Diamond Prices Regain Their Sparkle
Pent-up jewellery demand has lifted the gems’ valuations while online sales have grown.
Pent-up jewellery demand has lifted the gems’ valuations while online sales have grown.
Diamond prices have rebounded from a coronavirus-driven slump thanks to the reopening of some economies in Asia and strong jewellery sales around the world over the holiday period.
Polished diamond prices are up 5.1% from their lowest point in March, putting them at their highest level in nearly a year and a half, according to a gauge compiled by the International Diamond Exchange.
The pandemic dealt a big blow to the diamond industry last year, with every link in the supply chain—from Russian miners to India’s diamond cutters to luxury boutiques in New York—being closed or seeing activity curtailed.
But demand for diamond jewellery has been steadily recovering since retailers began reopening last summer in Asia, tentatively followed by elsewhere in the world, analysts said. With international vacations on ice and restaurants in many parts of the world still closed, wealthy individuals are buying diamonds with surprising voracity.
“This is the most bullish market for diamonds I have seen in probably a decade,” said Paul Zimnisky, founder of research firm Diamond Analytics.
Because diamonds come in a variety of shapes, sizes, colours and qualities, the industry lacks a benchmark price. But market watchers say both rough, mined diamonds and polished stones bought by consumers have seen their prices approach pre-pandemic levels.
A one-carat polished diamond of slightly above-average quality currently sells for US$5,900, Mr Zimnisky said. That is up 14% from a low point in April, while an equivalent rough diamond rose 18% in that time, he said.
Prices popped in December, thanks to strong holiday sales and pent-up demand that built during lockdowns. December is typically a strong time, with jewellery sales normally rising around 120% from November, said Edahn Golan, who runs an Israel-based diamond-market research firm. This year they jumped 160%, he said.
Still, the pandemic’s impact on jewellery sales hasn’t been uniform. Sales of diamond stud earrings saw the largest year-over-year growth of all jewellery categories in 2020, Mr Golan said, as the desire to look good in video calls boosted demand for adornments worn from the shoulders up.
The pandemic also pushed the industry to embrace new technology at a faster rate. Before lockdowns, retailers were sceptical that consumers would be prepared to buy expensive diamonds online. But strong take-up for internet offerings has helped diamond sales recover while modernizing some businesses.
“It has forced our industry to go to a place that we have been slow to get to,” said David Kellie, CEO of the Natural Diamond Council.
The diamond market has fewer gauges of global demand than other, more widely traded commodities, presenting special challenges for analysts.
Google searches for “diamond ring” in the U.S., the country that accounts for around 50% of the world’s diamond consumption, can be a good proxy, said Kirill Chuyko, head of research and mining analyst at Russian brokerage BCS Global Markets. Searches for the term slumped in March but have since recovered to prior levels.
With central banks slashing interest rates to stimulate economies—and some taking rates into negative territory—diamonds are also getting a lift as wealthy individuals opt to put their money into real assets rather than pay a bank to hold it.
Amma Group, an investment house specializing in coloured diamonds, has seen an increase in the number of its clients who would rather take their earnings in the form of physical diamonds than in cash, to protect their wealth from negative interest rates, said Mahyar Makhzani, the group’s co-founder.
The group, which is set to launch its fifth fund later this year, pools investors’ money to buy some of the rarest coloured diamonds at auctions or from individuals and miners. It then holds or sells the diamonds for a higher price, using the profits to buy other stones that it predicts will go up in value. After a set period, the fund sells its diamonds and returns the money to investors.
“There are not more than 100 red diamonds in the world,” Mr Makhzani said. “It’s like owning a Picasso: You know he isn’t going to be making any more.”
Rising demand has also allowed diamond miners to raise prices on the rough diamonds they sell to manufacturers. Russia’s Alrosa raised prices in January while Anglo American’s De Beers is widely believed to have raised its prices for the first time since the pandemic, analysts said. The company doesn’t publicly disclose its prices.
Despite the incentive, the diamond-mining giants are likely to keep supply tightly controlled to maintain higher prices, Mr Chuyko said.
The strength of diamond demand was a rare tailwind for luxury brands during a difficult 2020. LVMH Moët Hennessy Louis Vuitton SE, which last month completed its acquisition of jeweller Tiffany & Co., said recently that jewellery sales were a bright spot in the fourth quarter. Compagnie Financière Richemont SA, which houses jewellery brands Cartier, Van Cleef & Arpels and Buccellati, said jewellery sales were its best performing sector in the final three months of 2020.
Some analysts are sceptical, however, that diamond prices can keep rising. As economies reopen and international travel resumes, the diamond industry will face renewed competition, particularly among the younger consumers it has been seeking to attract, Mr Chuyko said.
“A diamond ring will get you one or two pictures on Instagram,” he said. “But if you go on holiday to Spain you might get 10 pictures per day.”
