Preview days at art fairs are typically well attended by serious collectors, but seeing a line that stretched around the corner at TEFAF New York as the doors opened at 1 p.m. was surprising.

The invitation-only preview on May 11 preceded the art, antiques and design fair’s public days, which took place from May 12 to 16 at the city’s Park Avenue Armory. TEFAF New York is one of two fairs operated by The European Fine Art Foundation (TEFAF), which is best known for the TEFAF Maastricht fair in The Netherlands.

As the preview got underway, people continued crowding through the entrance to the main showroom. This activity spread to the exhibition spaces of the three contemporary jewelers and two jewelry dealers at the event. These preview events normally become busy in the early evening, when people leave work. Seeing this type of activity early on shows the market for collecting jewelry, as well as art, antiques and design, remains strong.

The official press release from the first day cited multiple sales by high art jeweler Hemmerle, based in Munich, Germany, and New York jewelry dealer FD Gallery, which, in addition to its collection of 20th- and 21st-century pieces, had several by contemporary jeweler Alessandro Sabbatini, who goes by the name Sabba. Visiting both spaces, it was easy to see why. Hemmerle, with a room by the entrance of the fair, was filled with collectors from the moment the doors opened.

The husband-and-wife team of Didier and Martine Haspeslagh, owners of London jewelry gallery Didier Ltd, deal in pieces created by modern artists acquired on the secondary market. Their space was located at the far end of the entrance hallway past the entrance to the main showroom. It’s the same space they had the prior year, and they said people had difficulty finding them previously. This year, fair officials improved signage and were holding special events in meeting rooms just outside.

It must have paid off, as the business sold a number of pieces to American and Middle Eastern collectors, TEFAF reported. Among the items sold were a double-headed gold, enamel and gemstone bangle by Franco Cannilla, circa 1950; a gem-set gold brooch with an abstract landscape with palm trees by Afro Basaldella; and a pair of white and yellow gold kinetic earrings by artist Sebastiano Balbo. It also sold a “unique” necklace with a lupin flower designed by Claude Lalanne in 1972 and cast in 18-karat gold by the Greek jeweler Zolotas.

Geneva-based Swiss jeweler Boghossian was in a room on the second floor. It was a bit quieter than the other spaces, but as this reporter was being shown around, two well-dressed young women were intently looking at its pieces. It didn’t take long for them to request a private showing.

One of the jewelry exhibitors’ staff members told me TEFAF was looking for more contemporary jewelers to exhibit at the show. The difficulty, the person said, is finding true artist jewelers. Jewelers who have exhibited at past TEFAF New York and Maastricht fairs include Wallace Chan, Cindy Chao, Glenn Spiro, Anna Hu and Ana Khouri.

Image: The May 2023 TEFAF New York show. (TEFAF)

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Is it possible to analyze a diamond and determine where it was mined? It would be ideal if a quick and non-destructive measurement could reveal the geographic origin of any diamond. In principle, this is feasible for some gemstones, but the prospect is considerably more difficult for diamonds. Here is a brief overview based on a recent article that explored this topic in detail, entitled Methods and Challenges of Establishing the Geographic Origin of Diamonds, published in Gems & Gemology, Fall 2022 (link)¹.

It seems reasonable to expect that gems formed in different places should be slightly different. This could mean different types of inclusions, growth patterns, features in spectroscopy, or variations in trace element chemistry (small amounts of impurities, likened to a “chemical fingerprint”). Trace element analysis can be a powerful tool for determining where a gemstone, such as a ruby or a sapphire, comes from². The concentrations of many trace elements in gems such as rubies, sapphires, and emeralds exceed one part per million (ppm) by weight, often reaching tens to hundreds of ppm. We can imagine a concentration of 1 ppm as a drop in a bucket (Figure 1). It may not sound like much, but concentrations in this range can be measured easily with modern techniques used in gem labs worldwide. The two most used techniques are LA-ICP-MS (laser ablation inductively coupled plasma mass spectrometry) and LIBS (laser induced breakdown spectroscopy).

In diamonds, however, the concentrations of most trace elements are far lower and consequently more challenging to measure. A key reason for this relative purity is that a diamond is made up of closely-packed and strongly-bonded carbon atoms that tend to exclude other elements as the crystal grows. Trace element concentrations can fall in the range of parts per billion (a single drop in an above-ground swimming pool) or parts per trillion (a drop spread across 20 Olympic size pools) (Figure 1).

With more specialized techniques, it is possible to measure the ultra-low trace element concentrations in diamond. The most promising technique is a modified “offline” version³ of LA-ICP-MS. However, this technique is slow, expensive and damaging, with single analyses taking days, costing thousands of dollars, and sometimes requiring destruction of millimeters of the diamond surface. Normal LIBS and LA-ICP-MS analyses take seconds to minutes, with costs from dollars to cents, and the analyses are so small that they are barely visible to the unaided eye. Because of these limitations, fewer than 100 high-quality trace element analyses of gem diamonds have been made to date. The results are complex but show striking similarities and overlap between diamonds from different deposits⁴. It is not an encouraging sign for the prospect of origin determination.

The analytical challenge of measuring trace elements in diamond is certainly a major barrier in the pursuit of diamond origin determination, but it is not the final hurdle. Even if future technological improvements were to make the analysis simpler and cheaper, the way in which diamonds form within the earth presents a challenge as well. The geological processes and ingredients involved in diamond formation are remarkably similar around the world. Of course, there are unusual and exceptional diamonds that appear to be associated with individual mines. Moreover, if given the opportunity to examine and compare large parcels from different mines, their average properties may differ. But on an individual basis and in general, the majority of diamonds share similar geological characteristics regardless of origin.

Most mined diamonds originally formed 150-200 km below Earth’s surface, in the oldest and thickest parts of continents, within mantle rocks called peridotite and eclogite^5-7. Pieces of these mantle rocks are occasionally captured inside diamonds as they grow (Figure 2). We encounter the same kinds of mineral inclusions at most diamond deposits worldwide, reflecting similar diamond growth in peridotite and eclogite rocks. Given what we know about how similar the geology of diamonds can be from one mine to the next, it comes as no surprise to geologists that we also observe similarities and overlap in trace element chemistry.

While the earth’s mantle is quite similar around the world, the rocks close to the earth’s surface, in the continental crust, show huge variations. Colored gemstones, such as rubies and emeralds, form in the crust under more variable geological conditions. The chances are greater that the conditions of colored gemstone formation will exhibit clear and systematic differences between different deposits. Adding the fact that these minerals can typically accommodate much higher concentrations of trace elements than diamonds, the result is that colored gemstones are more likely (though not guaranteed) to inherit trace elements, inclusions, and other characteristics with geographic distinctions.

