Core view
The diamond industry has experienced a strong reversal, with short supply and high prosperity. According to the global diamond industry 20212022 released by Bain, affected by the epidemic, the sales of diamond jewelry decreased by 14% and the sales of rough diamonds decreased by 31% in 2020. In 2021, affected by the economic recovery, the total retail sales of diamonds and jewelry in the world was about US $84 billion, with a year-on-year increase of 29%. The diamond industry reversed strongly, and the sales volume of rough diamonds and finished diamonds increased greatly, driving the growth of the profit margin of the whole industrial chain. The income of the industry rebounded more than the level before the epidemic, and the profit margin of the industrial chain rebounded rapidly.
The gap between supply and demand of natural diamonds has widened, and the demand for cultivated diamonds has soared.
The global natural diamond producing countries are mainly Russia, Australia and Congo. Affected by geopolitics, ESG evaluation criteria, mineral exploration and other factors, the natural diamond market will face a supply gap in the medium and long term. According to Bain data, from 2017 to 2020, the global diamond production decreased from 152 million carats to 111 million carats, while the global rough cultivation diamond production in 2020 was 07 million carats, an increase of 01 million carats compared with 2019; The permeability of cultivated drilling was 5.9%, an increase of 1.8 percentage points over 2019. The total output of global rough drills in 2021 is expected to be 116 million carats, an increase of 5% year-on-year, but still lower than about 20% in 2019; In the next five years, the output of raw stone can only increase at a rate of no more than 2%. By the end of 2021, the total upstream diamond inventory was 29 million carats, close to an all-time low.
Year on year change in March of 22 (India): the import volume of rough drill was + 45.22% year on year, and the export volume of bare drill was + 3.08% year on year; The import value of cultivated diamond rough diamonds was + 157.08% year-on-year, and the export value of cultivated diamond bare diamonds was + 59.45% year-on-year.
Month on month change in March of 22 (India): the month on month ratio of import volume of rough drill is – 1.19%, and the month on month ratio of export volume of bare drill is + 11.15%; The import value of cultivated diamond rough diamonds was + 30.97% month on month, and the export value of cultivated diamond bare diamonds was + 8.90% month on month.
The price of natural diamonds continued to rise sharply: on the market side: according to the data released by idex, the price index of finished diamonds rose sharply by 5.67% in the first month of 2022, exceeding the increase of 4.35% in December 2021, setting the largest monthly increase record in many years. Policy side: diamonds are one of Russia’s most valuable non energy exports, with a total export volume of more than US $4.5 billion in 2021. On April 10, Alrosa, a Russian state-owned enterprise and the world’s largest diamond mining company, was sanctioned by the office of foreign assets control (OFAC) of the US Treasury Department. Alrosa’s diamond mining capacity accounts for 90% of the total diamond mining in Russia, which means that it may reduce the global raw stone reserves by 30%, and the global diamond supply is tight, resulting in soaring prices.
There is much room to improve diamond penetration:
Since 2020, the import volume of Indian rough diamonds and the export volume of bare diamonds have generally shown an upward trend. In March 22, the import penetration rate of Indian cultivated diamonds was 9.06%, an increase of 157.08% and a ring increase of 30.97%; In March 22, India’s export penetration rate of cultivated diamonds was 5.87%, with a simultaneous increase of 59.45% and a ring increase of 8.90%.
According to Bain data, in 2021, the global sales volume of rough cultivation drill was 11 million carats, and the global penetration rate of cultivation drill was 8%. It is estimated that by 2025, the global sales volume of rough cultivation drill was 26 million carats, and the penetration rate of cultivation drill was 15.80%. In the time window of the mismatch between supply and demand of natural diamonds, cultivating diamonds as substitutes for natural diamonds, with the advantages of diverse styles, short production cycle and high price, the market acceptance is getting higher and higher, boosting the steady increase of penetration rate.
Pay attention to China’s diamond industry chain: with the increase of high-income women and the rise of the concept of “pleasing oneself”, cultivated diamonds are completely the same as natural diamonds in terms of brightness, luster, fire color, flicker and other jewelry characteristics. They are being paid attention to by more and more consumers because of their ultra-high cost performance, undifferentiated visual feeling and other advantages. In addition, they are friendly to consumers, Diamond consumption has gradually transformed from the “high value and low frequency” mode dominated by the marriage and love market in the past to the “low value and high frequency” mode of daily “self reward”. Consumers have gradually shifted and penetrated into the field of young groups and leisure accessories, which is expected to win a larger incremental market. According to Bain data, China’s cultivated diamond consumer market accounts for only 10% of the world, the global cultivated diamond penetration rate is 8%, and the Chinese cultivated diamond penetration rate is 6.7%. With the increasing market acceptance, the scale of the industry is expected to expand rapidly. As a large country of artificial diamonds, China, coupled with China’s mature e-commerce operation mechanism, continues to drive the sales of diamond jewelry. There is still much room to improve the penetration rate of diamond cultivation in China.
Related objects: North Industries Group Red Arrow Co.Ltd(000519) , Henan Huanghe Whirlwind Co.Ltd(600172) , Henan Liliang Diamond Co.Ltd(301071) , Mclon Jewellery Co.Ltd(300945) .
Risk warning: competition in upstream industries intensifies; The production capacity is lower than expected; The impact of repeated global epidemics on the industrial chain; Large price fluctuations; Market acceptance is lower than expected; Risk of industrial policy adjustment.
