Covid-19 and the global diamond industry

Dr. Gaetano Cavalieri has served for the past 19 years as president of CIBJO, the World Jewellery Confederation.

Uniting national jewellery and gemstone associations from more than 40 countries, including Russia, and many of the industry’s major corporations and international associations, CIBJO is the industry’s oldest international organization, having been established in 1926.

In 2006, the CIBJO was the only organization granted the official status of a consultant to the UN Economic and Social Council on the development of the global jewelry industry.

Gaetano Cavalieri kindly agreed to answer questions from Rough&Polished related to the most pressing topic for the world community today – the COVID-19 pandemic.

In your address to the virtual World Diamond Congress on September 15, you spoke about the long-term challenge posed to diamonds, and even jewellery in general, which could come as result of the public not making a clear distinction between natural and laboratory-grown goods. Why do you consider this to be so critical a threat?

Let me first emphasize that the comments I made were in no way intended to question the legitimacy of laboratory-grown diamonds, nor the integrity of those who trade in them in a transparent and virtuous manner. CIBJO believes that the laboratory-grown diamond sector is entitled to a place in our industry, in the same way that any other legitimate sector is entitled, and it should be subject to the same rules and expectations. Among those expectation are all people handling laboratory-grown diamond taking appropriate measures to ensure that customers understand exactly what they are buying, and in this case that is a product that is fundamentally different to a natural diamond.

The concern that I expressed during the virtual World Diamond Congress is about those who seek to blur the line distinguishing between natural and laboratory-grown goods, through statements they make, or conversely statements they do not make. If consumers do not clearly understand that two product categories are involved, with each operating according to different economic models, then in effect the consumer is being deceived.

Allow me to explain. In a large section of the laboratory-grown diamond market today, consumers will be charged prices that essentially are discounts on the market prices of natural stones of equal quality. The problem is that that the consumer does not always know that the discount has been growing steadily, as more laboratory-grown diamond manufacturers enter the industry, the volume of laboratory-grown diamonds grows, and the cost of production falls. Over time, it is not unreasonable to expect that we will see the same result that we saw in the coloured stone sector, where the cost of synthetic goods is tiny fraction of the price of natural coloured gemstones, even those of significantly lower quality. This came about simply because of economics.

Consumers will begin to become aware this widening price differential when they seek to upgrade a piece of jewellery, substituting the laboratory-grown diamond for a natural stone, or when they try to sell their goods on the secondary market, or get them appraised for insurance purposes. They’ll discover the value of the jewellery is mere fraction of what was originally paid. They will feel cheated, and their anger may be directed not only to those who sold them the laboratory-grown diamonds, but against the diamond and jewellery trade in general. We should never forget that consumers have choices when deciding how to spend their discretionary income.

At CIBJO this is an imminent problem we have been aware of for some time already, and it is why we set up a Laboratory-Grown Diamond Committee, including representatives of both the laboratory-grown diamond sector and the natural diamond sector. Our goal has been to formulate a set of trading principles that will clearly and unambiguously inform consumers what they are buying, enabling them to make a reasoned and rational purchasing decision.

We firmly believe that natural and laboratory-grown diamond sectors can both prosper and even complement one another, if they are actively transparent about what they are selling. But if that transparency is not complete, then the consequences for all of us could be dire.

How do you assess the prospect of restoring trade in the global diamond pipe?

Ultimately it will depend on what happens at the retail end and, while demand for diamonds clearly has persisted, consumers still need to feel personally more secure in order that they return to the spending levels that existed prior to the health crisis.

Given that we are unlikely to see a widely available COVID vaccine much earlier than the first or second quarter of next year, I think it would be presumptuous to expect a full restoration of movement through the pipeline before the second half of 2021.

That said, the past six months, which saw a dramatic reduction of rough diamonds coming into the pipeline, have been helpful in that there has been a reduction the number of overhangs that previous existed. Thus, even though consumer demand is depressed somewhat, the pipeline is better balanced and the midstream less susceptible to financial stress because of overly large inventories. This means that when the market picks up, the industry should be able to respond quite quickly

How has the COVID-19 pandemic changed the landscape of the global diamond industry?