Consider for a moment three basic requirements that must be met for geographic origin determination to be possible:

• First, we need to have characteristics that are distinct between different origins. Trace element analysis is regarded as the most promising for diamonds, but existing data suggest this first requirement might not be met. Ultimately, it is difficult to conclude whether or not this requirement can be met without first collecting many thousands of measurements from diamonds of known origin and applying advanced statistical methods.
• Second, as mentioned above, we need to have a large database of characteristics for comparison, both to demonstrate that the first requirement is met and to use as the basis to evaluate unknown specimens. Currently, measuring the ultra-low concentrations of trace elements in diamond needs specialized analytical techniques that are simply too slow, too expensive, and too destructive to allow researchers to easily build up a large database. Assembling a representative diamond collection from each mine presents another obstacle, as it would likely need to incorporate thousands of specimens from each locality to faithfully capture the natural variability.
• Third, it must be feasible to measure those discriminating characteristics routinely and commercially in order for it to become a viable service offered by gemological laboratories. Even if trace element analysis met the first two requirements and technically enabled origin determination, the current high-tech methods for making this measurement would not be feasible to offer as a routine service.

Attempting to fulfill the three requirements outlined above would demand a combination of technological innovation and substantial data collection, without a guarantee of success. This would be a monumental research undertaking that few organizations or groups have the expertise and resources to tackle, especially considering that diamond origin determination might be inherently limited by geological factors.

In summary, there has been no scientifically robust study by any method demonstrating unique and measurable characteristics that would allow for independent provenance determination of a random individual diamond^1,7-9. Unfortunately, the ideal goal of determining origin independently through a lab analysis is not on the horizon. For now and the foreseeable future, the only definitive method to establish diamond origin depends on retaining country-of-origin and/or mine-of-origin information from the time of mining.

Figures:

References cited

1            Smith, E. M., Smit, K. V. & Shirey, S. B. Methods and Challenges of Establishing the Geographic Origin of Diamonds. Gems & Gemology 58, 270-288, doi:10.5741/gems.58.3.270 (2022).

2            Groat, L. A. et al. A review of analytical methods used in geographic origin determination of gemstones. Gems & Gemology 55, doi:10.5741/GEMS.55.4.512 (2019).

3            McNeill, J. C. R. et al. Quantitative analysis of trace element concentrations in some gem-quality diamonds. Journal of Physics: Condensed Matter 21, 364207-364220 (2009).

4            Smith, E. M., Krebs, M. Y., Genzel, P.-T. & Brenker, F. E. Raman Identification of Inclusions in Diamond. Reviews in Mineralogy and Geochemistry 88, 451-473, doi:10.2138/rmg.2022.88.08 (2022).

5            Stachel, T., Cartigny, P., Chacko, T. & Pearson, D. G. Carbon and Nitrogen in Mantle-Derived Diamonds. Reviews in Mineralogy and Geochemistry 88, 809-875, doi:10.2138/rmg.2022.88.15 (2022).

6            Stachel, T., Aulbach, S. & Harris, J. W. Mineral Inclusions in Lithospheric Diamonds. Reviews in Mineralogy and Geochemistry 88, 307-391, doi:10.2138/rmg.2022.88.06 (2022).

7            Krebs, M. et al. A common parentage-low abundance trace element data of gem diamonds reveals similar fluids to fibrous diamonds. Lithos 324, 356-370 (2019).

8            Dalpé, C., Hudon, P., Ballantyne, D. J., Williams, D. & Marcotte, D. Trace element analysis of rough diamond by LA‐ICP‐MS: a case of source discrimination? Journal of forensic sciences 55, 1443-1456 (2010).

9            Cartier, L. E., Ali, S. H. & Krzemnicki, M. S. Blockchain, Chain of Custody and Trace Elements: An Overview of Tracking and Traceability Opportunities in the Gem Industry. Journal of Gemmology 36 (2018).

Main image: Rough diamonds. (Shutterstock)

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De Beers is embroiled in momentous negotiations with the Botswana government that are threatening to derail their model partnership. For the first time in their 54-year relationship, the two are simultaneously in talks for a new 10-year marketing deal as well as the 25-year license governing their Debswana mining joint venture.

Naturally, the marketing agreement has garnered more attention as it facilitates the country’s beneficiation program — the process of adding value to its mining operations by enabling services further along the supply chain such as manufacturing and trading. It’s also the area that appears to present more wiggle room for De Beers.

In a politically charged environment, in which diamonds are responsible for such a large part of the country’s economic welfare, it may be easy to perceive the company as taking a disproportionate part of the country’s sales.

Botswana reportedly wants to raise its share of the pie. President Mokgweetsi Masisi was quoted as saying the government wants a higher percentage of the local output for its own sales, and that the government was prepared to walk away from the talks if its demands weren’t met.

The exact nature of its conditions has not been disclosed. It is likely they revolve around the share of production that goes to Okavango Diamond Company (ODC) — the parastatal that conducts rough sales on behalf of the government. The distribution of specials, large diamonds above 10.8 carats, may also be on the table, as might be how the sales take place and the percentage of De Beers rough supplied to Botswana-based factories. 

Mining Leverage

Whereas the government appears to have some bargaining power when it comes to the pending marketing agreement, De Beers holds the cards with regard to the mining one. And diamond mining carries more weight than sales when it comes to Botswana’s fiscal strength.

Consider that an estimated 80.8 cents from every dollar generated by De Beers mining operations in Botswana goes to the government in the form of royalties, taxes, and dividends. In terms of gross domestic product (GDP), mining makes the biggest contribution of any sector, accounting for some 20% of the total, of which diamond production makes up the vast majority.  

Mining is where De Beers has its strongest influence in these talks. The company invests enormous amounts to ensure production continues, largely through majority shareholder Anglo American, and it has the technical know-how and experience to manage projects of such a scale.

As De Beers cochairman Bruce Cleaver explained recently on the Rapaport Diamond Podcast, decisions need to be made on major expansion projects that are due at the Jwaneng and Orapa mines. De Beers cannot make such investments — which could amount to billions of dollars — without the mining licenses in place, he stressed. 

While the marketing agreement and mining license have historically been signed independently of one another, this time they connect the interests of both parties, suggesting one might be used as leverage to influence the other.

Complex Ownership

It is therefore no simple matter for either party to walk away if their demands aren’t met. And perhaps in that context it is understandable the agreement has been postponed three times already. But there is some expectation that the June deadline must be the final one.

If so, it is difficult to consider a worst-case scenario in which a deal is not reached and what that would mean for the broader relationship between De Beers and the Botswana government. Their partnership and ownership structure are already complex, adding an extra layer of complication to the negotiations.

Botswana owns a 15% stake in De Beers Group, with Anglo American holding the remaining 85%. The government and De Beers are also equal joint owners in Debswana, which oversees De Beers’ Botswana mines, as well as in Diamond Trading Company Botswana (DTCB), which sorts and values that production.

Essentially, production from Debswana’s four mines — Jwaneng, Orapa, Damtshaa and Letlhakane — is sold to DTCB where it is sorted and valued for distribution to its two clients: 75% going to De Beers Global Sightholder Sales (GSS) and 25% to Okavango under the current arrangement. At GSS, the DTCB goods are mixed with production from other De Beers mines in Canada, Namibia and South Africa and aggregated into categories for distribution to sightholders. 

Given that complex ownership structure, what would it mean for GSS if a marketing deal were not reached? After all, GSS relies on DTCB and therefore also on Debswana for two-thirds of its supply, playing a key role in helping De Beers meet its long-term commitments to sightholders.

