russia. The companies making the claims will undergo audits.
While the WDC-led proposal has received wide industry support, it has also drawn criticism for creating a burden for small-scale industry members — including by Rapaport Group Chairman Martin Rapaport.
One other plan, from the Belgian government and supported by the Antwerp World Diamond Centre (AWDC), proposes using technology to confirm the source of goods, with the European city as a suggested center point for the trade of stones with known provenance.
Two further proposals — from India and a French jewelry group — were also on the table at a G7 meeting on Thursday, Reuters reported.
In another letter earlier this month, the African Diamond Producers Association (ADPA) attacked the process for not consulting people on the continent and claimed some of the plans would harm its members and artisanal miners. It highlighted the “G7 Certificate Scheme” — an apparent reference to the Belgian plan — as well as the WDC protocol.
“The proposed changes will bring supply-chain disruption, added burden, and costs to the ADPA mining nations,” the ADPA wrote in the October 13 letter to the Zimbabwe Minister of Mines and Mining Development, Soda Zhemu, who is chairing the Kimberley Process (KP) this year.
The plans will set a precedent for segregating diamonds by origin and damage producing countries’ ability to cut and polish their rough, the group argued.
In the case of the Belgian proposal, “additional costs will be incurred when a parcel of rough diamonds needs to be first shipped to Antwerp to then be reshipped to the country of origin to be polished,” said the Angola-based ADPA, which represents 19 countries that together account for 60% of global rough production.
Efforts to sift Russian diamonds out of G7 markets have taken on momentum since the bloc — which comprises Canada, France, Germany, Italy, Japan, the UK, the US, and the European Union — pledged to “work closely together to restrict trade” in those goods in May.
Where Are All the Russian Diamonds?
However, while there has been agreement about the need to stop Russia obtaining diamond revenues to fund its war in Ukraine, the process of implementing this has proven complex.
“Throughout our discussions, two things have been clear: why we should do this is easy, but how we should do it is hard,” said Cook.
The executive called for G7 leaders to obtain input from the industry and not exclude relevant groups, including artisanal miners.
“We look forward to further engagement with the G7 around the World Diamond Council proposal and urge those that have submitted proposals to work together to create an effective and practical solution,” Cook continued.
The industry had expected any measures to go into effect in January 2024. However, that schedule is now looking unlikely, JCK reported Friday, citing sources involved in the plans.
“We fully agree with Al [Cook]’s view that the results of our efforts to meet the G7 objectives should be collaborative, coherent and collective,” said WDC executive director Elodie Daguzan in a statement to Rapaport News. “In [the] WDC’s own words, it is what we call ‘an industry proposal that is effective and implementable now and that leaves no one behind.’ Also, we understand that the statement made by ADPA is not against the WDC-facilitated protocol but rather against the G7’s objectives without engagement with African producers.”
Western officials are expected to head to India this week to discuss the technical aspects of a coming G7 ban on Russian diamonds as they come closer to finalising a sanctions package that may kick in as early as January 1.
But sanctions experts have warned that negotiations may drag on past the expected deadline due to the complexity of enforcing a widely accepted mechanism to trace the origin of diamonds.
“If this mechanism is understandable and transparent enough from the beginning, then there are high chances that all G7 countries will sign off on it,” Yuliia Pavytska, who heads the sanctions team at the KSE Institute, a Kyiv School of Economics-affiliated think tank, told The National.
“If there is no agreement in the coming weeks, it will likely take a few more months to make it happen.”
The impact of a ban on the Russian economy would be relatively small but not insignificant.
Russia’s diamond exports account for about $4 billion – or about 1 per cent – of the country’s total exports, according to Ms Pavytska.
But with half of Russia’s exports comprising oil and gas, diamonds are one of the largest trade groups that have yet to be sanctioned.
“There’s been talk for months about a diamonds ban, and now we finally see that the G7 is ready to discuss it and adopt it,” she said.
Belgium has long resisted a ban on Russian diamonds due to their importance for its second-largest city, Antwerp, the largest diamond hub in the world.
But it has recently put forward a proposal that is garnering support among the G7, which may finalise its proposal in the coming weeks. This would be followed by an implementation of the ban at the EU level next year.
