Geopolitical Instability Impacts Antwerp Diamond Industry in 2019

Market Analysis
15/01/2020 10:21

2019 was a challenging year for the global diamond trade. The entire industry, from miners to manufacturers and from diamond traders to jewelry retailers saw their trade figures and profits decline during the past year. Antwerp, as the leading diamond trading hub, was caught in the middle of the industry-wide storm. “Geopolitical instability led to economic turmoil, which negatively impacted consumer confidence,” says Ari Epstein, CEO of the Antwerp World Diamond Centre. According to Bain & Company, the diamond trade is in for a difficult 2020 as well, but should fully recovery in 2021.

Last year, Antwerp traded a total of $37 billion in rough and polished diamonds, representing a 20% decline from the $46 billion traded in 2018. “With a total traded value of $37 billion, the Antwerp diamond industry fell to its lowest point since the global financial crisis of 2009 – 2010,” comments Ari Epstein. This decline demonstrates just how difficult the past year has been for the industry, but if the past holds true, recovery should be on the way. Historical analysis demonstrates that a recovery typically follows a recession in the diamond industry, after a period of one to two years. Following the nadir of 2009 ($30 billion), the Antwerp industry traded rebounded to trade $42 billion in 2010 and nearly $57 billion in 2011.

Rough trade the worst hit

The rough diamond trade in particular suffered a sharp decline this year. “A challenging year,” reiterated the world’s leading miners again and again after each disappointing quarterly report, and the Antwerp industry shared their pain. Overall, a total of 184 million carats worth $17.2 billion were traded in Antwerp last year, a 14% decline in volume and a 26% decline in value compared to 2018. This is entirely consistent with the losses in the rough trade globally last year, with international consultancy Bain & Co. calculating a 25% decline in global rough diamond revenues across 2019. Antwerp’s largest supplier, Russian diamond miner Alrosa, finished the year with a 26% decline in rough-diamond revenues, while De Beers saw its rough-diamond sales decline 25% on the year, losing more than a billion in sales compared to 2018.

Antwerp’s losses were almost equally distributed between rough imports ($8 billion) and exports ($9.2 billion), while the gap between the volume and value decline is due to a 14% drop in the average price per carat, falling from $108 to $90 per carat on the whole. The AWDC largely attributes the decline to the backlog of polished goods on the market, leading to a decision among manufacturers and traders to sell their existing stock before purchasing new goods. This led to an imbalance between supply and demand, forcing down prices as well as rough sales. Once the backlog works its way through the market to consumers, demand for rough should start to rise.

Polished trade still sluggish, yet prices remain steady

Antwerp’s polished diamond trade declined as well in 2019, but not as dramatically. The AWDC reports a 13% overall decline in volume as well as value for the year, with exports performing just over a percentage point worse than imports. The total value of polished diamonds traded fell to $20 billion from just over $23 billion a year earlier, due exclusively to the decline in volume. The average price per carat of all polished diamonds traded - $2,176/ct  - matched the record price set in 2019 ($2,175/ct). Polished-diamond exports beat the record price of 2019 by 1.6%, reaching $2,431 per carat, while the average value per carat of polished-diamond imports dropped by 1.15% to $1,971.

Looking again to the analysis by Bain & Co., they report that midstream (manufacturers and polished-diamond traders) revenues fell by 10-15%, so the decline in Antwerp falls squarely in line with global averages. For the sake of comparison, India, the world’s largest polished-diamond exporter, saw its polished-diamond exports fall 16% in 2019, representing their steepest annual decline since 2012. Israel’s diamond industry has seen a 22% drop in exports of polished diamonds (through Q3), which Israeli spokespeople also say is likely due to the global economic slowdown and international trade concerns. 

Consumer confidence declines

“The major issue today is that the supply of diamonds is larger than demand,” says Ari Epstein. “This is mainly the result of the geopolitical tensions between the major global powers such as the United States and China, as well as the social unrest in Hong Kong. These are three of the most important markets for polished diamonds.” The tensions, which have led Chinese consumers to travel less to the US and Hong Kong to make their luxury purchases, should not be underestimated. Just this week, Hong Kong’s largest diamond jewelry retailer, Chow Tai Fook, said it plans to shut down about a fifth of its Hong Kong stores in the coming year.

“Currently, manufacturers and traders are mainly trying to reduce their stocks before they transition to purchasing new rough diamonds,” says Mr. Epstein. “Jewelers are also reorganizing their purchases. An increase in e-commerce has effectively created efficiencies in the supply chain that has decreased the need for inventory on hand. They are now purchasing more on-demand rather than placing large orders at trade fairs in Hong Kong or Las Vegas, as they did in the past.”