Diamond trading was stable in May despite concerns about inflation, rising interest rates and slumping stock markets. Polished prices initially declined but later steadied as dealers anticipated supply shortages resulting from Russian sanctions.
The RapNet Diamond Index (RAPI™) for 1-carat diamonds slid 0.5% in May but was 9.3% higher on June 1 than at the beginning of the year.
RapNet Diamond Index (RAPI™)
May
Year to date Jan. 1 to June 1
Year on year June 1, 2020, to June 1 2021
RAPI 0.30 ct.
0.6%
1.3%
-0.1%
RAPI 0.50 ct.
-0.3%
5.8%
8.2%
RAPI 1 ct.
-0.5%
9.3%
22.1%
RAPI 3 ct.
-0.3%
10.6%
25.7%
US demand is supporting the market even as economic uncertainty sets in. Expectations are rising for the Las Vegas shows, which begin June 8. Dealers hope the positive sentiment will boost trading in the second half of the year. Chinese wholesalers remain cautious as activity resumes after the country’s Covid-19 lockdowns.
Inventory levels are high but have decreased in select categories. The number of diamonds on RapNet stood at 1.8 million as of June 1, up 43% from a year earlier. The quantity of 0.30-carat, D- to H-color, IF- to VS-clarity goods fell 14% in May; 0.50-carat diamonds in the same range declined 11%. Both categories were still significantly above last year’s levels.
While the sanctions on Russian goods have not yet caused notable polished scarcities, shortages are likely in the coming months. Rough supply has dropped since Alrosa canceled its March and April sales. Prices at rough auctions have increased — particularly in the small-diamond category, which Alrosa dominates. De Beers raised prices of small rough at its latest sight from June 6 to 10.
The market is splitting into two segments: Russian and non-Russian goods. Some big cutters are finding ways to buy Alrosa rough in order to serve centers that remain open to buying Russian-origin polished. These diamonds will likely sell at a discount to non-sanctioned ones.
US and European jewelers and brands may have difficulty filling their sourcing requirements in the coming months without Russian supply. This will lend further support to diamond prices.
Africa-focused Gem Diamonds has found a 125 carat rough stone at its Letšeng mine in Lesotho, the miner’s second rock over 100 carats mined this year.
The company, known for the recovery of large, high quality stones in 2020, has seen output of high quality diamonds surpassing the 100 carat mark become less frequent over the past year.
In 2021, Gem Diamonds found only six of such diamonds at Letšeng, compared to the 16 it discovered in 2020.
The find comes as prices for small diamonds have jumped about 20% since the start of March, as cutters, polishers and traders struggle to source stones outside Russia.
State owned Russian miner Alrosa, the world’s top diamond producer by output, was hit with US sanctions following Moscow’s invasion of Ukraine.
Higher prices for lower end stones are good news for miners, but not a game changer, experts say. While every mine is different, a general rule is that 20% of production the best stones account for about 80% of profits.
Since acquiring Letšeng in 2006, the company has found more than 60 white gem quality diamonds over 100 carats each, with 16 of them recovered last year. At an average elevation of 3,100 metres (10,000 feet) above sea level, Letšeng is also one of the world’s highest diamond mines.
Botswana, Africa’s top diamond producer, sees a prolonged ban on Russian diamonds opening the way for synthetic gems to expand market share, the country’s minister told a mining conference on Monday.
The United States, the world’s largest market for natural diamonds, imposed sanctions on Russia’s state-controlled Alrosa in April, aiming to cut off a source of revenue for Moscow after its February invasion of Ukraine.
Alrosa, the world’s largest producer of rough diamonds, accounted for about 30% of global output in 2021.
Botswana’s Minister of Minerals and Energy Lefoko Moagi said the ban on Russia diamonds might push prices up to the benefit of rival producers but he also said the gap would be hard to fill.
“We see the 30% gap that will be left by the ban being plugged by something else that is not natural. And for us that will be a challenge,” he said.