The government has an interest in GSS’s success too. It earns dividends from DTCB’s sales to GSS and, as a 15% owner of De Beers, would be compromising its potential revenue there. Furthermore, GSS employs 234 people, of which 220 are Batswana, and reducing GSS activity would put their jobs on the line.

The Okavango Factor

And what would failure to sign an amicable marketing agreement mean for half-government owned Debswana and DTCB? That production could arguably go to Okavango. But does Okavango have the capacity to handle such large volumes?

Okavango sells via auctions held 10 times a year, coinciding with the De Beers sights. It sold an estimated 5.9 million carats for $1.27 billion in 2022, according to Rapaport calculations. Yet auctions are volatile and dependent on market conditions. The De Beers sight system, with its long-term contracts, offers greater stability and protection from a downturn, thus giving some assurances for stable revenue to DTCB that Okavango currently cannot provide. 

Okavango doesn’t have the capacity to implement a sight system. But the government’s deal with HB Antwerp announced in late March might provide an interesting alternative. The government intends to acquire a 24% stake in HB Antwerp and supply the manufacturer with rough through Okavango. No further details were disclosed, such as how much of Okavango’s supply will go to HB Antwerp — whether it will be all, a percentage of its run of mine, or just the specials. 

Viewing itself as a disrupter, HB Antwerp is looking to replicate with Okavango its arrangement with Lucara Diamond Corporation, the owner of the Karowe mine in Botswana. HB Antwerp has the exclusive rights to all of Lucara’s specials, through which Lucara gains a profit share from the sale of the resulting polished stones by the Belgian company.

HB Scaling Up

The government has taken note of that agreement, while strengthening its ties to Lucara through the Karowe operation, and to HB Antwerp, which in late March opened a state-of-the-art factory in Gaborone. At the very least, it seems to want to sell Okavango’s specials through HB Antwerp, in a similar way that Lucara does.

For its part, HB Antwerp plans to ramp up its Botswana operations. Its new facility is “the most advanced diamond facility in the world,” claimed cofounder and managing partner Rafael Papismedov in his speech at the opening. And the company is currently breaking ground on a second factory there, “an even more ambitious plan that is 15 times the size,” he added.

HB Botswana, as the local subsidiary is known, has committed to scale up its business in Botswana by as much as 10 times in the coming years, growing to 485 employees by 2026, from the 30 it currently employs, President Masisi said at the factory inauguration. 

For HB Botswana to operate at such scale, it will need more than just Okavango’s specials. It will require a fair share of Okavango’s run-of-mine commercial goods as well, with a promise to add value on those goods too. 

Perhaps Lucara can play a role there. Lucara is looking for third-party suppliers to sell rough through its Clara platform, which it claims is an innovative way to market goods according to the buyers’ polishing needs. While Clara has been a slow burn for the company, Lucara still claims that diamonds sold through the system gain a premium.

While HB Botswana clearly plans to increase its manufacturing of rough to polished in Gaborone, it may have excess rough, through its deal with Okavango, to sell through Clara. A speculative scenario in which Okavango supplies HB Botswana its run-of-mine supply, and HB Botswana places a portion of the non-specials from Okavango on Clara, while the Belgian company sells the specials of both Okavango and Lucara, might not be farfetched. At press time, Lucara did not reply to a request for comment on whether it was in talks with the government or HB Antwerp for such an arrangement.

De Beers’ Bargain Chip

Given the scale of its production, De Beers cannot offer the government a profit-sharing arrangement. Such a deal is manageable for Lucara given that it has one mine, with relatively small production of 335,769 carats in 2022, and one client to sell its specials to — HB Antwerp. De Beers produced 34.6 million carats in 2022 and has long-term sales contracts with some 80 sightholder clients with whom it would be difficult to involve in any profit-sharing deals.

All De Beers can do is offer Okavango a greater share of DTCB supply: Perhaps it could raise it from 25% to 30%, or 40% at a stretch. Debswana’s 2022 production reached 24.1 million carats and had an average sales price of $193 per carat, according to Anglo American’s annual report. Every 5% increment of that amounts to 1.2 million carats valued at around $232 million.

Another negotiation point could be on the split of Debswana/DTCB’s specials of 10.8 carats and above. Under the current arrangement, these higher value goods are sold to De Beers GSS and Okavango in the same 75-25 split as are the rest of the goods. Perhaps the government would be content to keep those proportions in place for the run-of-mine goods but raise Okavango’s share of the specials?

Either way, is De Beers willing to depart with such volumes, and can it afford to? After all, it has commitments to provide consistent supply to sightholders, and it relies heavily on Debswana and DTCB to meet those demands.

Taxing Issues

The government might also be pushing De Beers for clarity on an alleged tax dispute relating to its moving GSS from London to Gaborone in 2013.

As a De Beers spokesperson explained: When De Beers agreed to set up GSS in Botswana, it was effectively transferring part of its UK business to Botswana, including the revenue from the sale of rough diamonds to sightholders. However, the UK business continued to undertake functions which were critical to the success of the diamond industry such as synthetic research, the development of synthetic development technologies as well as creating and delivering a marketing strategy. The cost of these activities beneficial to the functions of GSS are covered by intercompany transactions – a marketing charge and royalty of 2% of total rough sales that GSS pays to De Beers UK.

A leaked report from the Botswana Unified Revenue Service (BURS) contends that De Beers management knowingly presented “unreasonable, unrealistic, dishonest, baseless and misleading” forecasts to the government and tax authority to justify the royalty, the local press published in January. The report claims that between 2013 and 2020, De Beers made gross profits of as much as $1.35 billion from GSS through royalty, marketing, and research and development fees charged by De Beers UK.

In response to the allegations, De Beers contended there were periods when the trading business was in fact unprofitable during the reported timeframe. The company could not foresee in its initial projections the market downturns of 2015 and 2019 that led to significant operating losses. The spokesperson further stressed the contribution De Beers had made to the country’s fiscus.

“Despite De Beers making no profit globally from diamond trading activities between 2013 and 2020, our Botswana-based diamond trading business still paid billions of pula in taxes in this period… [and] far greater tax contributions have also been delivered by the Debswana diamond mining joint venture,” the spokesperson stressed. “During the most challenging economic periods, De Beers has continued to purchase rough diamonds in Botswana, supporting Debswana and the economy even when such activity is unprofitable, and continued to invest in consumer marketing to support the long-term value of the industry.”

“We are committed to ensuring we pay the right amount of tax at the right time, and we engage with BURS in an open, transparent and constructive manner to ensure this is the case,” he added.

Balancing Needs

Still, the miner might make some concessions on this issue as the negotiations reach their climax — perhaps reducing the royalty paid to the UK business moving forward.

But the Botswana government will also need to soften its stance. In speaking to officials on condition of anonymity, one sensed there’s a split within government circles on how to approach the final talks. There are those who understand and value the long-term relationship with De Beers, while others are pushing for change, fueling the perception that Botswana has got a raw deal from the company.

The result may be a compromise between the two.

The government ought to recognize the tremendous contribution De Beers has made – and can continue to make – in the country. As President Masisi noted, today there are 48 cutting and polishing companies operating in Botswana, with employment in the sector nearly doubling in the past year to 4,001 workers as of January 15, 2023.

