What’s Driving Rising Prices for Small Diamonds in 2022?

High demand for diamonds throughout 2021, coupled with less natural diamonds being produced and manufactured, is causing the rise in diamond prices that is impacting retail in 2022.

The increase in prices is driven by strong demand for jewelry in the United States and China, set against limited supply, as diamond mining and cutting remain low, finds recent research by the market intelligence platform, IndexBox.

Natural diamond prices are increasing dramatically because of the high demand and limited supply that is due to the fixed number of diamond manufacturers and the cost of manufacturing. Some areas of diamond supply are becoming increasingly more difficult to source, mostly smaller sizes in commercial quality, particularly melee (less than 0.20 in carat weight).

But perhaps recycled natural diamonds are best positioned to be a reliable and profitable source for savvy jewelers and designers to incorporate in their business strategy moving forward.

How We Got Here

Consumer demand for diamonds skyrocketed as the COVID-19 pandemic unfolded, fueled by a dramatic decline in travel, fine jewelry’s biggest competitor for consumer dollars, as well as government subsidies that provided U.S. consumers with more discretionary dollars to spend.

In its 2021 Diamond Insight Report, the De Beers Group tracked performance across the diamond industry for 2020 and the first half of 2021 and found that consumer demand for natural diamonds grew 40% year-on-year in the first half of 2021, or about 15% to 20% on an annualized basis compared with 2019.

The 2022-forecast remains strong for diamond jewelry sales with travel; the wedding category expected to boom this year to be over a record 2.5 million couples getting married; and high demand for diamond intensive pieces like diamond-encrusted Cuban link chains and statement-making “Joe Burrow-style” initial pendants.

Global production for rough diamonds fell in Q1 of 2021 by 22% to 24 million carats, due to suspension at the Canadian Ekati diamond mine, closure of Australia's Argyle mine, and decrease in activity by other large mining operations.

Rough diamond prices began rising last July; then Omicron hit the diamond mining regions of South Africa and Botswana, which increased prices another 20%, cited The Economic Times in December. Polished prices followed suit, rising 10% to 15%, reported the Indian English-language business news outlet, with additional increases expected to maintain profitability.

With a spike in COVID cases, India introduced quarantine restrictions that led to a drop in factory operations by 50% to 70%, an outflow of migrant workers, and a drop in the volume of diamond cutting and polishing operations, cited IndexBox.

The closure of the Argyle mine, which primarily supplied SI and lower quality diamonds, contributed to price increases in lower quality diamonds. Diamond manufacturers say that cutting SI and lower quality diamonds have a higher risk of breakage than better quality diamonds, but they are paid about the same irrespective of quality, so higher quality diamonds have been made because of limited manufacturing capabilities impacted by COVID restrictions.

Diamond jewelry manufacturers report price increases of up to 50%, with the bigger price corrections most apparent in smaller goods of SI quality and lower. While they believe these new, higher prices are here to stay, they’re unsure if jewelers and consumers will continue to buy at this rate.

Overcoming Inventory Challenges 

“For now, the path of least resistance for diamond prices is up,” concurs Benjamin Burne, CEO of White Pine Wholesale, leading supplier of recycled natural diamonds. “The miners are determined to extract as much per carat as possible and suppliers are getting into a cycle of implementing higher prices that is becoming the norm. Combine this with a 24/7 news cycle reminding us about inflation and shortages in the marketplace, higher prices are likely to continue.”

There does not appear to be any looming oversupply in the pipeline that could cause a natural slowdown to this dynamic, cites Burne. De Beers has forecasted increased production for the year, but he expects it will take a while for this to flow through the pipeline to reach a new balance between supply and demand.

Burne believes it will take a black swan event to de-rail price increases… say a war with Russia. It remains to be seen the impact on diamond supply and prices due to the invasion of Ukraine by Russia, which mines about a third of the world’s diamonds. On the U.S./U.K./EU sanctions lists is Alrosa, largest diamond mining company in the world, responsible for 90% of Russia’s diamond-mining capacity.

Over the medium term, the rise in diamond prices is likely to push more consumers to alternatives like lab-grown diamonds, notes Burne. “Whether they return to the natural product remains to be seen, but ultimately natural diamond demand growth may slow. This combined with mining and production increases on the horizon, will ensure we reach a natural price peak at some point, likely in the second half of this year.”

But diamond jewelry manufacturers say lab-grown diamonds face similar challenges to natural mined diamonds when it comes to cutting and polishing, and the impact the pandemic has had on the diamond-manufacturing sector. Moreover, the supply of lab-grown diamonds currently does not meet the increasing demand for the product.

Acquiring its recycled natural diamonds from breakout and closeouts, White Pine re-cuts and remanufactures to very good-to-excellent makes to ensure consistency, cites Burne, which is an advantage for jewelry production, custom work and repairs. “As recyclers of natural diamonds, we re-cut and redistribute to jewelers, eliminating the middlemen. This allows us to pay higher prices than traders and flippers. We use as much of what we buy as we can in our melee on demand program and our own jewelry production.”

With the U.S. consumer market the largest in the world for diamond jewelry, the recycled natural diamond category provides a strategic market advantage to source hard-to-get natural diamond melee.