Since January 2024, the G7 nations-Canada, France, Germany, Italy, Japan, United Kingdom, and the United States and the European Union have enforced bans on direct and indirect imports of diamonds from Russia to curb funding for its invasion of Ukraine. Starting March 1, 2024, the ban will extend to Russian diamonds cut and polished in third countries. A comprehensive traceability system will be implemented by September 2024. These sanctions, imposed by the G7 and their allies on Russia, the world's largest diamond producer, will pose ongoing challenges to the global diamond industry.

Russia: The World’s Largest Rough Diamond Producer

        According to Sam Parker, an analyst from Visual Capitalist, in 2022, Russia claimed the title of the world's leading diamond producer, contributing 42 million carats, equivalent to roughly one-third of the global rough diamond production (around 35%). GlobalData reported a 30% decline in Russia's diamond exports in 2022 compared to the previous year. Projections foresee an annual export decrease of approximately 0.36% from 2022 to 2026. However, the imposed bans on Russian diamonds will result in a much more significant reduction in exports than the predicted figures.

Top 10 Diamond Producing Countries of the World in 2022

Source: www.visualcapitalist.com

        A substantial volume of extracted diamonds doesn't always correlate with high value, as factors like cutting and polishing, color, and clarity significantly influence diamond worth. Despite producing only 59% of Russia's volume, Botswana's diamonds are valued at around 1.5 times more. Angola, ranking sixth in production, secures the third position in terms of value.

        Among the world's top 10 diamond mines, five are situated in Russia, making the country a major contributor to global production. Alrosa , a government-affiliated group, stands as Russia's largest diamond producer, commanding about 97% of the nation's total diamond output. Russia's strategic investments in infrastructure and domestic mining technology contribute to efficient diamond extraction. 

        According to Statista.com data from 2022, global diamond reserves amounted to approximately 1,300 million carats. Russia boasted the richest reserves, totaling 600 million carats and accounting for 46.15% of the global diamond reserves. Botswana held the second position with around 300 million carats in reserves. More than half of globally mined diamonds are used in industries such as cutting, bruting, polishing, and jewelry manufacturing.

Current Global Diamond Market

        In 2023, the global diamond trade witnessed a decline in demand, a consequence of the world's economic instability driven by high interest and inflation rates in major countries. Moreover, geopolitical conflicts prompted a more cautious approach to spending. Younger generations showed a preference for experiential expenses such as dining out or traveling, diverting from luxury goods. The popularity of laboratory-grown diamonds surged due to their lower prices and perceived environmental benefits, including traceable origins.

        While major producers set standard prices for natural diamonds, consumer demand plays a pivotal role in influencing these prices. According to independent analyst Edahn Gola, the demand for diamond jewelry impacts both diamond and retail prices to some extent. Retailers, investing substantial amounts in advertising to stimulate demand, found their efforts challenged in 2023 as diamond consumption decreased due to the aforementioned factors. Therefore, many companies faced high inventory volumes, leading to a significant drop in natural diamond prices.

        The weakening of the world's diamond trade in 2023 was further intensified by the economic challenges in the United States, a major consumer country, under pressure from rising inflation rates. Furthermore, China, another leading diamond consumption market, faced a real estate crisis, affecting consumer confidence and diminishing the demand for diamonds. As a result, polished diamond prices experienced a decline of 10-40%, particularly affecting popular 0.5-1-carat diamonds with a 30% decrease, while rough diamond prices slid by 35%.

        In terms of the global diamond market value, Market.us estimates the world's diamond market at USD 101.9 billion in 2023. Global Trade Atlas data reveals a more than 37.17% decline in global rough diamond exports during the first 9 months of 2023. The top 5 rough diamond exporters were Belgium, Botswana, Angola, Namibia, and South Africa, respectively. Since 2022, Russian diamond export data is not included, but tracing back to data prior to 2022 shows Russia as the world's third-largest rough diamond exporter with an annual export value exceeding USD 3.8 billion.

According to bne IntelliNews, sanctions on Russian banks by the United States and European countries in May 2022 posed challenges for Russia in conducting international transactions. Accordingly, both Russia and the world's largest diamond producer, Alrosa, experienced a significant decrease of around a fourth in diamond exports. Currently, Russian diamond exports continue to decline, with expectations of a sustained decrease.