He might be reminded that none of that would have been possible without the contribution of De Beers. While a fresh approach may be needed on the sales side, Botswana needs to incentivize De Beers to invest in the country’s mining operations and maintain the strong trading presence that has inspired growth of Botswana’s manufacturing sector.  

De Beers, meanwhile, will walk a fine line between protecting its heritage in the country and bringing innovation not only in mining, but facilitating new added value for Botswana in its sales mechanisms, too – especially as others are tempting the government with a shiny new business model.   

This article first appeared in the March edition of the Rapaport Research Report. Subscribe here.

Main image: david polak/midjourney

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Sentiment in the auction sector is upbeat ahead of the spring sales as the big houses plan to offer a wide variety of jewels and are benefiting from Hong Kong’s reopening.

A record-breaking ruby, the “most significant” pink diamond ever, and a collection amassed over years by an Austrian billionaire are expected to bring in strong prices at Christie’s and Sotheby’s. After a mixed autumn, market participants are cautiously optimistic that the April, May and June events will mark a rebirth of the bidding frenzies the industry enjoyed in the past.

“I think the opening of Hong Kong will have a positive effect,” says Jean Ghika, global director of jewelry for Bonhams. “We certainly saw that with our [recent] sale when we exhibited in Hong Kong. We had a huge amount of interest, and I think we had the highest registration that we’ve ever had for our New York auction.”

The renewed attraction for the auction scene follows a challenging second half of 2022, when a number of big-ticket items — such as the 5.53-carat blue from De Beers that Sotheby’s Geneva offered for $15 million in November — didn’t sell. Others just barely eked past their low estimates. At the time, experts chalked it up to two major factors: the closure of Hong Kong, where many of the buyers of these big stones are located, and market fatigue caused by a number of similar items hitting the block in succession.

Breaking the rut

During the fall auctions, three large blue diamonds from De Beers’ eight-piece collection went up for sale, as did a trifecta of fancy-pink diamonds above 10 carats. While the first of each color scored well above high estimates, the stones that followed fell flat, leading some in the industry to believe that presenting too many similar stones devalues them in buyers’ eyes, as it makes them appear less rare.

“We have more attractive merchandise prepared for [the upcoming Sotheby’s Hong Kong] event,” explains Wenhao Yu, chairman of jewelry and watches for Asia at Sotheby’s. “This auction is not one that we’ve been preparing for one week, or for two months. We have actually been preparing for this reopening for three years.”

For the spring auctions, the houses are adding variety, as well as featuring pieces that are returning to the auction block after making a huge splash in their first go-round.

In April, Sotheby’s Hong Kong will highlight the Pink Dawn, a 10.05-carat, fancy-vivid purplish-pink diamond ring with a high estimate of more than $21 million. The Algeiba Star, a 133-carat, vivid-yellow diamond necklace, has an upper price tag of $9 million.

The headline of the June New York sale is a 10.57-carat diamond that Sotheby’s calls the “most significant” pink ever to come to auction. The Eternal Pink is expected to go for more than $35 million and rival the per-carat price of the Williamson Pink Star, which sold for more than $57 million.

Meanwhile, Christie’s will present the estate of Austrian billionaire and art collector Heidi Horten at its Geneva sale in May. That group includes the Sunrise Ruby, a 25.59-carat, pigeon’s blood Burmese ruby ring by Cartier, which Sotheby’s previously sold for a record $30.4 million in Geneva in 2015. The complete collection Horten amassed includes 700 pieces estimated to fetch more than $150 million, eclipsing the next-highest collection by about $50 million.

Regardless of the jewelry offered, Quig Bruning, head of jewelry for the Americas at Sotheby’s, thinks the most important way to create interest and get people buying is to make sure the pieces don’t appear repetitive.

“I think that a lot of the focus this season is going to be on some significant color coming to the market,” he notes. “Our expectation is that there are major pieces that we are expecting to do quite well. The biggest thing with presenting these really important stones and jewels is that whatever they do, the market creates ways of differentiating them.”

Open for business

The long-term closure of Hong Kong’s borders has also taken a toll, as many of the buyers for large, fancy-color diamonds and special pieces come from mainland China and have been unable to travel to the municipality to see the stones.

“I think it’s important to note that the past few viewings in Hong Kong have not had any international visitors,” says Jonathan Abram, director at colored-diamond dealer Ronald Abram. “Now that Hong Kong has opened up, people are able to travel here, so that should create a lot more buzz and allow people to view the pieces in person, which makes a huge difference.”

Bruning agrees, noting that Hong Kong has historically been seen as the “nexus” of the jewelry trade in the Far East. The three-year closure of the municipality therefore impacted other Asian markets such as China, Taiwan, Singapore and Korea.

“The reopening has to [make a big difference to demand],” he says. “What that specific difference is going to be, I’m not sure, but just the fact that there’s the availability and the openness to travel there is going to play a major role. We are certainly expecting that there is going to be much more engagement in the Far East, and that openness should lend itself to more people coming, more people viewing. And our hope is certainly that that will then translate to more transactions.”

However, Harsh Maheshwari, executive director of colored-stone dealer Kunming Diamonds, feels it’s possibly too early to see strong results given people are just starting to get back into the swing of things.

“We’re definitely seeing a lot of interest and inquiries, and a lot of people have come to view stones, but as to how much conversion we’re going to see, and if anything offered will break records, I’m not sure,” he states. “I do believe that it’s still going to take some time…but we will definitely see some really, really good interest, and sentiment is going to be positive, that’s for sure.”

While the others acknowledge this month’s Hong Kong jewelry fairs drew more interest than actual sales, they don’t think that trend will be reflected at Sotheby’s Hong Kong. Yu believes the traffic at the shows was a positive sign of what’s to come, and notes that the company’s Hong Kong Luxury Edit sale in February had strong results. Meanwhile, Abram doesn’t see inflation, the rate of sales at the jewelry fairs, or the fact that the municipality only recently reopened as impediments.

“The buying [at the fairs] wasn’t quite as good as pre-pandemic levels, but it was better than a year ago,” he explains. “So it’s a good start, and there is interest, and privates are showing up in Hong Kong looking for high-value items. While inflation makes a difference to the 1% that buy those larger-value items, it doesn’t matter enough that they wouldn’t go after something they’re interested in. I’m quite optimistic that sentiment will also carry over to Geneva and New York, across the board, for the entire auction season.”

Main image: The Sunrise Ruby (left); the Algeiba Star, the Eternal Pink and the Pink Dawn (right, top to bottom). (Sotheby’s/Christie’s)

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The Russia crisis is forcing the diamond trade to take responsible sourcing to the next level. Considering the industry’s long history of dealing with reputational challenges, the ongoing war in Ukraine adds a new dimension.

On February 24, 2023, the first anniversary of Russia’s invasion of Ukraine, leaders of the Group of Seven (G7) nations reaffirmed their commitment to “strengthening the unprecedented and coordinated sanctions and other economic measures… to further counter Russia’s capacity to wage its illegal aggression.”

