Russia is the world’s largest supplier of diamonds, US sanctions will push up prices

Russia contributes nearly one-third of the world’s natural diamond supply, with about 90% of production coming from Alrosa, the world’s largest diamond mining company backed by the state. Markets are expecting double-digit increases in diamond prices and increased sales of lab-grown diamonds in the coming months due to the U.S. ban on diamonds from Russia due to the Russian-Ukrainian war.

President Biden issued an executive order in March banning the import of Russian diamonds, as well as caviar and vodka, in response to the invasion of Ukraine, allowing the world to see the weight of Russia’s diamond supply. Russia is the world’s largest supplier of diamonds, accounting for about a third of the rough diamond market, and almost all of Russia’s diamonds come from the government-backed mining giant Alrosa, which operates mines in the Yakutia region of Siberia, and the Russian government owns the mining company33 % of the shares.

At a time when the global demand for diamonds is soaring, Bain and the Antwerp World Diamond Centre (AWDC) have recently released the annual Global Diamond Industry Report, describing the brilliant recovery of the diamond and jewelry industry from the downturn in the epidemic, from production to consumer sales. In 2021, the revenue of the diamond mining sector will increase by 62%, cutting and polishing revenue will increase by 55%, and diamond jewelry retail revenue will increase by 29%, all higher than before the epidemic.

U.S. diamond jewelry sales will hit an all-time high in 2021 with rising disposable income, growing 51% annually, and sales are expected to cross the $100 billion threshold this year. There may be even greater demand this year, largely due to the impending outbreak of pandemic-suppressed weddings, which are expected to see 2.5 million weddings in the U.S. in 2022, the most since 1984. Diamond industry analysts said the global diamond market may experience a short-term supply shortage as the U.S. market accounts for about half of global diamond demand and the U.S. market is recovering rapidly.

Another factor driving the price of diamonds is labor costs. As rough diamonds are often sent to India or China for cutting and other processing, rising labor costs in India are driving up diamond prices, and these trends benefit the lab diamond market. Consulting firm Kenneth Research expects the lab-grown diamond market to grow by an average of 9 percent through 2028. The founder of ALTR Created Diamonds, which sells lab-grown diamonds, estimates that if the U.S. government severely scrutinizes Russian diamonds, lab-diamond prices could rise by 15 to 25 percent.

While lab-grown diamonds can meet some consumer demand, they still cannot completely replace Russian supplies. The total global production of lab-grown diamonds is currently around 8 million carats, well below the 32.4 million carats provided by Alrosa alone in 2021. The market estimates that Russia-owned Alrosa, the world’s largest diamond producer, has been placed on the sanctions list, and the global supply of rough diamonds may be reduced by more than 25%.

Diamond prices were already rising before sanctions were imposed on Russia. Rapaport’s RapNet Diamond Index shows that the average price of a 1-carat diamond is up 17.4% in 2021 and another 6.9% in January. While the impact of sanctions on Russia will take some time to be felt downstream, price increases for diamonds and diamond jewellery are bound to come.

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