As discussions intensify, western officials are expected to travel later this week to India, the world’s diamond-polishing hub, for what EU authorities have described as a fact-finding mission organised by the Indian Gem and Jewellery Export Promotion Council.
Speaking to Reuters last week, US officials said that he delegation would travel to Mumbai and Surat, a city where about 80 per cent of the world’s diamonds are polished.
Belgian officials will reportedly be part of the delegation.
Belgium’s proposal Belgium is not a member of the G7 but is part of the EU, which is represented in the forum that also includes the US, the UK, Canada, France, Germany, Japan and Italy.
The US, the UK and Canada have already banned Russian diamond imports in various ways.
Belgium argues that an outright G7 ban would encourage circumvention, pointing to the fact that while imports of Russian diamonds to the EU have decreased by 95 per cent from pre-war levels, the number of diamonds being traded in Antwerp has not significantly changed.
These figures have fuelled suspicion that Russian diamonds are changing identity before entering western markets.
Experts such as Agiya Zagrebelska, who heads the sanctions direction at the Ukrainian National Agency on Corruption Prevention, said that there has been an increase in purchases of Russian diamonds from companies based in major trade hubs including India and the UAE.
“What is being sold on western markets are Russian diamonds because it’s impossible that the diamonds traded by these companies come out of nowhere,” Ms Zagrebelska told The National.
The Belgian diamond industry has called for the creation of an improved system to track diamonds – a notoriously difficult process.
Rough diamonds are split before they are polished and then possibly mixed with other diamonds.
The proposal focuses on reinforcing traditional customs inspections with blockchain technology to create a ledger that is impossible to forge.
The aim is to cut Russian diamonds off from the G7 market, which represents more than 75 per cent of the diamond consumer market, and forcibly drive their price down.
“The ban on Russian diamonds will not only reduce the revenue Russia is extracting from the export of diamonds but will simultaneously increase the traceability of diamonds at a global level, which has been a long-standing EU policy ask,” an EU official said.
There are other proposals reportedly under discussion, but the diamond lobby has remained tight-lipped about them.
“We understand that it all depends on what trace and track system the G7 countries will choose,” said Ms Zagrebelska.
The Antwerp World Diamond Centre declined to comment when contacted by The National.
The US-based World Diamond Council did not answer a request for comment.
Alrosa has canceled its next two sales and urged caution from buyers and suppliers amid a steep downturn in the diamond market.
The Russian miner informed India’s Gem & Jewellery Export Promotion Council (GJEPC) of the decision in the past few days, citing low demand. The move follows the GJEPC’s recent call for rough producers to act responsibly.
“Alrosa has decided to temporarily halt the allocation of rough diamonds in September and October 2023,” the company said in a note to the GJEPC, seen by Rapaport News. “We believe that this approach is going to have a stabilizing impact by strengthening the market’s supply-and-demand balance. This will aid the prevention of overstocking, especially with manufacturers closed for Diwali.”
Alrosa has continued to sell despite being under US sanctions since the Ukraine war began in February. The company’s revenue was broadly stable year on year at RUB 188.16 billion ($1.9 billion) in the first half of 2023.
Most of the rough goes to India, market insiders believe. That country’s diamond trade has suffered a serious crisis because of weak US and Chinese demand and competition from lab-grown stones. Inventories have piled up as the sales slump has outpaced manufacturers’ production cuts, leading to falling prices.
The GJEPC wrote to diamond miners earlier this month, asking them to be “responsible” when selling to prevent a worsening of the situation. In response, Alrosa said it “expresses equal concern and strives to reverse the existing trend of diminishing demand.”
The Russian company said it would welcome a similar position from other industry players, such as miners, cutters and retailers, “on the matter of rough-diamond purchases and sales” as a “reciprocal effort.”
The benefits of the miner’s decision should be visible in the market by the beginning of next year, it said in a separate statement Wednesday.
“Alrosa has always followed the practice of supporting market stability and leveling its volatility,” a spokesperson for the miner said. “Our solid and high-quality asset base and stable financial position allow us [to implement] such measures.”
