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Diamond prices are rising and even De Beers cannot fill the gap

Prices are rising in some corners of the rough diamond market as sanctions against one of the world’s two giant miners run through the supply chain. In the past, the industry could turn to giant De Beers to create extra gems when supply ran tight – but not this time.

The price of a small rough diamond, the type that would end up gathering around the solitaire stone in a ring, has risen by about 20% since the beginning of March, according to people familiar with the matter. The reason: Diamond cutters, polishers and traders are struggling to procure stones after the United States imposed sanctions on De Beers’ Russian rival, Alrosa PJSC, which accounts for about a third of global production.

In most of the modern history of diamonds, this is the kind of situation where De Beers could have exploited its vast stocks or simply lit up for latent mining capacity. A little over 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 now only operates functioning inventories and its mines are running at full slope. There is little chance of material increases in supply before 2024, when an expansion of its flagship mine in South Africa will be completed.

“It’s very difficult to see us bring any new production,” CEO Bruce Cleaver said in an interview in Cape Town. “Thirty percent of the supply removed is not sustainable.”

The Beers also produce relatively few of the type of diamonds that Alrosa specializes in: the small and inexpensive gemstones that surround a larger centerpiece or are used in lower jewelry sold at places like Walmart or Costco.

For many in the sector, it means growing shortages unless Alrosa and its trade buyers can find a solution.

Alrosa canceled its last sale in April and it is unlikely it will sell large volumes again this month, people said. It is uncertain when the company will be able to sell normally again, they said, although the company, banks and buyers are looking for solutions.

Alrosa’s press service declined to comment. A U.S. Treasury license that made it possible to settle agreements with the company expired on May 7th.

The fallout from Russia’s invasion of Ukraine has divided global trade. As Western governments impose sanctions on Russia and companies withdraw from the country, many in India’s diamond industry still want to keep buying, according to people familiar with the matter. And while the big American jewelers Tiffany & Co. and Signet Jewelers have said they will stop buying new diamonds mined in Russia, retailers in places like China, India and the Middle East have not followed suit.

This dynamic raises concerns that diamonds from Russia will be passed on as other origins.

Very few diamonds remain in the custody of one party throughout the supply chain. Most are cut, polished, made and then put into jewelry by various companies and often swapped in between each step. Diamonds are routinely blended into packages of similar sizes and qualities throughout this process, making origin tracing almost impossible in many cases.

De Beers, which sells to about 60 hand-picked customers, is already looking to raise its standards. It is considering increasing both the paper and physical audits it already performs on its customers to ensure that the supply remains separate.

“They have to show us that our production is not getting mixed up,” Cleaver said.

© 2022 Bloomberg

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