Jacob Thamage, head of Botswana’s Diamond Hub, said uncertainty over the Ukraine conflict makes it difficult for Botswana and other natural diamond miners to fill the supply gap as ramping up operations requires significant investment.
“You don’t want to invest a lot of money to up-scale and then the war ends the next day,” Thamage said. “We also see the higher prices pushing consumers to substitutes such as the synthetics and this can cause problems for us if we cede the market to unnatural stones.”
Sales at Debswana, a joint venture between Anglo American unit De Beers and Botswana’s government, accounts for almost all of Botswana diamonds exports. These stood at $3.466 billion in 2021 compared with $2.120 billion in 2020.
Thamage also fears that consumers might start to shun natural diamonds due to traceability issues.
“There is an increased fear that buyers of diamonds will begin to treat all natural diamonds as conflict diamonds and therefore shift to unnatural diamonds,” he said.
Alrosa canceled its last sale in April and is unlikely to sell any large volumes again this month
Prices are surging in some corners of the rough-diamond market, as sanctions on one of the world’s two giant miners ripple through the supply chain. In the past, the industry could turn to behemoth De Beers to crank out extra gems when supply ran tight — but not this time.
The price of a small rough diamond, the type that would end up clustered around the solitaire stone in a ring, has jumped about 20% since the start of March, according to people familiar with the matter. The reason: Diamond cutters, polishers and traders are struggling to source stones after the US levied sanctions on De Beers’s Russian rival, Alrosa PJSC, which accounts for about a third of global production.
For most of the modern history of diamonds, this is the sort of situation where De Beers could have tapped its vast stockpiles or simply fired up latent mining capacity. Little more than 20 years ago, its safes in London held stocks of diamonds worth perhaps as much as $5 billion.
Those days are now long gone. The company only carries working inventory stocks and its mines are running at full tilt. There is little chance of material increases in supply before 2024, when an expansion at its flagship South African mine will be completed.
“It’s very difficult to see us bringing on any new production,” Chief Executive Officer Bruce Cleaver said in an interview in Cape Town. “Thirty percent of supply being removed isn’t sustainable.”
De Beers also produces relatively few of the type of diamonds Alrosa specializes in: the small and cheap gems that surround a larger center-point stone or are used in lower-end jewelry sold in places like Walmart or Costco.
For many in the sector, that means growing shortages unless Alrosa and its trade buyers can find a work around.
Alrosa canceled its last sale in April and is unlikely to sell any large volumes again this month, the people said. It’s uncertain when the company will be able to sell normally again, they said, even as the company, banks and buyers look for solutions.
Gem Diamonds’ revenue in Q1 2022 (ending March 2022) has gone up 4% quarter-on-quarter and 19% year-on-year to $52.1 million, IDEX Online reports.
The miner, which owns 70% of the Letseng mine in Lesotho, sold 28,461 carats during the quarter – a rise when compared to the 24,790 carats it sold in the previous quarter. However, prices fell from $2,018 to $1,831, according to the report.
Clifford Elphick, Gem Diamonds’ CEO, said: “We remain confident about the outlook for diamond prices, particularly for Letseng’s large high-value diamonds with an average price of $1,831 per carat achieved during the period. Prices achieved on a like-for-like basis continued the largely upward trend from 2021.”
Star Diamond has completed a study into the abundance of Type IIa diamonds in parcels recovered from the Early Joli Fou geological units at the Orion North (K120, K147 and K148) and Taurus kimberlites (K118, K122 and K150).
The pipes are located within the Fort a la Corne diamond district of central Saskatchewan, including the Star–Orion South diamond project, on properties held in a joint venture with Rio Tinto Exploration Canada.
These diamond parcels were recovered by Star Diamond between 2006 and 2008 from 120-cm diameter drilling programs. The latest study confirms that unusually high proportions of Type IIa diamonds are present in both the Orion North and Taurus kimberlites.
Of particular note is the high proportion of Type IIa diamonds in the Orion North 147-148 EJF (52%), of which 66% of the 24 stones, 0.66 carats and above are Type IIa. The largest Type IIa diamond identified was a 6.88-carat stone from Orion North (K147-K148 EJF).
