Main points:
Deduction of price increase results of global natural drilling blanks and analysis of drilling reserves and production and sales of miners
Global natural diamond market: the imbalance between upstream supply and demand has led to a rise in the price of rough diamonds, and the long-term supply continues to shrink. After the outbreak, demand recovered + replenishment in the middle reaches, and the global natural drilling sales "V" rebounded. However, the slow growth of output and the imbalance between supply and demand have led to the rise in the price of natural drilling blanks. In 2021, the output was 116 million carats, an increase of 4.5% at the same time, still 20% lower than that before the epidemic. Bain expects the output to maintain a low growth of about 1% - 2% per year in the next five years, which is difficult to return to the pre epidemic level. The supply of rough diamonds continues to shrink due to the reduction of long-term drilling reserves and the guaranteed price and limited production of upstream miners. Insufficient supply may limit the growth of sales. Review and Prospect: after the price rise of natural drilling, it may still maintain prosperity, insufficient supply or accelerate the penetration of cultivated drilling. With regard to natural drilling, the market is worried that the price increase of upstream rough drilling will squeeze the profits in the middle reaches, causing the processing plants to reduce procurement. In terms of recovery, the industry downturn in the past three times was caused by exogenous shocks. During the period of economic downturn, the quantity and price of rough drilling fell together, and the sales fell; During the recovery period, prices and demand increased simultaneously,
The price rise in the upper reaches coexists with the boom in the middle reaches. In this round of upstream price rise, processing plants conduct downward to ensure profitability. We believe that with the continuous release of downstream demand (buyers will see the goods to verify the high demand boom), or drive the continuation of the boom in the middle and upper reaches. Looking forward to the future, the upstream price rise continues to be transmitted, and the insufficient supply of rough drill is the main contradiction at present. In the short term, the growth is driven by the simultaneous rise of volume and price in the diamond market, and the price rise of rough diamonds may continue to coexist with the growth of demand. Under the optimistic scenario, the outlook is expected to continue to 22h2. In the medium and long term, the diamond market is supported by economic growth and constrained by the expansion of upstream drilling and mining production. Considering the substitution between cultivated drill and natural drill in the short term, if the insufficient supply of rough drill continues, it is expected to accelerate the penetration of cultivated drill.
Reserves: the global natural drilling reserves are limited and the supply is insufficient. The current situation is medium and long-term or continuous. Drilling reserves: in 2022, the global natural drilling reserves were about 1.8 billion carats. Russia, bozwana, Congo and South Africa controlled 92.7% of the global natural drilling reserves. The drilling reserves of Russia and bozvana are about 1.1 billion carats and 300 million carats respectively; Mining area development: De Beers and other miners started underground mining projects and actively explored and developed new ore sources. It is expected that the two major diamond mines will be closed before 2025, and the global annual diamond production is expected to drop to 60 million carats in 2040. It may be difficult to solve the current situation of insufficient supply in the future.
Miners: the global supply shortage of rough drills and strong demand lead to the destocking of head miners. DeBeers: the sales volume of rough drills increased by 59.9% in the same period in 21 years. The supply is short of demand, and the inventory is digested. It is expected that the output will slow down significantly in 22 years; Alrosa: there is a gap in the annual sales volume of 21. At the end of 21, the inventory decreased by 57.5% year-on-year. Due to insufficient supply, the sales volume decreased significantly year-on-year in January of 22; Rio Tindo: close the Argyle mine, the hometown of powder diamonds, boosting the price rise trend of small carat diamonds, and the output is expected to decline; Lucara: the production and sales volume is relatively stable. After the recovery of the epidemic, it turns losses into profits, and the performance is expected to increase in 21 years; Petra: revenue growth is driven by demand recovery + price increase. Diamond inventory has decreased in 21 years, with a production and sales gap of about 700000 carats; Gem: the production and sales increased year-on-year in 21 years, and the average price of Q4 diamonds increased.
Investment advice
The global natural drilling reserves are limited, and the supply shortage limits the growth of finished drilling sales. If there is a certain substitution between natural drill and cultivated drill, its long-term insufficient supply is expected to accelerate the penetration of cultivated drill. China's cultivation drill is expected to continue to increase in volume in 2022. It is recommended to pay attention to the cultivation drill manufacturers Henan Liliang Diamond Co.Ltd(301071) , North Industries Group Red Arrow Co.Ltd(000519) , Henan Huanghe Whirlwind Co.Ltd(600172) that pay attention to the breakthrough of dakla process and the stable release of performance brought by new production capacity.
Risk tips
The increase in the price of natural rough drilling exceeded expectations, resulting in a decrease in procurement; The penetration improvement of cultivation drilling was less than expected.