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Food prices continue to rise at a rapid pace, surprising central banks and pressuring debt-laden governments
LONDON—Fresh out of an energy crisis, Europeans are facing a food-price explosion that is changing diets and forcing consumers across the region to tighten their belts—literally.
This is happening even though inflation as a whole is falling thanks to lower energy prices, presenting a new policy challenge for governments that deployed billions in aid last year to keep businesses and households afloat through the worst energy crisis in decades.
New data on Wednesday showed inflation in the U.K. fell sharply in April as energy prices cooled, following a similar pattern around Europe and in the U.S. But food prices were 19.3% higher than a year earlier.
The continued surge in food prices has caught central bankers off guard and pressured governments that are still reeling from the cost of last year’s emergency support to come to the rescue. And it is pressuring household budgets that are also under strain from rising borrowing costs.
In France, households have cut their food purchases by more than 10% since the invasion of Ukraine, while their purchases of energy have fallen by 4.8%.
In Germany, sales of food fell 1.1% in March from the previous month, and were down 10.3% from a year earlier, the largest drop since records began in 1994. According to the Federal Information Centre for Agriculture, meat consumption was lower in 2022 than at any time since records began in 1989, although it said that might partly reflect a continuing shift toward more plant-based diets.
Food retailers’ profit margins have contracted because they can’t pass on the entire price increases from their suppliers to their customers. Markus Mosa, chief executive of the Edeka supermarket chain, told German media that the company had stopped ordering products from several large suppliers because of rocketing prices.
A survey by the U.K.’s statistics agency earlier this month found that almost three-fifths of the poorest 20% of households were cutting back on food purchases.
“This is an access problem,” said Ludovic Subran, chief economist at insurer Allianz, who previously worked at the United Nations World Food Program. “Total food production has not plummeted. This is an entitlement crisis.”
Food accounts for a much larger share of consumer spending than energy, so a smaller rise in prices has a greater impact on budgets. The U.K.’s Resolution Foundation estimates that by the summer, the cumulative rise in food bills since 2020 will have amounted to 28 billion pounds, equivalent to $34.76 billion, outstripping the rise in energy bills, estimated at £25 billion.
“The cost of living crisis isn’t ending, it is just entering a new phase,” Torsten Bell, the research group’s chief executive, wrote in a recent report.
Food isn’t the only driver of inflation. In the U.K., the core rate of inflation—which excludes food and energy—rose to 6.8% in April from 6.2% in March, its highest level since 1992. Core inflation was close to its record high in the eurozone during the same month.
Still, Bank of England Gov. Andrew Bailey told lawmakers Tuesday that food prices now constitute a “fourth shock” to inflation after the bottlenecks that jammed supply chains during the Covid-19 pandemic, the rise in energy prices that accompanied Russia’s invasion of Ukraine, and surprisingly tight labor markets.
Europe’s governments spent heavily on supporting households as energy prices soared. Now they have less room to borrow given the surge in debt since the pandemic struck in 2020.
Some governments—including those of Italy, Spain and Portugal—have cut sales taxes on food products to ease the burden on consumers. Others are leaning on food retailers to keep their prices in check. In March, the French government negotiated an agreement with leading retailers to refrain from price rises if it is possible to do so.
Retailers have also come under scrutiny in Ireland and a number of other European countries. In the U.K., lawmakers have launched an investigation into the entire food supply chain “from farm to fork.”
“Yesterday I had the food producers into Downing Street, and we’ve also been talking to the supermarkets, to the farmers, looking at every element of the supply chain and what we can do to pass on some of the reduction in costs that are coming through to consumers as fast as possible,” U.K. Treasury Chief Jeremy Hunt said during The Wall Street Journal’s CEO Council Summit in London.
The government’s Competition and Markets Authority last week said it would take a closer look at retailers.
“Given ongoing concerns about high prices, we are stepping up our work in the grocery sector to help ensure competition is working well,” said Sarah Cardell, who heads the CMA.
Some economists expect that added scrutiny to yield concrete results, assuming retailers won’t want to tarnish their image and will lean on their suppliers to keep prices down.
“With supermarkets now more heavily under the political spotlight, we think it more likely that price momentum in the food basket slows,” said Sanjay Raja, an economist at Deutsche Bank.
It isn’t entirely clear why food prices have risen so fast for so long. In world commodity markets, which set the prices received by farmers, food prices have been falling since April 2022. But raw commodity costs are just one part of the final price. Consumers are also paying for processing, packaging, transport and distribution, and the size of the gap between the farm and the dining table is unusually wide.
The BOE’s Bailey thinks one reason for the bank having misjudged food prices is that food producers entered into longer-term but relatively expensive contracts with fertilizer, energy and other suppliers around the time of Russia’s invasion of Ukraine in their eagerness to guarantee availability at a time of uncertainty.
But as the pressures being placed on retailers suggest, some policy makers suspect that an increase in profit margins may also have played a role. Speaking to lawmakers, Bailey was wary of placing any blame on food suppliers.
“It’s a story about rebuilding margins that were squeezed in the early part of last year,” he said.
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