I would say that, since we are still in the midst of the crisis, the jury is still out on that.

At this stage it is premature to talk about specific markets, although it is reasonable to assume that the general trend, namely China’s rise toward becoming the world largest polished diamond market, will continue unabated.

What I think we can talk about is the influence of technologies that have been widely adopted to cope with the lockdown and the reduction of air travel. In so many ways, the enforced physical separation of the industry has brought us much closer together digitally, with many of us now communicating multiple times daily as if we were seated alongside each other.

It would be naïve not to assume that this is not changing the way will we operate moving forward. Simply stated, it is considerably more cost-effective working on Zoom than it is spending weeks out of each year on the road.

That’s a single example. There are many more like it.

What should the “first league” of diamond mining companies do to survive?

In general I support what they have been doing already, namely cutting production or, at the very least, the volume of goods that they are putting into the pipeline, while providing their customers with flexibility in terms of what they purchase and how they pay, and also maintaining the price of diamonds.

In order to “survive,” it is imperative that the mining companies protect their client base. This means not pressuring them financially, and also protecting the value of the clients’ inventory. The crisis will not last forever, and it important that are many as possible are left standing, so that they too will be able to enjoy the recovery.

Have the habits of the richest people changed in the consumption of luxury goods?

Evidence shows that the highest end of the diamond market has been the least effected by the crisis, but it almost certainly is being changed.

A major percentage of sales to wealthy Chinese consumers previously took place outside of China, and indeed constituted a major percentage of sales by jewellery brands based in Europe, the United States and the Arabian Gulf. With travel now restricted, those sales are being made in China, although that may be offset somewhat by the growth in ecommerce.

Has the dynamics of purchases of diamonds from diamond mining companies changed?

Clearly the most significant change is the diamond producers no longer insisting that their clients purchase what they are offered, allowing them to cherry-pick according to need. That is a welcome development. I hope it will persist when the crisis ends.

What measures are needed to support the gem and jewellery industry in the aftermath of the COVID-19 pandemic?

I can tell you about the measures that CIBJO, as a leading industry association, has been taking.

Our working assumption, as this has been confirmed by almost all the evidence we have seen thus far, is that the COVID crisis will not so much change the course of events as much as it will accelerate trends that are already underway. It is imperative, therefore, that members of our industry understand how things are evolving, and they prepare themselves accordingly.

On April 22 we launched a weekly webinar series, entitled Jewellery Industry Voices, where each time we tackled a different subject, with the help of panels of industry experts. The response to these webinars was tremendous, with hundreds of people participating in each one, whether on Zoom or via YouTube.

We looked at bread and butter issues, like surviving the lockdown financially, preparing workplaces from a health and hygiene perspective, ecommerce, social media marketing, and subjects specific to diamonds, coloured gemstones, pearls, precious metals and finished jewellery. Over 15 weeks, we hosted 54 expert panellists and were seen by some 6,300 viewers.

Jewellery Industry Voices is now in its second season. I encourage members of the industry to monitor the webinar page on the CIBJO website to see what is available, as well as catch up on webinars that have already taken place.

A second assumption is that consumers will emerge from the crisis with a renewed awareness of the need to live a secure and safe environment, as well of the risks that exists when we are careless about protecting our stakeholders and our physical ecosystem. Elements like responsible sourcing, CSR and sustainability will be more important than ever.

Despite the COVID crisis, we have not let up our efforts all in this respect. Earlier this month, we announced the launch of initiative with Intertek, a multinational assurance, inspection, product-testing and certification company to educate, train and certify CSR, sustainability and Sustainable Development Goals (SDG) compliance officers for the gemstone and jewellery industries. It will be the first such programme worldwide, and it will be designed to support the industry in the post-COVID era.- Alex Shishlo for Rough&Polished