Sanctions on Russian Diamonds: Global Market Impact

        The ban on Russian diamonds will impact various aspects of the global diamond trade. In early 2024, reliance on natural diamond supplies in existing inventory, carried over from 2023, keeps the global diamond trade unaffected, maintaining low natural diamond prices. However, as stocks deplete and sanctions on Russian diamond imports take effect, a potential shortage of rough diamonds may emerge in the middle of the year. If alternative sources cannot compensate for the loss in Russian production, global diamond prices may rise. Notably, the economic fluctuations in the world's top diamond consumers, the United States and China, are key variables. The ongoing economic challenges in these countries may lead to a contraction in diamond demand, weakening prices or preventing significant price hikes. As a result, the global diamond market's overview for 2024 is characterized by a downturn.

Source: www.indiatoday.in

        India is the world's primary source of polished diamonds, making up 90% of global gross production. Russia is a key importer for India, supplying about 60% of its total diamond imports. As one of the top global polished diamond exporters (constituting around 65% of India's gem and jewelry exports), India will be impacted by reduced supplies of rough diamonds for cutting and polishing in the mid- and long-term. If India cannot secure rough diamonds from other sources to make up for the decreasing Russian supplies, the shrinking availability will affect the country's volume of polished diamonds and diamond jewelry supplied to the global market. Moreover, the country might need to terminate more diamond cutters, polishers, and jewelers.  The diamond cutting and polishing industry employs around 2 million individuals, and numerous factories may face gradual closure. This situation could eventually impact India's trading economy and the global diamond market. 

        Similarly, Belgium and Israel, the world's top diamond traders and polishers, will be impacted by the inability to import rough diamonds from Russia for polishing and export. Meanwhile, as other countries experience an annual decline in rough diamond production, there is a projected shortage for polishing, posing a potential risk of job layoffs in the diamond industry.  Once diamond supplies deplete, natural diamond prices are expected to rise, affecting consumer purchasing demand. Consumers, being sensitive to the prices of luxury goods, will likely reduce their buying activity due to uncertainties in both domestic and global economies.

        With an increase in polished diamond prices, consumers are likely to shift towards alternative products like laboratory-grown diamonds. These products share the same chemical structures and beauty as natural diamonds but are priced over 50% lower for counterparts of the same size and quality. Their prices tend to be 70-80% cheaper than natural diamonds, thanks to advancements in laboratory-grown diamond production technology. Moreover, younger consumers, particularly Millennials and Gen Z, who form a substantial global consumer group, prefer environmentally friendly products with no negative impact on society. This preference enhances the likelihood of them choosing laboratory-grown diamonds, consequently expanding the laboratory-grown diamond industry.

Diagram Comparing Prices of Natural Diamonds and Laboratory-Grown Diamonds

Diamonds of 1 Carat, G Color, VS1, Ideal Cuts

 Source: https://jewelrybyjohan.com/ (as of March 2023)

        As per GlobeNewswire, the 2023 forecast for the global diamond market (95% natural diamonds, 5% laboratory-grown) predicts a value of USD 94.19 billion. The market is expected to grow at an average annual rate of 4.5% from 2023 to 2030. According to a report from Imarcgroup, the world's laboratory-grown diamond market value is estimated to be around USD 16 billion in 2023, rising to USD 28.8 billion in 2032 at an average annual rate of 6.5%. Analyzing the estimates, it is evident that laboratory-grown diamonds are poised for more significant growth than natural diamonds. 

        Bans on Russian diamond imports pose challenges to the global diamond industry, leading to a shortage of rough diamonds for cutting, polishing, and jewelry manufacturing, along with adverse effects on global diamond trade. Amid economic fluctuations and intense international conflicts, consumers are likely to become more cautious with spending, favoring transparent, environmentally friendly, and affordable laboratory-grown diamonds over natural ones. As a result, the growth of laboratory-grown diamonds is anticipated in the current year and beyond.

Source: www.thehonestconsumer.com

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written by Wasana Somnate

The Gem and Jewelry Institute of Thailand (Public Organization) 

February 2023