The impact of the Covid-19 epidemic on the world economy is not limited to tourism and transportation, but also spread to many other businesses. Recently, De Beers, the world’s largest diamond purchasing and auction company, has announced almost no deals since February 2020. Its rival, Alrosa PJSC from Russia, is in the same situation.
Now that the world economy has not fully controlled the Covid-19 epidemic and has just begun to relax isolation in some areas, diamond wholesalers are having a headache to address the number of needles. diamond inventory worth billions of dollars without shocking the market.
Earlier, the quarantine order had caused a series of diamond shops to close in the world, diamond-cutting welders in India were forced to stay home and De Beers’ March 20 diamond fair was forced to. cancel because of the space command.
Despite the difficult business, De Beers and Alrosa still accept buying diamonds from the mines to keep the monopoly on the market as well as ensure stable diamond prices. Diamond miners, meanwhile, refused to lower prices due to the impact of the Covid-19 pandemic. Instead, they reduced production to curb market supply.
However, the number of diamonds in stock is still increasing due to companies not being able to sell while the product prices are always high. As a result, companies are having to hold billions of dollars of assets, but they are facing the crisis of oversupply.
Under the impact of the Covid-19 epidemic, consumers in other countries tended to save more due to lower incomes, which makes diamond sales forecast to be quite bleak. In addition, the development of artificial diamonds as well as the tendency to cool down in the use of diamonds for prayers and weddings also makes big men like De Beers or Alrosa stand still.
According to consulting firm Gemdax, the five largest diamond selling companies in the world currently have an inventory of about US $ 3.5 billion and this figure could reach US $ 4.5 billion by the end of this year, equivalent to one third of the production. The annual amount of rough diamond mining worldwide is stored.
“They are trying to curb the diamond supply to the market to protect the monopoly position as well as the value of the goods. However, the question is whether the companies will solve the inventory. Will diamond miners continue to reduce production to protect the market as this means they will lose profits? “Anish Aggarwal of Gemdax said.
After De Beers’ March 20 diamond exhibition and sale broke down, the company held another event in May 2020 but did not dare to announce sales as it usually does every year. According to some sources close to Bloomberg, this year’s revenue is only about 35 million USD, compared to 416 million USD last year.
While big players like De Beers still keep their pricing strategy in place to protect their positions, many small diamond vendors have now cut prices sharply to survive the Covid-19 epidemic. In fact, the small diamond firms have struggled before the Covid-19 epidemic due to the compression, monopoly of big companies like De Beers. At some diamond trading centers like Antwerp-Belgium, small diamond firms have cut prices by up to 25% to boost sales. This move makes it more difficult for big men like De Beers when trying to pin prices.
In the early 2000s, De Beers sold US $ 5 billion in diamond inventory to the market and created an unprecedented crisis. After the financial crisis of 2008 and 2013, De Beers also sold the inventory of diamonds and created enormous pressure for cuttermen, brokers or diamond retailers.
However, many experts believe that the diamond market will experience an unprecedented crisis when wholesalers inventory too much, the value is too large while the market demand has not recovered. .
Recently, Alrosa announced that its inventory of diamonds could reach 30 million Carats by the end of this year, equivalent to the total annual purchase, but did not disclose the total value of inventory. The company said it will try to reduce inventories to 15 million Carats within the next 3 years.
Of course, some markets loosen the gap also bring positive signs. Diamond shops in China have reopened while diamond shops in India are allowed to operate at 50% capacity. Diamond brokering offices in India are allowed to allow 10% of their employees to return to work after the spill order.
However, the market situation is still not positive because after 2 months of closing, the amount of diamond inventory is enough for the cutting workshops to operate at full capacity until July / August 2020. From then until that time, if there is no new open processing workshop, the demand for buying rough diamonds is not great.