By Louis-Nino Kansoun

LONDON - Since August, the Russian company Alrosa and its South African counterpart De Beers have been making significant discounts on the prices of stones offered for sale. This decision is one of the latest taken by these two world leaders in diamond production to give new impetus to the market severely affected by the Covid-19 pandemic. Big victim of the current health crisis, the diamond industry, long confined to its traditions, is now forced to reinvent itself in order to survive. Will the means implemented by the actors be enough to revive a seized machine?

An unprecedented crisis

To understand Alrosa and De Beers' decision, we have to go back to the end of the first quarter of 2020. In March, the wave of Covid-19 contamination around the world forced several countries to put in place restrictions. Flights have been suspended and borders closed. However, one of the major characteristics of the diamond industry today resides in the sales sessions organized by the companies. Each bimonthly or quarter, the latter invite their customers to meetings where the precious stones offered for sale are exhibited. Customers can then choose the lots that interest them and pay the set price. As the various restrictions made it impossible for customers to travel, De Beers,

As the various restrictions made it impossible for customers to travel, De Beers, Lucara, Gem Diamonds and Lucapa had to cancel several traditional sales sessions at the end of April and throughout the second quarter of the year.

“What happened in the second trimester, I've never seen in my life. There really wasn't a properly functioning rough diamond market, ” Bruce Cleaver, CEO of De Beers, told Reuters.

India's imports of rough diamonds plunged from $ 1.5 billion in February to just $ 1 million in April, according to data from the Gem & Jewelery Export Promotion Council. Antwerp, another diamond hub, saw its rough diamond imports drop 20% year-on-year in the first half of the year, according to data from the Antwerp World Diamond Center. The city's polished diamond exports fell 46 percent.

With regard to mining operations, the restrictions have also resulted in temporary mine closures in South Africa, Tanzania, and Lesotho, which are among the main producing countries in Africa. All this called into question a number of annual forecasts, all the more so as the interest of buyers declined. Indeed, jewelry shops have been deserted by consumers, forcing most retailers to cut off their supplies.

Adapt or succumb ...

Before resolving to reduce the prices of precious stones, diamond producers first took several measures to resist the pandemic as best they could. De Beers, which operates on several projects in Africa, for example proposed to bring its gems closer to potential customers. While the company has been organizing its sales in Gaborone in Botswana for several years, the relocation to large stone purchasing centers such as Antwerp (Belgium) or Mumbai (India) was supposed to limit the impact of the restrictions on its income.

The Canadian Lucara Diamond, active on the large Karowe mine in Botswana, has for its part gone further, concluding a cooperation agreement with the Antwerp company HB in mid-July. The latter, specializing in the size of precious stones, will take charge of the polishing of all diamonds over 10.8 carats extracted by the company in Karowe. Lucara will then be paid, according to the price collected, after the sales of the jewelry, instead of submitting to market fluctuations by maintaining tenders in this very uncertain period.

" This agreement will generate regular income at higher price conditions than those practiced in the context of the call for tenders, " explained Eira Thomas, CEO of the company, specifying that the resilience of the industry would depend on this type of cooperation " between producers, manufacturers and retailers to establish a healthier and more efficient global supply chain for diamonds ". She goes further by stating that this pandemic shows that there is a "real possibility of modernizing the sales system in the whole diamond sector" .

She goes further by stating that this pandemic shows that there is a "real possibility of modernizing the sales system in the whole diamond sector" .

Still with the aim of supporting demand, several small diamond companies have gone so far as to offer discounts of 25% on the price of stones. This may have finally convinced De Beers and his great Russian rival Alrosa to agree to give way on prices. The information relayed by Bloomberg and indicating a reduction of approximately 10% on the prices of certain diamonds at De Beers, but also of a significant reduction granted by Alrosa for the sales sessions of the month of August rings in effect as an admission of surrender. Cornered by disappointing results for months and a declining market share due to aggressive competition from small companies, the two giants have finally reversed their positions.

First encouraging results ...

Has the reduction in diamond prices offered or the intended decline in mine production volumes had a significant impact or is this a normal resurgence of buyers' interest in stones?

Cornered by disappointing results for months and a declining market share due to aggressive competition from small companies, the two giants have finally reversed their positions.

Regardless, the companies' sales at the end of August were the best in months. Buyers have spent, we learn from sources cited by Bloomberg , nearly half a billion $ in rough diamonds. De Beers would have achieved a turnover of 300 million against $ 200 million for Alrosa. If this figure, unconfirmed until then, represents for the South African group almost half of the standards before the pandemic ($ 545 million for the first sales cycle in 2020), it is still better, in comparison with the slump in recent months.

“ I think the worst is over and that there are reasons to be optimistic […] There are real consumer signals that reinforce the community's conviction that business is picking up. The industry is in better health than it has been for some time, ”said Stephen Lussier, head of consumers and brands at De Beers.

However, fears remain among some analysts. Wholesalers have certainly resumed purchasing in anticipation of stronger demand from consumers for jewelry, but we are not immune to a new wave of restrictions. Moreover, demand is more or less unevenly distributed.

“ I think the worst is over and that there are reasons to be optimistic […] There are real consumer signals that reinforce the community's conviction that business is picking up. "

One of the biggest jewelry companies, Tiffany, illustrated this situation well last week. While its activities are doing better in Asia (China and India in particular), it is quite the opposite in the United States where most stores are still closed because of the maintenance of certain measures. The country is indeed one of the world's largest hotbeds of the coronavirus.

For now, the resumption of sales is already a satisfying breath of fresh air for the companies and by extension for the producing countries. We will now have to hope for the rapid discovery of a vaccine to definitively restart the machine.