By contrast, De Beers will continue to hold sights but take a “responsible approach” to sales, “just as we have previously when faced with challenging industry conditions,” a spokesperson for the Anglo American unit said. The company, which is holding its September sight this week, has already allowed customers to defer up to half of rough purchases for the rest of 2023.
“We will focus on additional supply flexibility as necessary to meet sightholders’ evolving requirements,” the De Beers spokesperson added.
The news comes amid growing expectations for a Group of Seven (G7) ban on Russian diamonds, with an announcement likely in two to three weeks, Reuters reported last Friday, citing Belgian officials. The World Diamond Council (WDC) is also facilitating a proposal for keeping Russian and non-Russian diamonds separate.
Sanctions-hit Alrosa, the world’s biggest diamond-producing company, said on Sunday it has mined the largest gem-quality diamond in Russia in the past decade.
The 390.7-carat diamond was mined at one of the company’s mines in the Republic of Sakha, Alrosa said in a statement. The region, commonly known as Yakutia, lies in Russia’s Far East along the Arctic Ocean.
“The found diamond is a light crystal of an irregular shape, bordered by a yellow-brown halo – a combination of mass, shape and colour that is unique today,” Alrosa said.
The company mined the largest gem-quality diamond in Russia in 2013, weighing 401 carats, Alrosa said.
The world’s largest gem-quality diamond ever mined – the 3,106-carat Cullinan stone – was recovered in South Africa in 1905.
Alrosa was last year placed under sanctions by the United States, which cut it off from its banking system and banned direct sales to the US market after Russia invaded Ukraine.
Last month the company reported a rise of 0.2% in revenue for the first half of the year but said net profit fell 35% year-on-year to 55.6 billion roubles.
The Gemological Institute of America (GIA) has cut some 20% of the workforce at its Carlsbad, California, headquarters amid a prolonged slowdown in the industry.
In late July, the lab let 151 employees go, primarily in its laboratory, as well as some in corporate positions, Stephen Morisseau, the GIA’s director of communications, told Rapaport News Sunday. The lab made the layoffs as a result of a drop in the number of diamonds submitted for grading.
“Many organizations in the global gem and jewelry sector are experiencing a downturn due to economic conditions affecting the global gem trade,” Morisseau explained. “Due to those economic conditions, there has been a decline in demand for GIA’s gem identification and grading services, which led to the difficult decision to reduce staffing.”
The layoffs will bring the GIA’s total workforce in Carlsbad to 600, according to The San Diego Union-Tribune, which was the first to report the story. Globally, the lab has approximately 3,500 employees.
“The reductions will not affect our ability to advance our important consumer-protection mission, nor to meet the needs of our clients,” Morisseau added.
One of the world’s most popular types of rough diamonds has plunged into a pricing free fall, as an increasing number of Americans choose engagement rings made from lab-grown stones instead.
Diamond demand across the board has weakened after the pandemic, as consumers splash out again on travel and experiences, while economic headwinds eat into luxury spending. However, the kinds of stones that go into the cheaper one- or two-carat solitaire bridal rings popular in the US have experienced far sharper price drops than the rest of the market.
The reason, according to industry insiders, is soaring demand for lab-grown stones. The synthetic diamond industry has paid special attention to this category, where consumers are especially price-sensitive, and the efforts are now paying off in the world’s biggest diamond buyer.
The shift doesn’t mean engagement rings are about to go on deep discount — the impact is limited to the rough-diamond market, an opaque world of miners, merchants and tradespeople that is several steps removed from the price tags in a jewelry store.
However, the scale and speed of the pricing collapse of one of the diamond industry’s most important products has left the market reeling. Now, the question is whether the plunging demand for natural diamonds in this category represents a permanent change, and — crucially — if the inroads made by lab-grown gems will eventually spread to the more expensive diamonds that are typically dominated by Asian buying.
Industry leader De Beers insists the current weakness is a natural downswing in demand, after stuck-at-home shoppers sent prices soaring during the pandemic, with cheaper engagement rings having been particularly vulnerable. The company concedes that there has been some penetration into the category from synthetic stones, but doesn’t see it as a structural shift.
