Tracking of diamond industry in mechanical equipment Cultivation: reconstruction of supply and demand order in three links of natural diamond and expansion of cultivation space

Rising prices of natural diamonds: the need for rebalancing supply and demand. According to IDEX (international diamond trading platform), the total price index of finished diamonds rose by 26.46% from January 1, 2021 to March 2, 2022. The core of the continuous rise of natural diamond prices lies in the need for rebalancing under the mismatch of global supply and demand.

Upstream: the supply of major mining enterprises is limited. In 2021, Alrosa, DeBeers, riorinto and Petra, the top four enterprises, accounted for 70% of the world's 116 million carats of natural diamond rough production, and the industry was in the state of oligopoly. Alrosa inventory continued to decline, and the old mine was restarted to meet the downstream demand; DeBeers has difficulties in expanding production and lowered production expectations for many times; Production plummeted after Rio rinto shut down the Argyle mining area.

Midstream: secondary transactions are active, and the profits of processing enterprises are down. India processes more than 90% of the world's rough diamonds, but the local diamond processing industry depends on overseas imports. The separation of production place and processing place has created conditions for the trading of blank secondary market. The secondary market exacerbated the phenomenon of blank price increase, and the price increase rate of some blanks reached more than 10%. The increase in blank prices has significantly reduced the profits of midstream production enterprises, and some Indian factories have stopped work in stages to cope with the increase in prices.

Downstream: demand rebounded rapidly. The rebound in consumption in Europe and the United States is superimposed on the need for asset allocation, and the demand for diamonds is high. In 2021, the total retail sales of diamonds and jewelry in the world was about US $84 billion, with a year-on-year increase of 29% and 12% compared with 2019. Signetjewelers, one of the world's largest jewelry retailers, achieved an operating revenue of US $5.015 billion in the first three quarters of fiscal year 2021, a year-on-year increase of 64.9%, close to the annual sales in 2020.

Investment suggestion: the supply of natural drilling is limited, but the downstream consumer demand is strong, and the price is expected to remain high. At present, the penetration rate of cultivated diamonds in the world is only 4%. After the price difference between cultivated diamonds and natural diamonds is expanded, the cost performance advantage is highlighted, and the downstream demand is expected to be further improved. At the same time, the gap between natural supply and demand will create space for improving the penetration rate of cultivated diamonds. It is suggested to pay attention to two investment routes: 1) production side: China supplies 40% of the world's cultivated diamond rough, and Cr4 is as high as 80%. The rise of downstream demand will bring performance growth to the leader. It is suggested to pay attention to Henan Liliang Diamond Co.Ltd(301071) ( Henan Liliang Diamond Co.Ltd(301071) . SZ), North Industries Group Red Arrow Co.Ltd(000519) ( North Industries Group Red Arrow Co.Ltd(000519) . SZ), Henan Huanghe Whirlwind Co.Ltd(600172) ( Henan Huanghe Whirlwind Co.Ltd(600172) . SH); 2) Equipment side: high gross profit at the production side drives the growth of equipment investment demand, and the expansion of diamond cultivation in Henan "982" project has begun to take shape. It is suggested to pay attention to the supply of HPHT synthesis equipment and arrange Sinomach Precision Industry Co.Ltd(002046) ( Sinomach Precision Industry Co.Ltd(002046) . SZ) for diamond cultivation by CVD method.

Risk tip: industry competition intensifies, downstream demand is less than expected, and the supply of natural diamonds increases.

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