Senior technical advisor George Read said that the Type IIa diamonds at Orion North and Taurus are top white in colour, Type IIa diamonds are rare and account for less than 2% of all natural rough diamonds mined from kimberlites. Many high-value, top colour, large specials (greater than 10.8 carats) are Type IIa diamonds, which include all 10 of the largest known rough diamonds recovered worldwide.
The study also confirms and augments an earlier study of Type IIa diamonds being present in the Fort a la Corne kimberlites with Star (26.5%) and Orion South (12.5%).
A target for further exploration completed by Star Diamond in 2014 estimated that between 881 million and 1.04 billion tonnes of the major EJF units, containing between 46 and 79 million carats, occur within the Orion North and Taurus kimberlite clusters.
Orion North (K147, K148 and K220) alone is estimated to contain between 340 million and 410 million tonnes of EJF kimberlite with an estimated range of grade of 2.75 to 8.37 carats per hundred tonnes.
Russia may buy an as yet undetermined amount of rough diamonds from sanctions-hit producer Alrosa through its state precious metals and gems repository Gokhran, the country’s Finance Minister Anton Siluanov said on Wednesday.
The United States imposed sanctions on state-controlled Alrosa in April, complicating the Russian company’s operations in the global diamond market, with the aim of cutting off a source of revenue for Russia.
“We do not rule out the possibility of Gokhran purchasing diamonds produced by Alrosa. The amount will be determined later,” Siluanov told reporters.
Gokhran is generally more focused on purchases of precious metals from Russian domestic producers than diamonds, he added.
Alrosa, the world’s largest producer of rough diamonds, was behind about 30% of global output in 2021 and competes with Anglo American unit De Beers.
Its sales, mainly to Belgium, India and the United Arab Emirates, totalled $4.2 billion in 2021.
Gokhran bought diamonds worth $1 billion from Alrosa during years of weak demand caused by the global financial crisis.
Exports of rough diamonds from Russia’s state-owned Alrosa mines have resumed to India, although tensions remain high over such consignments.
Many Western nations are seeking to shut down Russia’s diamond trade with India by calling Russian diamonds conflict diamonds, or blood diamonds.
Critics such as Cristina Villegas, director of the Mines to Markets program at Pact, a development NGO, was quoted by the India-phobic London based Guardian as saying: “These are objectively conflict diamonds: they’re funding an armed conflict against a peaceful neighbour, by a state actor.” Villegas was silent about the flood of cash going to Russia by oil and gas purchases from European countries.
Analysts expect that the June meeting of the global diamond industry scheduled for Gaborone will not result in a broad sanctioning of the precious stones produced in Russia. Still, that has not stopped the United States from pushing harder, writes Staff Writer, MBONGENI MGUNI When the world’s diamond producers, their biggest customers, civil society groups monitoring the industry and others, meet in Gaborone in June to discuss issues affecting the image of the precious stones, Russia will be the proverbial elephant in the room.
The world’s biggest producer of rough diamonds by volume is due to enter the third month of its invasion of Ukraine next week, with recent mounting claims of civilian casualties and atrocities, including the discovery of mass graves.
The Kimberley Process, which groups the producers, markets, civil society and in fact accounts for 99.9% of the global diamond trade, meets in Gaborone between June 20 and 24, as Botswana is chairing the group for this year. The Kimberley Process (KP) was established nearly 20 years ago to clean up the diamond industry by certifying that all trade does not involve conflict or ‘blood diamonds’.
Conflict or blood diamonds have generally been taken to mean stones mined for the purpose of funding rebel group campaigns against legitimate governments, a definition that has meant the KP’s focus has been on war-torn Africa.
The debate within the KP to expand the definition to include vices such as human rights violations has been ongoing for years, but Russia’s bloody invasion of Ukraine has raised the urgent question of what constitutes conflict or blood diamonds. Those monitoring the KP don’t expect any sudden changes to the definition in June.
Hans Merket, a researcher at International Peace Information Service, which is a KP member, explains.
