HUSH-HUSHA ABOUT RUSSIA AT VEGAS. LAB-GROWNS EVER CHEAPER

RUSSELL SHOR

The 2022 JCK Las Vegas Show opened amid the backdrop of worldwide inflation and the most significant disruption to the diamond industry in decades: sanctions barring import of Russian-origin rough diamonds and making payments to Alrosa, Russian’s diamond mining and trading group.

Despite these, demand at the show was reasonably strong — with some caution as the stock market slid once again — and diamond sellers were anxious to deal, though not so anxious to talk about sanctions of Russian diamonds..?

"Not much effect," was their answer. "For now." They added.

Indeed, qoods were plentiful?in most size and quality ranges, prices were up but not by huge amounts and few were holding back awaiting price increases.?As one large Indian manufacturer put it “we all bought heavily before the invasion in case supplies were cut off so we have ample supplies — for now— but need to sell to regain our cash position.”

At the same time, intense competition among sellers of lab-grown diamonds has driven prices below 10% of comparable naturals and an infinitesimal fraction of comparable fancy colors. Even at that, dealers reported that demand was “hesitant” because buyers believe that the products will age even less expensive in coming months. ?

Indian manufacturers have taken control of most processing of lab-grown diamonds, viewing it as a way to sustain employment following the closure of Argyle and, now the embargo of Russian rough.?

While sanctions on Russia had little impact on diamond supplies and demand at the Vegas show, such sanctions will be in play for a long time — probably years — and what will be their effect?

Russia is the world’s largest diamond producer, accounting for about one-third of diamond production by volume.?In the shorter term, sanctions are causing shortages of rough diamonds throughout the market. In the longer term, the adjustments and work-arounds to these sanctions could fundamentally alter the structure of the world’s diamond pipeline for years to come.?

Kimberley Process data reported that the country exported more than 45 million carats in 2019, the last “normal” year, for $4.1 billion; more than Botswana and South Africa combined in carat terms. Indeed, Alrosa, the organization that controls 95% of Russia’s diamond mining and marketing operations. These numbers suggest that sanctions on Alrosa will devastate the diamond supply chain this year, particularly because it does not appear that the war, and the West’s economic punishments, will end soon. However, these numbers are not the full story and there is an enormous sanctions loophole that may soften their effects.

the sanctions on Russian diamonds are not total: India and China have not joined the US and EU in boycotting Russia?so Alrosa potentially is free to do business in these countries.?Additionally, the loophole in US and EU sanctions do not ban Russian diamonds that are polished elsewhere — meaning that Indiia and China can export them freely and legally, The Russian treasury does not benefit from these mid-pipeline transactions and, importantly, the US Jewelllery Council notes that sanctions for polished diamonds apply only to those “manufactured in the Russian Federation.”?

The challenge will be paying Alrosa. The?US and Eurozone nations have banned banks and other financial entities from doing any business with Russia using their currencies. They also have locked Russian financial out of international funds transfer mechanisms such as Swiftcode. Indian diamond manufacturers have proven remarkably resourceful in the past (not always to their long term benefit) so it s likely they will devise a payment work-around to keep some Alrosa goods flowing into their operations. Some of these methods may lack transparency and accountability, to the detriment of the industry.

In addition, public sentiment against Russia is driving many US and European retailers to avoid diamonds from that country. This will certainly drive demand for origin tracking systems, a number of which were on display at the Vegas show, and, probably lab grown diamonds which are readily available at low prices.?

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