09/17/2020

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Diamond Industry Takes a Hit, Tries to Recover



Sales Suffer due to Coronavirus Restrictions


Like many other sectors, the diamond industry experienced a major hit in sales due to coronavirus restrictions. Now, producers are sitting on billions of dollars worth of gems. The unsold inventory leaves major companies such as De Beers Group (NGLOY) and Alrosa in a difficult position.

In order to keep the market intact, major diamond mining companies are not offering price cuts, but they are giving buyers more room to back out of their contracts—something that generally doesn’t happen. Diamond production is also being slowed to help control inventory levels. That said, the gems and rocks are still accumulating.

Major Companies Adapt


De Beers Group was able to hold a sale in May after canceling its March event. The sale brought in $35 million—much less than the $416 million raised by the same sale last year. This could be partly related to the economic downturn but smaller producers are making moves as well. In fact, smaller diamond miners are giving discounts of up to 25%, which is hurting larger producers.

With its next sale taking place later this month, De Beers Group is trying to bring in customers by allowing diamond viewings to happen in locations other than Botswana, where they usually occur.

Companies Look to Recover


Companies are working to sell their excess inventory at prices that will help them recover. Alrosa said it could be sitting on 30 million carats by the end of the year and is looking to cut that stock in half over the course of the next three years.

Though this is an abnormal time, supply issues are not uncommon for the diamond industry. De Beers Group ran down billions of dollars worth of stock in the early 2000s. During the Great Recession in 2008 and again in 2013, diamond inventory skyrocketed. Changes in diamond supply puts pressure on cutters, traders, and manufacturers. These middlemen were already struggling before the pandemic, and the recent turmoil has created even more challenges for them.

With that said, Chinese retailers are opening and India is allowing manufacturing and polishing to begin again at 50% capacity. Despite these positive indicators, recovery could still be difficult for the diamond industry.


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