“Following several failed reform attempts, the Kimberley Process still looks at conflict through a 20-year-old lens,” Merket wrote in a report last week.
“This narrow definition has over the years led the KP to ignore various cases where public or private security forces, and not rebels, were inflicting violence and conflict to control diamond mining areas.
“It is therefore highly unlikely that the KP would consider action on a matter that differs even more from a scenario where rebels control diamond mines.”
He adds: “Decision-making in the KP is based on consensus, implying that no votes are cast and decisions are only taken if none of the 56 participants expresses disagreement.
“Even if Russia would in this case not be allowed to participate in decision-making, KP membership includes various countries that are unlikely to support KP scrutiny of Russian diamonds, such as China, the United Arab Emirates and India.”
But are diamonds actually funding Russia’s war effort?
Merket points out the linkages. Russia’s diamond mining is led by a mega-corp known as Alrosa. The Russian government owns 33% shares in Alrosa and, according to Merket, the group’s CEO, Sergej Sergejevitsj Ivanov, is not only part of Vladimir Putin’s inner circle but was also one of the first oligarchs targeted US sanctions.
“The Russian Federation shares in Alrosa’s profits,” writes Merket. “In 2021 this profit amounted to $1.1 billion (and) in Putin’s own words this ‘gives serious revenues to the federal and regional budget’. Alrosa has also reportedly directly funded the military previously, with reports that the group has paid significant amounts over the years to “increase the combat readiness of Russian submarines”.
According to Merket, newsletters from Alrosa indeed reveal that group engaged in a sponsorship agreement with the B-871 combat submarine in 1997, committing to “maintain the ship in a combat-ready condition”. Russia does not only generate revenues from diamonds as a shareholder but also directly buys and sells diamond production from Alrosa to manage global supply and pricing.
Last year, according to Merket, the state-run minerals trader known as Gokhran held six auctions garnering $225 million. Diamonds are particularly important for Moscow, given that existing sanctions have largely driven Russia out of the global financial system. The precious stones are an increasingly important source of foreign currency for Russia, whose major revenue earners such as gas and oil have been squeezed out of the market.
The US and its partners in the West quickly realised the importance of diamonds in the arsenal of sanctions against Russia, imposing numerous measures from February.
However, because Russian diamonds can still be traded through ‘sympathetic’ or neutral markets such as India and China, it is at the Kimberley Process where the flows to Moscow can be effectively plugged. And the US is focussing its efforts on lobbying KP partners, even if sanctions from the organisation would be unprecedented.
“We are engaged very proactively with partner nations and allies thinking about appropriate actions that could be taken in this respect,” Joshua Mater, senior sanctions coordinator in the US Department of State told Mmegi.
Mater was briefing a Foreign Press Centre virtual press tour on corruption, which ended recently. He explained that the US understood the limitations under the KP.
“The Kimberley Process itself is a multi-lateral body, which is consensus-based decision-making. “And of course, Russia is a member of that multi-lateral body.
“So, decisions that are coming out of that pursuant to sanctions or other types of deterrent regulations can often be extremely challenging to get adopted within the context of that organisation itself.
“But I think all members do recognise the importance and issue of the situation, especially in Ukraine, that’s ongoing right now.”
Mater added: “It may not be within the Kimberley Process itself, but it may be within other sanctions tools and other tools that are available to the US government that can get after these particular industries.”
The US State Department is also facing pressure from within the country over the Russian diamonds.
A group of 11 members of Congress recently wrote to the department demanding tougher action against Russian diamonds. Specifically, the congresspeople want a tightening of the existing sanctions so that they cover polished diamonds which have their origin in Russia.
At present, the US sanctions only cover Russian rough diamonds, meaning these can still be sold into centres such as Dubai, India and China for polishing before being sold forward to the US market.
“As it stands at this time, a diamond can be mined by an Alrosa subsidiary, polished or cut in India or another country, and sold to the United States without any prohibition, making a profit for the Russian government,” the politicians wrote.
