WAR IN UKRAINE AND DIAMONDS
We have all faced a tough last couple of years. And in fact when we think back things were looking pretty uncertain economically before that as we ever so slowly emerged through “getting brexit done” at a snails pace leaving us unsure of what was to come. At last we begin to breathe in the fresh air as spring is just around the corner and the end of the pandemic is in sight but perhaps we took that breath a little too soon. Now we see that our hopes for a strong global economy recovery post covid have been thrown off course with the fast paced buildup of events over the last couple weeks between Russia and the Ukraine.
How is this changing our economic outlook ?
Geopolitical tensions in the region have led to increasingly tactical diplomatic responses from NATOs counterparts and other countries across the globe. Both from official government treasuries alongside boycotts through independent organisations and individuals across sport, arts and business. Perhaps more poignantly the notable American corporations such as Starbucks, Mc Donald and Coca-Cola now ceasing trading in Russia. All trying to isolate Russia and back her into a corner with every hope this will lead to an ease in the invasion in the Ukrainian. From the UK we have seen a commitment from Boris Johnson to press on with tightening the economic vice around Putin.
In the darkest hour the west has seen since 1939, “oligarchs” facing speculation of ties to Putin are reacting and rearranging thier capitol and assets in fear of potential seizure of their finances.
As days and now weeks pass and the events in the Ukraine begin to unfold we really are wondering if this is going to make any difference to Putins goals and ambitions in the Ukraine and possibly beyond. Putin speaks the language of nuclear deterrents as we speak the language of economic sanctions. We hope this will have any influence at all but alongside these hopes are fear of what is to come if it does.
But closer to home in the UK we have to ask how our economy will survive ? Is it our consumers who will be the ones paying the price now?
What does this mean for the diamond industry?
Close to a third of the worlds diamond supply comes from Russia, with almost 90% of which coming through Russian owned Alrosa. Alrosa is the worlds largest volume diamond producer with 33% of the company owned by the Russian government with a further 33% owned by Sakha, a Far Eastern Russian republic.
Russian Sergei Ivanov Jr, son of the former head of the Kremlin administration, was appointed as presidenr of Alrosa, with the position later renamed as CEO of state-controlled diamond miner Alrosa in March 2017.
Sergei Ivanov along with the Alrosa group and his own father, Sergei Borisovich Ivanov, (said to be lifetime friend of President Putin), were amongst those listed by the US treasury on their economic sanctions list.
With these movements mounting alongside the block in swift payments stopping any purchasing taking place internationally with Russia speculation is rising that the next 6 months will see steep rises in pricing with resultant impact potentially cutting supply of diamonds by 25% and that in and of itself will further push costs of raw diamonds up within the industry.
Having said that, perhaps not in the way we would have anticipated. Despite this strong move from the Biden administration it would seem the Alrosa sanctions aren't directly disrupting the trade of diamonds as these sanctions do not prohibit the purchasing and sale of Russian diamonds.
Nonetheless we still have cause for concern of many secondary effects that can lead to shifts in market forces.
The cost of fuel has been on a steep incline for months now leaving many knowing full well they will be spending a larger chunk of their pay check to cover costs of heating and energy supply in their home as well as at the petrol pumps. It’s fair to say this has been greatly exacerbated by the Russian invasion. Russia is the worlds leading natural gas exporter and have a hold both directly and indirectly to the supply of fuel in Europe, America and across the globe. The US has announced an oill embargo in attempt to damage the Russian economy, however the US only makes up 8% of its oil sales.
With supply as well as pricing of oil rising the bottleneck of the supply chain is not easing. Covid had its own impact on movements of goods and trade leaving a backlog in the mining, cutting and polishing of raw diamonds globally, hiking up the cost of stones in circulation. And as we attempt to press on despite rising prices it seems the bottleneck will begin to build up once more.
What’s more, we know that consumer purchasing patterns will be directly influenced by these events twofold. Firstly the rise in pricing of fuel will mean less disposable income and expenditure specifically targeting the middle classes. Perhaps those we could call the bread and butter of the diamond trade. As some are now pushed to wonder if they can any longer afford such luxury purchasing we can speculate either a shift in the buying of premium diamond goods or perhaps a change in the way in which diamonds are being purchased. Would this lead to a flood in purchasing of more affordable diamonds or wiser choosier purchasing power for the consumer.
Let’s also not forget the secondary effects of larger scale consumer sentiment on purchasing of premium goods as a whole and specifically diamond products during what is increasingly becoming seen as war time. Shifts in spending patterns resulting from the global ‘mood’ can hugely impact our economy and first and foremost premium purchasing.
Crucially for the future of the industry and more broadly the global economy, we question whether households are becoming increasingly cautious with how they are spending perhaps now saving more out of fear of what is to come.
If spending comes to a halt this could move us into the second global recession in three years.
Ethical concerns?
The last few weeks have seen demonstrations, charitable donations and mass mobilisation of humanitarian support for Ukrainians. Neighbouring countries have been opening their arms no questions asked as containers of basic necessities as well as medical supplies cross through the continent to help in anyway we can. The UK is doing all it can short of direct military intervention. With each and every individual trying to take a stand in any way they can. We are now seeing that stand cross over into the jewellery trade as some online brands have moved to remove all Russian purchased diamonds from their sites. With Russian diamonds making up a substantial portion of the market float of diamonds in circulation what will this do the pricing of goods we can reach ?
What does this mean for LGD?
If there was a time for Lab Grown diamonds to shine it is now. The geopolitical and economical forces at play are paving the way for LGD to take their stand. But can they hold up to the scrutiny? The pricing of natural stones are rising and demand for sustainable diamonds are growing, coupled with Russian diamonds facing public boycott could the alternative be LGD? The next few months will be crucial as we see the shifts take form holding the door wide open for the new players in the game to step up!
The saving grace of diamonds
The macro economic picture is looking gloomy as we hold our breaths for Ukraine. But diamonds are one of the toughest minerals on earth, given their resilience and innate qualities, this is a trade that can withstand all.
What we have seen play out time and time before is as the rise of pricing of luxury goods increase so too will the demand for those same luxury goods alongside it. How is this so? Status! As natural diamonds move into a premium retail market they take on more obvious symbolism of wealth, glamour and the ray of sunshine on a cloudy day, it is not in-spite of price rising that demand excels it is because of it. This price hike in and of itself propels the demand based on the social status the purchasing of those exact items will signify. The symbolism of status.
This will push diamonds into a safe haven and what’s more a secure investment. In a world where nothing is sure anymore, one thing we can be sure of is you can’t beat the resilience diamonds bring.
With sanctions on Russian diamond mine companies, aimed at stemming the tide of funds to Russia that are funding its war on Ukraine, American and UK firms – including retail jewellery stores – must request from their suppliers to cease all trading with supplies which trace back to Russia.
Retailers can mitigate penalties through due diligence—ask suppliers questions and seek advice. By guaranteeing to your clients that your Diamonds have no source to RUSSIAN MINED COMPANIES, it will only improve your image in their eyes.
Retailers should prepare themselves to address the topic of diamond origin with shoppers. At NBDIAMONDS we have already seen a rise in our clients asking us to tell them where our diamond sources come from. So we want to take this opportunity to inform all our clients that we do not supply and buy diamonds from RUSSIAN MINES to the best of our knowledge.
Our suppliers use predominantly AFRICAN DIAMOND sources, with cutting facilities in INDIA and ISRAEL, which follow all new regulations.
Unfortunately with this isolation of Russian diamonds, we are predicting prices to keep going up over the next two years, as supply is short to demand.