Among the steps outlined, the G7 — Canada, France, Germany, Italy, Japan, the UK and the US — will work collectively on further measures relating to Russian diamonds, both rough and polished, given the “significant revenue that Russia extracts from the export of diamonds,” the group said in a statement.

Those are broad and non-definitive declarations; an expression of intent to work toward new measures relating to diamonds rather than enacting them immediately. The process to create and implement regulations is expected to take a few months, stressed the Jewelers Vigilance Committee (JVC), which will advise the US Department of State on industry matters relating to the sanctions.

For now, the G7 announcement triggered discussions within the trade about the nature of such additional measures. The sanctions would likely target Alrosa, the world’s largest rough producer by volume, which is 33% owned by the Russian Federation.  

Substantial transformation

To be specific, the new bans would address the issue of “substantial transformation” — a pathway through which the current US sanctions still allow Russian-origin diamonds to enter the US if they are cut and polished in a third country, as explained by the JVC.

Some argue that such imports are not legal even under the current US sanctions. But that’s a simplistic approach, argues a former US Department of Treasury official who requested anonymity. The key question, he stresses, is whether Alrosa still has an interest in the goods. “Just because they came from Alrosa doesn’t mean they’re still subject to sanctions if there is a legitimate arm’s-length sale that breaks their interest,” he explains.

For example, if Alrosa sold its rough on consignment to a third-party manufacturer, such polished would be subject to the current sanctions. Or if the Russian miner sold its rough through partnerships to gain a share of the profit from the resulting polished — as some miners are doing — that polished product, too, would be ineligible for import to the US.

However, Alrosa typically sells its rough and moves on. Therefore, as it stands, if a manufacturer buys rough from Alrosa and manufactures it elsewhere, those goods can technically be brought into the US. The stones might be cut, for example, in Belgium, India, Israel or the United Arab Emirates (UAE), countries that haven’t implemented sanctions on Russian diamonds.

Regulating traceability

That has led the major jewelry chains, brands, and conscious independents to apply their own chain-of-custody standards to ensure their supply was not sourced in Russia. Now, the State Department wants to regulate the trade so that such guidelines are applied across the industry and in key international markets spreading to the G7 countries. They would likely extend to the European Union, and notably Belgium, by association.

It is still too early to say exactly what such regulations would encompass, but they will likely include some aspect of traceability, says Sara Yood, legal adviser to the JVC. But the State Department, along with its G7 colleagues, still needs to iron out what that might entail.

Would it require companies to adopt one of the numerous source-verification programs that have been developed within the industry? In such a case, technology such as blockchain or QR codes will play an even more important role in the trade. Or perhaps a statement on the invoice declaring where the goods come from would suffice. Some might suggest the World Diamond Council’s (WDC) System of Warranties (SoW) would be an appropriate tool. However, the WDC’s self-regulation plan hinges supply to Kimberley Process (KP) compliance — a scheme for which Russia is still a member.

There are numerous variations and combinations of these programs that might be considered for the new blueprint. It’s little wonder that it will take months, rather than weeks, to formulate and implement.

This time it’s different

There is also the question of whether such measures will apply only to Russian-origin diamonds or to the full spectrum of supply.

It is not the first time that the issue of substantial transformation has — or should have — challenged the industry. The US implemented sanctions on Zimbabwean diamond entities and rough supply from the country as far back as 2011, and those are still in place today.

They were enacted after the Zimbabwe government seized the Marange mine fields in a 2007 operation that resulted in more than 200 deaths of artisanal miners working the fields, according to Human Rights Watch (HRW).

If the US government considered substantial transformation relating to the Marange goods, it did so on the quiet. Besides, it barely occurred to the trade, or its media outlets, to question it in a meaningful way. That was likely because Zimbabwe accounts for a small percentage of global rough supply. It could also have been because traceability systems weren’t available to monitor Zimbabwe’s resulting polished back then. Manufacturers at the time maintained it was nearly impossible to separate supply from their various rough sources in the production process.

Today’s challenge regarding Russian goods is different because Alrosa accounts for such a large proportion of global supply — 27% by volume, according to Rapaport estimates based on 2021 KP data. In addition, the industry has gradually been working on source-verification and traceability programs that make it possible. The Russia crisis has fast-tracked those efforts, while enacting traceability systems into regulation is a new element that might not have been considered before.

Filling the gaps

Indeed, the diamond industry’s road toward responsible sourcing has been a long one. And it is one that probably doesn’t have an end since there will always be fresh challenges, new elements to consider and improvements to be made.

The journey arguably began with the establishment of the KP in 2003. The scheme was created to monitor the cross-border flow of rough diamonds to give assurance they didn’t fund rebel groups engaged in civil war. However, the conflict-diamond definition limited (and still restricts) the KP’s scope, allowing diamonds mined in violation of human rights — or through violence, that fund terror, or result from other atrocities — to fall through the cracks.

Such loopholes came to light with the Zimbabwe incident, since it was a government entity, not a rebel group, that was the perpetrator and benefited from diamond profits through its rogue actions. In addition, that government was part of the KP and managed to lobby its way not only to remain one but to serve as its chair for 2023.

The industry was therefore forced to look elsewhere to provide ethical assurances to consumers, who were becoming increasingly sensitive about responsible-sourcing issues. The Responsible Jewellery Council (RJC) was founded in 2005 to tackle the broader range of issues that were already missing in the KP back then. In the same year De Beers launched its Best Practice Principles (BPP) to steer its stakeholders to apply best practices in other areas of the industry not covered by the KP to ensure an ethical diamond supply, the company explains on its website.

Both the RJC and De Beers’ BPP relied on companies to meet their respective standards and encouraged members — at least within the RJC structure — to do business with each other to ensure a responsible supply chain.

Signet Jewelers, which was heavily involved in the RJC’s establishment and still serves as its chair, announced its Responsible Sourcing Protocols for gold, tin, tungsten, and tantalum in 2011, and its protocol for diamonds in 2017. These were standards that suppliers to Signet — the largest jeweler in the US — had to meet, and they strongly encouraged membership in the RJC.

Through these programs and others, the industry was able to tackle a broader range of issues relating to responsible sourcing. These focused not only on the industry’s distribution channels, but also touched on other pressing matters such as the environment and equality, which were becoming more important to consumers. The trade also addressed governance and compliance, updating its standards according to the requirements of banks and regulators after the 2008 financial downturn.

Diamonds with provenance

However, while these initiatives relied on commitments by members to meet a set of standards, they didn’t zoom in on individual diamonds. It was always questioned whether traceability chain-of-custody programs could be enacted for diamonds, considering they change hands many times before reaching the consumer.

In the past five years, technology has changed that perception and reality. Blockchain enabled companies to create a digital footprint and track a diamond’s transactions as it changed ownership. It empowered companies to know their suppliers, and their suppliers’ supplier, so that the retail jeweler can sell with confidence.   

Programs by De Beers, Sarine Technologies, the Gemological Institute of America (GIA), Everledger, iTraceiT, and others, have been in the works in the past few years, even if the industry has been slow to adopt them. We will examine these tools in greater detail in the next installment of our three-part series on the industry’s Russia crisis.

Through them, companies can tell the story of their diamond supply from mine recovery, through cutting and polishing and jewelry wholesale, to retail, giving assurance they not only did no harm but they made a positive contribution to society along the way.