“The February 24 sanctions that listed Alrosa only blocked debt and equity transactions, making a small dent in Russia’s oversized stake in the global diamond trade.
“Although an important initial step, along with the designation of Alrosa’s CEO, these have yet to impede trade and revenues that eventually reach the Kremlin.”
Experts have said broadening the scope of the US’s diamonds to include the polished variety would help squeeze Russia, but that would require the cooperation of diamond manufacturers and retailers in ‘Russo-sympathetic’ or neutral countries such as India and China.
The US has other arrows in its quiver against Russian diamonds, but many are limited and have significant loopholes.
“If diamonds are being mined or sold under circumstances that violate laws that could be prosecuted in the United States like money laundering with a corruption object, it may be possible for us to take action against the profits that are earned through the sales, whether by Ukrainians, Russians or others,” Mary Butler, chief of the US Justice Department’s Money Laundering and Asset Recovery Section (International) told Mmegi.
“And so, I don’t want to eliminate the possibility that the corruption itself linked to the mining or sale of diamonds couldn’t be addressed.
“At the same time, a failure to abide by the Kimberley Process outcomes is probably not a basis for a US law violation.”
The US also is able to impose criminal sanctions for violations or evasion of sanctions. People who assist support financially, or with services the evasion of sanctions can face criminal liability in the United States that can lead to forfeiture. The US is also able to use civil confiscation as a basis to forfeit assets linked to sanctions evasion.
The network of laws however falls shy of preventing Russia from reaping the benefits of its diamond trade, particularly the lucrative foreign currency inflows that come with it.
The complications mean the KP remains the most appropriate platform for the world to make a decision on stopping diamonds from funding Russia’s war effort.
While Merket does not expect the KP to make any meaningful move on Russia when it meets in June, the Gaborone meeting could set off some cataclysmic events within the organisation.
“While many in the KP may want to ignore the matter, the Russian diamond controversy will considerably impact the process,” the researcher says.
“The geopolitical crisis and the opposing views on how the KP should deal with it will exacerbate the stalemate that has been hindering progress since the KP’s inception.
“It can also plunge the KP into an existential crisis, with a risk of implosion.”
According to Merket, increased friction within the KP is already emerging “as Russia chairs two of the six KP working bodies, both of which carry considerable political and strategic clout”. The KP, long accustomed to acting against smaller, African members, whose conflict diamonds comprise a small percentage of the global trade, is suddenly faced with tough decisions on a major producer responsible for a third of global supply.
“The fact that Russian diamonds present one-third of the global diamond supply may lead an increasing number of KP participants as well as civil society and industry observers to question whether they can continue being part of – and invest considerable time and resources in – a process that entrusts and legitimises this flow with KP conflict-free certificates,” Merket.
The US and other Western parties fired initial salvos at the Russians at the KP level, during a recent engagement hosted by the United Nations in New York.
More sparks are expected in Gaborone, but for now, the host nation and chairperson, are not taking a stand on the matter.
Diamond Hub coordinator, Jacob Thamage, who is effectively handling Botswana’s chairmanship of the KP, has reportedly told the KP Civil Society Coalition that any move or debate on Russia would have to be moved by a participant.
The global diamond industry reaches its moment of truth in Gaborone in June.
One of the world’s largest yellow diamonds weighing 205.7 ct and known as the Red Cross Diamond is to be auctioned by Christie’s London.
The fancy intense yellow, cushion-shaped stone has a pavilion distinctively faceted in the shape of a Maltese cross.
The original rough gem was recovered by De Beers, in South Africa, in 1901 and was sold in 1918 in aid of the British Red Cross Society and the Order of St John.
It raised $13,000 equivalent to $780,000 in today’s money when it was sold at Christie’s London to the famous London firm S.J. Phillips.
It was sold again in November 1973, achieving CHF 1.8 million at Christie’s Geneva and returned to private ownership.
The diamond will again be offered for sale at Christie’s London on 11 May, with an undisclosed part of the sale revenue to be donated to the International Committee of the Red Cross.
We have asked Christie’s for the estimate, which is available “on request”.
