Diamond Prices Regain Their Sparkle

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.”

Note: Usual Northern Sea Route shown for illustrative purposes Source: Sea Legend Daniel Kiss/WSJ

Shipping cargo through an Arctic shortcut never made economic sense—until now.

Climate change and war in the Middle East are flipping the math that previously kept ships plying longer routes from Asia to Europe. A Chinese company on Saturday is starting the first regular cargo service to Europe through Arctic waters, seeking to reap the benefits of quicker travel time and less fuel use.

The shipper Sea Legend will dispatch the Dubai Tower from Ningbo, China, to Felixstowe in the U.K. on what it calls the Arctic Express, following a route along Russia’s north coast. The voyage by the vessel, which is capable of carrying 1,740 20-foot containers, is the biggest commercial step in the Arctic since a Maersk containership first completed the route in 2018.

Global warming is a big factor behind the new route, but it is not the only one. Nearly half the Arctic region’s summer ice—an area four times the size of Texas—has melted over five decades, clearing a fairly reliable path in the summer months. Meanwhile, high oil prices and attacks by Houthi rebels in the Red Sea have made the traditional routes costlier and more dangerous.

Members of China's 16th Arctic Ocean scientific expedition team take selfies on the ice surface. — Members of a Chinese scientific expedition team on surface ice in the Arctic Ocean this week. Wen Jinghua/Xinhua/ZUMA Press

Beyond that, Beijing has ambitions to play a role in the Arctic’s future, lending a geopolitical dimension to the Chinese company’s shipping route.

Last year Sea Legend completed a trial run from Asia to Europe in a record 20 days. That is roughly half the time of a voyage via Africa’s Cape of Good Hope that many carriers now take because of the Red Sea uncertainty.

Fuel accounts for 70% or more of the costs while at sea, said Alan Murphy, a former Maersk analyst who runs research firm Sea-Intelligence.

Saving fuel by shortening the journey doesn’t automatically make a route profitable. Insurance premiums for the Arctic are 40% higher than the Cape of Good Hope route, said Jonathan Steenberg, an economist at credit insurer Coface. Sea Legend’s Arctic vessels are relatively small. And even after warming, an icebreaker is still sometimes needed to help the cargo ship.

But if the ship can go without an icebreaker, Coface said the Arctic route is now cheaper than a Cape of Good Hope voyage in some circumstances. It estimated that at current oil prices of around $90, the cost of shipping liquid bulk such as liquefied natural gas could drop roughly 33% compared with the Cape of Good Hope route, while dry bulk goods such as cereals would cost about 8% less.

The container ship Istanbul Bridge being unloaded by large blue and red cranes at the port of Gdansk. — A containership operated by Sea Legend in the port of Gdansk, Poland. jackowski/epa/Shutterstock

The route is only passable in the summer and fall. Sea Legend plans eight voyages between August and late October, before conditions get too icy.

“It’s not the Suez Canal but it’s a significant number for the Arctic. It shows there is potential,” said Malte Humpert, founder of the U.S.-based Arctic Institute and author of a book on Chinese shipping in the Arctic.

Even in summer, ships have to navigate around dangerous ice floes and deal with rapidly changing weather. By the end of the shipping season in October, the sky is dark most of the time.

A Russian tanker suffered serious damage to its hull while sailing along the Arctic route despite being assisted by an icebreaker, its insurer, AlfaStrakhovanie, said Thursday, adding that it paid out roughly $650,000.

Coface estimates 3.5% of trade among East Asia, Europe and North America will be able to use Arctic routes within the next five years, representing $64 billion in goods.

Last summer, a record 23 cargo ships transited the Northern Sea Route, which hugs Russia’s north coast. That is tiny compared with the Suez Canal, where more than 30 ships transited daily.

Western companies that want to follow in Sea Legend’s path have to navigate treacherous politics. Russia claims sovereignty over the entire Northern Sea Route and permits for ship traffic are issued by its state-controlled nuclear operator, Rosatom.

Aerial view of a port with many cargo ships, red cranes, and rows of stacked shipping containers. — The Dubai Tower’s route will begin in the Chinese port of Ningbo. Huang Zongzhi/ZUMA Press

“Western companies are in a tricky position,” said Humpert of the Arctic Institute. “At what point do they jump back in the water? When does it become economically necessary, and how do you weigh that against environmental risks and the political dimension?”

An alternative Arctic route, the Northwest Passage that connects the Atlantic and Pacific oceans via the Canadian Arctic, is less passable because it is dominated by narrow waterways where ice gets bunched up. The highest number of cargo ships completing the passage in a year was 13, in 2023.

China has declared itself a near-Arctic state despite not having access to Arctic waters. It depends on Russia’s goodwill to use the Northern Sea Route.

“Beijing is concerned that if they don’t establish a significant strategic presence in the Arctic now, it’s going to be more difficult in the future,” said Marc Lanteigne, expert in polar geopolitics at the Arctic University of Norway in Tromsø. However, he said, “China needs to be careful not to give the impression that they are trying to challenge the strategic order in the Arctic.”

Sea Legend didn’t respond to requests for comment.

Any polar venture contributes to China’s quest to master Arctic travel. The country also has three icebreakers and a support vessel currently on a monthslong scientific expedition north of Greenland. Scientific and commercial voyages can yield data about natural resources awaiting below melting ice caps and information for positioning nuclear-armed submarines.

Diamond Prices Regain Their Sparkle

Pent-up jewellery demand has lifted the gems’ valuations while online sales have grown.

China is launching the first regular Arctic cargo route to Europe, offering faster journeys and lower fuel costs as melting ice and Red Sea risks reshape global shipping.