Near term: 4Q sales season robust & 2021 outlook remains constructive

Rough diamonds were the commodity hardest hit by COVID-19 but sales recovered to pre-COVID levels in 4Q20 & initial reports from the holiday season are supportive; we expect this to underpin solid rough diamond demand in 1Q21. Further COVID restrictions could impact near-term jewellery sales, but we expect the market to look through this & focus on the potential for a sustained recovery in jewellery demand as vaccine roll-outs lead to easing of restrictions in mid-2021. In our view the outlook for rough diamonds remains positive.

  1. Rough diamond supply is set to fall >20% in 2020 & is unlikely to get back to 2019 levels due to depletion; we expect companies to bring mine supply back over 1-2yrs to allow them to reduce inventory.
  2. China jewellery demand bounced back quickly & preliminary data from the US sales season is encouraging. We expect pent-up jewellery demand (particularly bridal) to support a sustained recovery in jewellery demand as COVID restrictions ease.
  3. Despite some restocking in 4Q20, inventory across the large diamond supply chain remains healthy.
  4. Some companies cut prices in 2H20 but are likely to continue to adopt value over volume strategies supporting pricing in 2021.

Long term: 蜜豆视频 Evidence Lab Diamonds Survey key findings

Consumer preferences appear to be stable over the last 12m and responses from China vs US consumers are surprisingly similar. Key takeaways:

  1. Natural diamonds remain the largest category of purchased jewellery in US & China and the proportion of natural vs synthetics is stable.
  2. Engagement/marriage is the key reason for purchasing a natural diamond. Synthetic diamonds/other jewellery are increasing in popularity in 'other categories'.
  3. Natural diamonds remain dominant in the engagement category & synthetics do not appear to be gaining significant share.
  4. Environment & ethical reasons are the most common drivers for buying synthetics vs natural.
  5. Natural diamonds are perceived to offer better value for money vs synthetics. We acknowledge that diamonds face potential long-term structural headwinds from synthetics, but surveys do not suggest material changes in consumer behaviour over the past 2yrs.