American management consulting firm Bain & Company, in collaboration with the Antwerp World Diamond Centre (AWDC), released their eleventh annual diamond industry report in February this year, reporting what they termed a “spectacular reversal of fortune” from the impacted demand and production seen during the height of the pandemic.
With the industry increasingly harnessing technology to improve operational efficiency and reach an extended customer pool, the diamond industry is going from strength to strength, a trend that is expected to continue into 2022 before reaching “historic growth pace” by 2023-24. From lab-grown diamonds to the growth of ESG standards in the industry, we take a look at some of the key trends and takeaways from this year’s diamond report.
A surprisingly strong recovery
Like so many industries, the diamond sector was hit hard by the impacts of the pandemic. Widespread lockdowns led to store closures, operational delays, and financial strain on consumers that saw sales of the precious stone dipping 14% for jewellery and 31% for rough diamonds, while cutting and polishing services closed their doors as demand dried up.
While a recovery from this decline was expected, the report shows surprise at just how enthusiastically the industry has bounced back, with the foreword likening the past two years to “riding a rollercoaster”.
Olya Linde, partner in Bain’s Energy and Natural Resources practice and an author of the report, said: “2021 was a year of new highs in the diamond industry as retailers, cutters, and polishers and miners all saw an increase in demand and revenue growth. Throughout the value chain, the industry experienced a recovery and boom at an unexpected speed, which has taken insiders by surprise.”
Last year started strong with the almost back-to-back celebrations of Chinese New Year and Valentine’s Day, holidays that Bain says represent some of its biggest sales in normal times and that saw a surge of diamond sales due to what the report says was an increased urge for “emotional gifting” and the limited availability of experience-based gifts.
Rough diamond sales rebounded more than 60% in 2021, with production led by Russia, Canada, and Botswana; throughout the year, the diamond mining sector saw a 62% revenue increase. In the same period, cutting and polishing saw a 55% revenue increase and diamond jewellery retail saw a 29% increase; ultimately, all three segments rose above pre-pandemic levels by 13%, 16%, and 11% respectively.
An increased emphasis on ESG
As demand for diamonds has swelled once more, there has been a noted shift in exactly what consumers and investors expect from their gems, with ESG standards an anticipated cornerstone for the industry’s continued development.
“It’s needless to say that, in 2021, the diamond industry made a magnificent comeback. High demand fueled the diamond price, pushing the market into a healthy position between supply and demand,” said Ari Epstein, CEO at AWDC. “The future of the diamond market will depend on a strong market that connects all stakeholders, from miner to retail with a strong focus on compliance, sustainability, and innovation.”
Given the diamond industry’s chequered public image when it comes to ethical sourcing, it is unsurprising that customers are calling for increased traceability, with climate impact and origin transparency the primary concerns on the list. In addition to traceability programs, companies have been experimenting with recycled and pre-owned jewellery, with sustainable jewellery emerging as a market to meet this demand, and recycled or repurposed diamonds one way companies are addressing sustainability calls.
Another growing sub-sector is that of lab-grown diamonds, emerging as a more affordable and tech-driven alternative that also offers the possibility of creating diamonds using solely renewable energy. These increasingly popular gems are ‘grown’ inside a lab using technology to replicate the natural diamond development process. For mining companies, one of the most prominent topics on the ESG agenda is carbon neutrality and so interest in this potentially greener method is rising alongside demand.
The role of tech
Technological advancements are making these ESG standards more achievable, not only accelerating renewable tech to make mining greener, but also harnessing digital solutions to connect supply chains and offer consumers traceability. With tools such as blockchain providing increasingly simple ways of collecting this data, we’re beginning to see miners partner with traceability solution providers to connect supply chains and offer both buyers and customers a clear indication of where they’re getting their diamonds from.
The ripple effects of the pandemic also heightened the need for operational efficiency as sites ramp up to meet demand once more, with companies using dynamic pricing tools and automatic cutting and polishing services to lower labour costs and increase manufacturing efficiency.
The pandemic also served to accelerate e-commerce, with 90% of jewellery retailers now having online platforms to sell their wares and online searches of diamond jewellery reportedly higher than pre-pandemic levels throughout the first nine months of 2021.
Pushing the purchasing process online has led to closures of under-performing physical locations, and has also widened the customer net to appeal to younger customers, who are more likely to shop online. The presence of this new audience has also been a contributing factor to the push for evidence of ESG standards, given the emphasis on sustainability often seen in younger generations.
While the industry has seen an impressive recovery from the lows of the pandemic, the report still notes that production is not likely to reach pre-pandemic levels within the next five years, with miners and operators still cautious of potential new virus strains that could once again disrupt production and logistics.
Due to this instability, there has also been an overall hesitancy to start any major new projects and production growth is anticipated to stay between 1%-2% during the “next half-decade”.
While production growth may still be in limbo, demand for diamonds is not expected to see any decline as the report says that the market looks at a strong holiday season and rising consumer confidence in markets. While potential further lockdowns could again dampen demand, the diamond market is regardless set to see a bumper year. The net effect of this high demand and plateauing production means prices – especially for rough diamonds – will go up.
In the midst of this landscape, the report encourages operators to continue pursuing technological advancements and sustainability goals to ensure the industry keeps up with consumer expectations, and help to future-proof the industry from potential future shocks.
“Industry players must continue to pursue operational excellence programs, invest in digital technologies, and advance marketing concepts and the diamond jewellery value proposition to prepare for potential changes in market conditions,” it reads.
With these caveats in mind, the diamond market seems set on a path of expansion that will be more tech-focused and ethically sound than ever before, regaining momentum that – save for the potential of a new wave of lockdowns – is unlikely to slow.