“There has been a little bit of cannibalization. That has happened, I don’t think we should deny that,” said Paul Rowley, who heads De Beers’ diamond trading business. “We see the real issue as a macroeconomic issue.”
Lab-grown diamonds — physically identical stones that can be made in a matter of weeks in a microwave chamber — have long been seen as an existential threat to the natural mining industry, with proponents saying they can offer a cheaper alternative without many of the environmental or social downsides sometimes attached to mined diamonds.
For much of the last decade, the risk remained unrealized, with synthetics eating away at cheaper gift-giving segments but making limited headway otherwise. That is now changing, with lab-grown products starting to take a much bigger bite of the crucial US bridal market.
De Beers has responded to weakening demand by aggressively cutting prices for the category known as “select makeables” — rough diamonds between 2 and 4 carats that can be cut into stones about half that size when polished, yielding centrepiece diamonds for bridal rings that are high quality, but not flawless.
De Beers has cut prices in the category by more than 40% in the past year, including one cut of more than 15% in July, according to people familiar with the matter.
The one-time monopoly still wields considerable power in the rough diamond market, selling its gems through 10 sales each year in which the buyers — known as sightholders — generally have to accept the price and the quantities offered.
Price drop De Beers typically reserves aggressive cuts as a last resort, and the scale of the recent price falls for a benchmark product is unprecedented outside of a speculative bubble crash, traders said.
In June 2022, De Beers was charging about $1,400 a carat for the select makeable diamonds. By July this year, that had dropped to about $850 a carat. And there may be more room to fall: the diamonds are still 10% more expensive than in the “secondary” market, where traders and manufacturers sell among themselves.
De Beers declined to comment on its diamond pricing.
One of the clearest signs of the traction being made by lab-grown diamonds is their share of diamond exports from India, where about 90% of global supply is cut and polished. Lab-grown accounted for about 9% of diamond exports from the country in June, compared with about 1% five years ago. Given the steep discount that they sell for, that means about 25% to 35% of volume is now lab-grown, according to Liberum Capital Markets.
The impact on De Beers was clear in the first half. The Anglo American Plc’s unit’s first half profits plunged more than 60% to just $347 million, with its average selling price falling from $213 per carat to $163 per carat. Its August sale was the smallest of the year so far.
De Beers has responded by giving its buyers additional flexibility. It’s allowed them to defer contracted purchases for the rest of the year of up to 50% of the diamonds bigger than 1 carat, according to people familiar with the situation.
While lab-grown diamonds are currently hurting demand for natural stones, the upstart industry is also suffering. The price of synthetic diamonds has plunged even more steeply than that of natural stones, and are selling at a bigger discount than ever before.
About five years ago, lab-grown gems sold at about a 20% discount to natural diamonds, but that has now blown out to around 80% as the retailers push them at increasingly lower prices and the cost of making them falls. The price of polished stones in the wholesale market has fallen by more than half this year alone.
De Beers started selling its own lab-grown diamonds in 2018 at a steep discount to the going price, in an attempt to differentiate between the two categories. The company expects lab-grown prices to continue to tumble, in what it sees as a tsunami of more supply coming onto the market, Rowley said. That should create an even bigger delta in prices between natural diamonds and lab-grown, helping differentiate the two products, he said.
“With the increase in supply we’ll see prices fall through the price point and reach a level where, long term, it does not compete with bridal because it comes too cheap,” said Rowley. “Ultimately they are different products and the finite and rarity of natural diamonds is a different proposition.”
Petra Diamonds’ rough prices decreased at its first tender of the fiscal year as the anticipated pickup in demand proved disappointing.
The August trading session brought in $79.3 million from the sale of 696,194 carats, with like-for-like prices — those for similar categories of diamonds — falling 4.3% compared with May, the miner reported Friday.
The slowdown was primarily due to flagging prices for rough between 2 and 10.8 carats, which dropped 14% on a like-for-like basis. Prices for diamonds under 2 carats rose 1% to 2%, Petra noted.
While the tender saw strong attendance, “demand was more muted than we had expected in exiting the summer holiday period,” explained Petra CEO Richard Duffy. “The expected seasonal improvement in demand was evident for higher-quality 10.8-carat-plus stones, with solid prices realized. [However,] this was offset by slower demand for 2- to 10-carat size ranges.”
