With the breakout of war in Ukraine and the resulting Russia economic sanctions, the supply of rough diamonds may be cut by over 25% as Russian-owned Alrosa, the world’s largest diamond producer by volume, was placed on the sanction list
The industry’s Jewelers Vigilance Committee advised, “Effectively, this action bans U.S. businesses and persons from entering into debt transactions longer than 14 days with Alrosa but does not impose the harsher sanctions of an asset freeze and outright prohibition of all business.”
The diamond jewelry industry is going into the year with diamond supply at historically low levels, estimated by Bain at 29 million carats in 2021. “Upstream inventories declined ~40%, driven by high demand and slow production recovery, and are near the minimal technical level,” the report stated.With sales of diamond jewelry reaching $84 billion in 2021, consumer demand kept surging even as prices rose. Rapaport’s RapNet Diamond Index showed theadvanced 17.4% throughout 2021.
Not counting the macro-economic impact Russia’s war on the Ukraine will have on consumer sentiment and spending, even higher prices for diamond jewelry could put its post-pandemic recovery on hold, if not turn back the clock. Consumers previously reluctant to consider LGDs may take a second look as the price difference widens. On the other hand, the law of supply and demand doesn’t always apply to luxury goods.The Theory of the Leisure Class
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