AWDC & Bain & C°’s 10th Report: Diamond Industry Brilliant Under Pressure

In-depth
07/02/2021 22:26

The title of the 10th Global Diamond Report, a collaboration between leading consultancy agency Bain & Company and the Antwerp World Diamond Centre (AWDC) leaves little to the imagination on its content. The COVID-19 crisis is unprecedented, not just in terms of its scale and impact on the entire world, but also in its unpredictability. And that also applies to the diamond industry at large, because while the crisis didn't leave the industry unscathed, very few people would have predicted that it would rebound significantly at the finish line.

Consumers Continue to Value Diamonds

In the first month after the outbreak of the pandemic, business throughout the value chain virtually came at a standstill, reflected in diamond jewelry sales for the entire year, which fell 15, but meaning the industry fared much better than the personal luxury market, ending at -22%, the report says. In Q4, and especially during the holiday season, consumers returned to retailers, increasingly so online but also in stores - which remain an important element -, spending money they couldn’t spend on travel or other luxury experiences on other items, such as diamonds, which they consider a solid investment, Olya Linde, partner at Bain & C° says. “Our research indicates 75% of consumers intend to spend the same or more on diamond jewelry than before the pandemic.” The report’s consumer survey details how consumer in key markets such as China and the US continue to value diamond jewelry as an essential part of marriage, engagement and place it high in the ranking of desirable gifts. The pandemic further accelerated shifts in consumers’ mindsets, as Bain & C° found that social impact, ecological concerns and sustainability in general are increasingly influencing consumer behavior.

Increased Flexibility & Healthier Fundamentals

The industry’s midstream benefitted from increased flexibility from the major miners, who canceled sales and allowed their long-term clients to defer purchases. As a consequence of the pandemic, global diamond production dropped to 111 million carats (-20%) a steep decline compared to the average annual decrease of -5% since 2017, and miners’ inventories increased 17%, a significant recovery from the +65% in inventory levels at the end of Q3 2020. But despite the obvious impact, the industry managed to demonstrate its resilience, the report concludes, weathering the storm and entering 2021 with healthier financials and inventories and a price recovery for both rough and polished prices that continued in the first month of 2021.

In addition, here too, the pandemic has accelerated certain trends, such as a digital transformation that increases efficiency and transparency, but also innovative partnerships between miners, midstream and retail to market diamonds, such as the collaboration between Lucara Diamonds, HB Antwerp and Louis Vuitton. These structural changes will be instrumental in how fast the industry can fully recover, the report states. And although that recovery is tied to factors such as epidemiology, government response and consumer behavior, Bain & C° expects the rebound to continue in 2021, with a return to pre-pandemic levels in China in early 2021, and in other parts of the world by 2022-2023.

“The diamond industry has shown remarkable agility in the face of a crisis and the pace of change has accelerated,” says Ari Epstein, CEO at AWDC. “Throughout the diamond value chain, players have adapted quickly and consumers of diamond jewelry have shown that they value the final product and are willing to invest in it, even in difficult times. We expect the industry to recover and emerge stronger from the storm.”

The Global Diamond Report’s findings are reflected in the performance of the Antwerp diamond industry, figures released by the AWDC indicate the total volume of traded goods amounted to 164.4 million carats or 85% of 2019’s volume, at a value of just under US$ 25 billion. The umbrella organization points to the rough trade, which remained remarkably stable at 78.2 million carats (-1% y-o-y), a high number of rough tenders that were concluded successfully, demonstrated by continued activity that began to increase in Q3, and even surpassing 2019 levels by 23% in volume and 18.4% in value in Q4. Polished trade took longer to get traction, but the strong demand at the end of 2020 is continuing in the first month of 2021, as exports of polished to the main consumer markets have gained significantly (China +200%, US +56%) compared to the pre-pandemic January 2020.

The anniversary edition of the report is its most extensive one to date and offers a lot of perspective on the past and new year. Ari Epstein, CEO of AWDC: “10 years ago, AWDC, together with Bain & Company, was the first to publish a comprehensive report, aptly titled “lifting the veil of mystery”, a reference work that provided unprecedented insight in our industry across the value chain. Over the past years, many others have followed our lead in pursuing greater transparency on how our business unfolds by sharing information, data and discussing trends and challenges. This tenth anniversary, but also the unusual circumstances of the past year warranted to take an even deeper look into the dynamics of our industry and provide valuable insights for the future.”

Download a copy of the report here.