Stones with such provenance are expected to sell at a premium, even if they currently may not. They demonstrate that the piece of jewelry adds value through its values in the same way that the 4Cs differentiate qualities of a diamond. Indeed, De Beers’ 2021 Diamond Insight Report highlighted that sustainability considerations rank on par with price and design for global consumers when purchasing diamonds.

A majority were willing to pay more for natural diamond brands that could demonstrate they operated in an environmentally and socially responsible way, the report revealed.

Brand values

Ultimately, it is the luxury brands that are pushing and leading this agenda, because it makes economic sense. In addition, they, more than others, face reputation risk if their supply does not meet the appropriate ethical standards. These brands are built on the stories they tell, and their values are a core element of that story.

That, along with the know-your-supplier initiatives already outlined, is forcing the rest of the industry to adopt a more brand-like mentality. This will ultimately result in a major shift within the diamond market toward stronger branding moving forward.

Regulating such requirements will accelerate the industry’s adoption of chain-of-custody programs, regardless of the final nature of the sanctions. The new measures will highlight the value in differentiating diamonds with desirable provenance from those without.

Rubber-stamping solutions

That the announcement came from the G7 and not just the US is significant. It forces other centers to follow the lead set by the US in the past year. It puts pressure on the EU — notably Belgium, traditionally the largest destination for Russian diamonds — to apply sanctions that it has been hesitant to enact until now. The Antwerp trade has contended that these goods would enter the market anyway. And they have in the past year, as outlined in the February Rapaport Research Report. From the outside, it appears Antwerp also fears losing market share to other centers that would continue to trade freely in Russian goods — notably India and Dubai.

Antwerp welcomed the G7 announcement, pointing to its broader and more effective reach than had the EU operated alone.  

“With controlled access to 70% of the market, the G7 has the power to create a fully traceable and waterproof system that has real impact on the market,” notes a spokesperson for the Antwerp World Diamond Centre (AWDC). “AWDC believes this is a step in the right direction, and we will support the ongoing efforts to complete this mission.”

The spokesperson adds: “It speaks for itself that the success of such a solution lies in India, where 95% of diamonds get polished. We will always resist against a simple rubber-stamping solution.”

Premium opportunity

Perhaps a broader view is required. Segments of the trade and companies in these markets should view the prospective sanctions as an opportunity to differentiate themselves in the responsibly sourced stream of the market. While the new measures considered by the G7 will target Russian diamonds, they need to address the issue of substantial transformation regardless of the diamonds’ origin.

Furthermore, injecting traceability programs into regulation provides an opportunity to encompass a wider range of issues, such as environmental, social and governance (ESG), into the discussion. These may be less immediate challenges, but they will likely have longer-term relevance, well after the war in Ukraine is resolved.

The Russia crisis demands urgent action by government and the trade. The sanctions that are in the works will compel companies in those countries imposing them to be a force for good.

The hope is that they will steer the industry toward building value around provenance. That would ultimately result in a premium for the values those diamonds represent.

This article first appeared in the March edition of the Rapaport Research Report. Subscribe here.

Image: David Polak/shutterstock

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Luxury brands are having a moment, but a new Apple product is providing tough competition for the cheaper segment.

Luxury timepieces with export prices above CHF 3,000 ($3,200) were the best-performing watch segment in January, according to data from the Federation of the Swiss Watch Industry. Watches over $10,000 are even in more demand, Swiss watch industry insiders added. The news is less positive for cheaper watches.

Barring unexpected events, this robust growth in luxury watches is expected to continue through the rest of the year. Meanwhile, for the pre-owned market, the incredible surge caused by speculative buyers and sellers is gone. Major pre-owned watch dealers are cutting staff and lowering prices to face this new reality.

Luxury pieces

“The watch executives, they’re all having a good time,” says Alexander Linz, a veteran watch industry journalist, and partner and head of content of WatchAdvisor, a popular YouTube channel about watches. “Brands have had record exports and expect more records in the months to come. If watches are expensive, they sell, and they are bought by people who have money and are willing to spend it on watches.”

Reginald Brack, a US-based watch-industry consultant, says sports watches, widely sought after over the past few years, are still selling briskly.

“Sports watches, not just steel, but precious metals, with multiple models from multiple brands have strong appeal and are waitlisted,” notes Brack. “The reality is the luxury consumer enjoys casualization, which started with their wardrobes and [has] moved to their wrist with a timepiece that can go from the beach to the boardroom.”

Entry level

By contrast, the CHF 200 to CHF 500 ($214 to $534) segment experienced a continued decline, with exports falling 14% year on year by value in January. Watches priced between CHF 500 and CHF 3,000 slipped 4.7%.

Linz believes a couple of factors are driving this trend. The first is the lack of a unique selling proposition, and the second is competition from other product categories. The price division’s toughest competitor, he believes, is the new Apple Watch Ultra.

“Those Swiss brands who make lower-priced watches have to do something, because they are not attractive anymore,” Linz points out.

Moderately priced watches from brands such as Longines, Hamilton and Rado — all owned by Swatch Group — are the exceptions. Each has a selling proposition in this price category that is still attractive to buyers. He acknowledges that Swatch had great success with its MoonSwatch, an inexpensive dual-branded replica of an Omega Speedmaster (another Swatch Group brand) sold exclusively through Swatch stores. However, Linz sees the group, like other brands in this price range, struggling without doing something highly creative.

The Apple Watch Ultra is the first digital watch with the potential to challenge the Swiss timepiece industry, Linz comments. The Vienna-based journalist relates that he is seeing this watch on people who can afford to buy a luxury watch. In fact, he even owns one. “This particular watch is taking away market share from the lower-priced industry,” he says, adding that the threat this watch poses is even greater.

“The industry has to really face that for the first time the Apple watch is an enemy in the luxury segment,” he continues. “It’s the first time Apple delivered a watch that is not only extremely interesting and cool-looking but accepted by wealthy people.”

Volatile pre-owned market

The price of pre-owned watches dropped 25% year on year as of February 23, according to WatchCharts, which provides analytical data for the secondhand watch market. Not surprisingly, the brands that gained the most during the highly speculative period have dropped the most. For the year, Rolex is down 23%, Patek Philippe fell 15%, and Audemars Piguet slid 18.5%, according to WatchCharts figures. They are not alone, with many major brands also experiencing decreases in the resale value of their watches. WatchCharts’ listed prices are not necessarily final for these timepieces. They are often further negotiated. However, it does provide a consistent reference for list prices.

The result of the decline in marquee timepieces has been downsizing and the lowering of prices. Chrono24, one of the largest marketplaces for pre-owned watches, cut about 13% of its workforce in January after a hiring spree. On March 8, Watchfinder & Co., Richemont’s online pre-owned watch-selling platform, reportedly said it would cut prices based on its valuations by 15%.

Slowing economic growth, higher interest rates, the collapse of cryptocurrencies and the disappearance of Chinese buyers due to another round of Covid-19 isolation led to this steep drop in prices. This was expected, as the incredible demand of the past few years couldn’t continue, but the pace of this slowdown caught even seasoned dealers by surprise.