The miner did not sell any exceptional stones during the tender, it reported, though it did garner $1.7 million for a 20.9-carat yellow diamond from its Cullinan deposit.
Overall sales value rose 88% from May’s $42.1 million but slid 23% from the equivalent tender a year earlier, which took place in September 2022. Sales volume was up 49% from May and 34% year on year, while the average price jumped to $114 per carat from the previous tender’s $90.
The August tender did not include any output from the Williamson mine; Petra plans to sell material from that site at its September sale. However, the latest round did feature all the rough Petra had chosen to defer in June, when it postponed its sixth tender due to the sluggish market.
The August sale also contained 75,880 carats of goods that Petra had withdrawn from the May tender due to low bids. Prices for those goods were largely unchanged from May’s offers, but Petra expects demand to rise in the coming months.
“As we enter a seasonally stronger period [that] includes Diwali, Thanksgiving, Christmas and the Chinese New Year, we remain optimistic that jewelry demand will improve and provide some support to prices over the balance of the calendar year,” Duffy said.
Main image: Ore processing at the Williamson mine.
Alrosa’s diamond sales have been unaffected by sanctions, according to the company’s first published set of financial results since Russia invaded Ukraine in February 2022.
First-half sales for 2023 were RUB 188.2 billion ($1.9 bn), up 0.2% from RUB 187.8bn ($1.9 bn), for H1 of 2022, and up 3.5 per cent on H1 of 2021. Net profit for H1 2023 was down 35 per cent year-on-year to RUB 55.57bn ($562.5m).
More detailed breakdowns of diamond sales are marked as being restricted by decree of the Government of the Russian Federation.
The US has imposed banking restrictions and sanctioned direct imports of Russian diamonds. But Russian stones polished elsewhere are not sanctioned.
The G7 countries were expected to impose restrictions when they met in May, but instead announced plans to consider a traceability solution.
India and Dubai have not imposed restrictions on Russian diamonds.
In its interim financial statement, Alrosa, the state-controlled diamond miner, says: “Ongoing geopolitical tensions in the region have escalated significantly as the situation regarding Ukraine continues to evolve, which remains highly volatile.
“The sanctions against Russia, in turn, have caused economically unjustified costs in a number of foreign economies, disrupted the efficiency of supply chains and trade flows.”
Sanctions-hit Alrosa kept diamond sales in the first half of 2023 at the year-ago levels, the Russian company said on Monday as it reported financial results for the first time since Moscow’s 2022 invasion of Ukraine.
Efforts to reduce Russia’s revenue from diamond exports and to build on Washington’s existing sanctions on Alrosa, the world’s largest producer, have been subject to discussions among leaders of the Group of Seven (G7) nations.
Alrosa’s first-half revenue totalled 188.2 billion roubles ($1.9 billion), up 0.2% from January-June 2022, and up 3.5% from the same period of 2021. Net profit fell 35% year-on-year to 55.6 billion roubles.
“As of mid-2023, opportunistic diamond midstream participants have developed trade mechanisms to circumvent the impact of the restrictions, especially as it pertains to the trading of Russian diamonds in US dollars,” diamond analyst Paul Zimnisky said.
In April 2022, the United States cut Alrosa off from its banking system and banned direct sales to the lucrative US market. The European Union bought 1.4 billion euros ($1.5 billion) worth of Russian diamonds in 2022 as it has neither banned Russian diamond imports nor Alrosa.
As of now, once the Russian diamonds are cut and polished outside of Russia, they are considered originating from the nation that “transformed” them, Zimnisky added.
While some G7 countries have called for Russian diamond sanctions, others, including Belgium, have been concerned that they would divert trading to other centres and away from Antwerp, the world’s No. 1 one hub.
The G7 said in May it would continue working to restrict Russian diamonds trade, including through tracing technologies.
Zimnisky expects G7 to prepare a plan which would impact the global flow of Russian diamonds by late 2023 or early 2024.
“The diamond industry has had time to digest all of this, so while I do not expect a pending supply shock, I do see the way that the diamond supply chain works to be fundamentally transformed in the medium term,” he said.