“Last year was a s**t show in the secondary market mainly driven by speculators, new to the secondary watch market, who were fueled by the crypto craze,” Brack says. “When that bubble burst, the artificially high secondary-market prices started to drop. Many dealers and speculators were overstocked, thinking that the party was never going to end. We’re finally returning back to normalcy where we still see slightly elevated prices but are no longer seeing the ridiculous triple-digit growth in certain models.”

US focus

With China struggling from a reoccurrence of Covid-19, the US remains the number-one market for Swiss watches. Overall, exports of the country’s timepieces to most markets gained year on year in January with the exception of China, certain countries in the Asia-Pacific region, and a couple of Middle Eastern markets. Orders from Hong Kong, the third-largest market for Swiss watches, grew 10%.

“What was once thought of as a necessary evil by so many Swiss watch executives is now an exciting part of a multiyear product plan,” Brack says of the US market. “Swiss, German and Japanese watch brands are doubling down on the US. We are heading into the perfect storm for luxury.”

The US market will remain strong, but China will return and maybe overtake the US as the top market, Linz predicts. However, he says Hong Kong will likely not recover because the Chinese government is transferring its focus to the small island province of Hainan, just south of the former British colony.

The Chinese government has transformed Hainan into a free-trade port with offshore financing and duty-free shopping, as well as using lower taxes and reduced visa requirements to help draw in foreign businesses and tourists. Linz says this will lure Chinese buyers to Hainan from Hong Kong, which he says is the shopping center of China.

“In Hainan you can buy watches like you do in Europe,” he says. “In the long term it will harm Hong Kong. All of the watch brands are there.”

As the year progresses, Linz is hoping that the normalcy returning to the pre-owned watch market will continue to influence the rest of the watch industry.

“I think what we will see in the next few years is a customer that will come back to value instead of artificially hyped prices,” he says. “Longines is value. Tudor is value. Breitling, IWC [Schaffhausen] and Omega are all priced fairly, even though their prices moved upwards. Even though the prices are quite high, when compared to other brands you still get value at the end of the day.”

Image: A Patek Phillipe watch on display at a store in Thailand. (Shutterstock)

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The recent exhibitions saw strong footfall, but buyers’ price expectations made sales difficult.

The diamond and jewelry industry returned with enthusiasm to the March Hong Kong shows, the first major international fairs in the municipality since the Covid-19 pandemic. Chinese buyers came in large numbers to meet suppliers, view goods and check out prices, exhibitors reported. However, despite packed floors, actual sales appear to have been limited.

“People had created a big hype that everything would change, but the market takes time to get into the mood,” said Nilesh Chhabria, chief operating officer at Indian polished manufacturer and sightholder Finestar Jewellery & Diamonds. “It can’t just switch on and switch off. However, for some people the show went very well.”

Opening up

Mainland demand had been at a near standstill since mid-2022, when the country imposed several lockdowns to reduce the spread of the coronavirus. The Chinese government ended its zero-Covid policy in December, and, in January, made the important move of opening the border with Hong Kong. This enabled retailers, dealers and jewelry manufacturers to travel following three years with few opportunities. Hong Kong has also been easing its containment measures over the past months.

Indeed, the first day of the Hong Kong International Jewellery Show and Hong Kong International Diamond, Gem & Pearl Show coincided with the end of the municipality’s mask mandate, which had been in place for more than two-and-a-half years. The government’s choice of March 1 appears to have been a coincidence, but exhibitors felt it was an important signal that the city had moved on from the Covid-19 pandemic, even though many attendees still wore face coverings voluntarily.

“Everyone who I met was very happy to be back in Hong Kong [and that] Hong Kong [had] opened up,” said Rishi Mundra, managing director of Hong Kong diamond manufacturer and trader Stellar Group HK. “The mask mandate…was the last one of the last major Covid-19 restrictions that we had in Hong Kong. That increased the sentiment that…we’re back in business.”

The rooms appeared extra busy because the two fairs, both organized by the Hong Kong Trade Development Council (HKTDC), took place at one venue — the Hong Kong Convention and Exhibition Centre (HKCEC) in the Wan Chai district. Before the pandemic, jewelers would exhibit at that site and loose-stone dealers at a different center near the airport. More than 2,500 exhibitors and more than 60,000 buyers attended over the five days, the HKTDC reported.

“The vibrant atmosphere, busy traffic and packed booths not only reflected the global jewelry market’s pent-up demand after three years and strong buying power, but also reaffirmed Hong Kong’s position as the world’s premier trade-fair capital in Asia,” commented Sophia Chong, deputy executive director of the HKTDC, in a statement.

Limited transactions

Price discovery was a major objective of Chinese buyers at the shows, many of whom were only willing to bid below exhibitors’ asking prices, participants said. Loose-diamond sellers could have made strong sales if they’d offered discounts, but many were unwilling to do this, they noted.

Melissa Wolfgang Amenc, a director of Swiss gemstone and jewelry dealer Golay Fils & Stahl, who exhibited in the antique section, saw a similar trend in her sector. While traffic was strong, many customers were surprised at some of the prices of colored gemstones and jewelry, which had risen during the pandemic due to shortages, she explained.

“I get the feeling that the local population, whether it be Hong Kong or mainland Chinese, were not necessarily ready for that adaptation, because the prices they made reference to were considerably lower than the prices we ask [for] now,” said Wolfgang Amenc.

As for diamonds, demand skewed toward the small stones that are popular among high-end brands. The best-selling items were VS to SI clarities and D to G colors. Some of the stones were destined for the greater Chinese consumer market, while some were the target of jewelry manufacturers planning to export finished products to the US and Europe, exhibitors noted.

While some business happened, it took a while to get off the ground, said Mundra at Stellar Group. Customers came in seeking lower prices than exhibitors wanted to sell at, and later had to adjust their expectations.

“A lot of times, they were offering below cost,” he observed. “But then once they walked around the show and realized [what the] bottom prices [were], they figured, OK, we cannot get goods below this certain price point. So when they came in the second and third day, it was a better sell to them.”

Buyers from Western brands were mostly absent, exhibitors said — more so than usual at the March shows, which are generally less of a draw than the preholiday September Hong Kong fair. Most visitors, if not from China, were from other Asian nations. (The June jewelry show is also a mainly regional affair.)

Warm-up act

The exhibition was something of a “warm-up show,” said Rahul Jauhari, director of sales and marketing at Hong Kong-based colored-diamond specialist Kunming Diamonds. Conversions into actual transactions were limited, he noted.

The most positive point was the optimism that the shows and the strong footfall signaled. Chinese companies that made purchases mainly did so in anticipation of demand rather than because consumers were spending right now. This made exhibitors hopeful of a healthy Chinese recovery over the coming months, especially with two more important Hong Kong trade shows on the calendar for the early summer and the autumn.

“At least [customers have come] to buy one or two stones,” said Vincent Yiu, director of Hong Kong’s Brilliant Trading Company, a diamond wholesaler. It’s “not like before [the pandemic], but at least it’s a very positive sign. They’ll definitely come back in June and September.”

Image: Visitors at the March show. (HKTDC)

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Iris Van der Veken is executive director of the Watch & Jewellery Initiative (WJI) 2030, which Cartier and Kering launched in 2021 to promote the adoption of the United Nations’ Sustainable Development Goals (SDGs).

Many of us view the year ahead through a lens of uncertainty. Ongoing geopolitical turmoil, persistent inflation and economic uncertainty continue to test and challenge the hard-won sustainability progress we have made.

On the face of it, uncertainty feels uncomfortable. How we navigate and embrace this uncertainty, though, is still entirely up to us.

Despite the headwinds from this “poly-crisis,” there appears to be continued resolve among businesses and governments to make progress on sustainability goals and tackle the effects of worsening climate change.

As a broad collective, we have learnt a lot from the work that has been done in the past few years, and these learnings will continue to accrue.

Leaders need to navigate in this landscape. In this era of the new economy of purpose, trust and inclusion, a new leadership is required. There is a clear business case: People will walk away from leaders with weak values and no purpose to society.

However, it is also time to reflect and draw upon some critical lessons to reorient and refocus our efforts. Time, as always, is of the essence. What is also essential is to make sure all voices are heard and not just the ones that are the loudest or have the most prominent platforms. Change must truly be meaningful for all and especially for those who need it the most and who are disproportionately affected by our changing planet.

Collaboration needs to be prioritized and encompass intergenerational collaboration. Climate action needs to include biodiversity preservation. Our roadmaps and prioritization frameworks need to take into account all living beings. Only then can dignity for all truly mean dignity for all.

As I am writing this, I am deeply saddened by the earthquake in Syria and Turkey. My condolences and thoughts of solidarity and healing are with the people who have been affected by this disastrous tragedy. My thoughts also go out to everyone who lives in war and conflict. Again women and children have their health and safety, their human rights, and their futures placed at unbelievable risk during conflict. Dignity for all should be our ambition to action.

I believe in this goal of “dignity for all” with the core of my being. With this value and goal in mind, I joined the Watch & Jewellery Initiative 2030 last year and am looking forward to closely working within this ecosystem of thought leaders, doers, colleagues, peers, and mentors. It has now become an annual ritual for me to reflect on the past year and share my perspective for the new year. Here, I would like to draw from discussions happening in collaborative forums across the globe, and present to you what has caught my attention.

1. CEOs redesigning organizations and supply chains to leave no one behind

To meet our sustainability goals, a shift in organizational and supply-chain design is required and is being undertaken by best-in-class players. CEOs will need to lead the way on sustainability. Sustainability is a CEO strategic topic. There is only one option to be future proof: Your business strategy needs to be a sustainable one. Suppliers are partners. We need to include the suppliers along the journey, especially with the often fragmented and complex supply-chain structures inherent in the jewelry industry. Suppliers exist on a continuum of maturity on the sustainability roadmap, and brands need to be sensitive to this. Transparency and traceability can only succeed if everyone along the value chain is connected and is accountable.

Another example here is a shift in leadership that places emphasis on building and fostering communities and economies of care, rather than a sole monochromatic focus on profitability. Talent wants to work for a company with purpose. We all applauded founder Patagonia when the founder Mr. Yvon Choiunard wrote of “reimagining capitalism,” and just donated the entire company, worth $3 billion, to fight climate change.

A shift from profits to people is also how organisations can retain the best people. I invite you to read the article from Paul Polman published recently. Employees want their companies to step up. Even in these difficult economic times, around half say they would consider resigning if the company’s values don’t align with their own. A third say they already have. All of these numbers are higher for Millennials and Gen Z — the workforce of the future. The war for talent is on.

Leaving no one behind means prioritizing human beings’ dignity and placing the progress of the most marginalized communities first — women and girls being all too often at the top of the list. It urges us to address the structural causes of inequality and marginalization that affect them. This ambitious undertaking requires a collective effort to identify and share effective strategies to operationalize this concept. In an industry where women influence 90% of consumer behaviour, we should step up. And let’s be inclusive to engage with the artisanal and small-scale mining (ASM) community. ASM provides a vital livelihood for nearly 45 million people around the world, with tens of millions more people also dependent on the sector, including family members and small business owners along the ASM supply chain. Artisanal mining is an important driver of development in communities from Africa to Asia, where there are often few other opportunities available for generating income. How can we shape the right public-private partnerships to encourage businesses to collaborate?

2. Powering data-driven sustainability in an ever-evolving regulatory framework

Guiding measurable and responsible business practices built on a bedrock of data-driven insights isn’t a new idea, but it is an idea whose time is ripe.

With the data collection, analysis via machine intelligence, and artificial intelligence (AI) tools available to us today, we are in the age of “sustainability analytics.” We can use this immense informational advantage to power sustainability goals, optimize supply chains, and reduce waste. Insights from sustainability data can power positive change while simultaneously increasing profitability. Transparency and traceability reporting on our actions and supply chains from source to consumer will become the new normal.

According to an advertisement feature by SAP on the Economist Impact website: “Difficult work lies ahead. For example, SAP research has found that 79% of companies are dissatisfied with the quality of data available to drive sustainability transformation. And the Net Zero Tracker also found that 65% of corporate emissions targets do not meet minimum procedural reporting standards, which aligns with other research findings on the lack of reliable data when it comes to sustainability.”

With over 700 unique sustainability-related regulatory instruments globally, there has been exponential growth over recent years in policy and standard-setting initiatives that mandate the disclosure of ESG information. In 2022, policy became a vehicle to reorient capital flows through multiple routes and at different levels, both international and domestic.

While the European Union continues to drive ESG-related policymaking through flagship regulations such as SFDR, the EU Taxonomy, CSRD and the Human Rights Supply Chain Due Diligence Law, international efforts are quickly catching up. In the US in 2022, the SEC released the Proposed Rule to Enhance and Standardize Climate-Related Disclosures for Investors, as well as a proposed ESG Fund Labelling Rule. In the UK, the Financial Conduct Authority (FCA) climate-related disclosure regime came into effect in 2022, introducing climate-related reporting requirements in line with the Taskforce on Climate-Related Financial Disclosures (TCFD). And in Asia Pacific, the Securities and Exchange Board of India (SEBI) published draft rules to regulate ESG ratings providers in 2022, building upon IOSCO recommendations.

As ESG regulations continue to evolve rapidly across multiple jurisdictions, corporates are navigating increasingly complex challenges around reporting. As such, the role of data technology will become more and more important in meeting complex reporting requirements. ESG Book, a global leader in sustainability data and technology, is helping the Watch & Jewellery Initiative 2030 to master these challenges. Covering today over 50,000 companies, ESG Book’s SaaS data management and disclosure platform provides access to over 135,000 corporate disclosures, enabling companies to disclose to stakeholders in real-time against multiple frameworks. A challenging and exciting journey ahead.

3. Preserving Biodiversity as a Key Climate Goal

According to this UN report, biodiversity is our strongest natural defense against climate change. The report goes on to say that biodiversity “forms the web of life that we depend on for so many things — food, water, medicine, a stable climate, economic growth, among others. Over half of global GDP is dependent on nature. More than 1 billion people rely on forests for their livelihoods. And land and the ocean absorb more than half of all carbon emissions.”

“An ambitious and effective post-2020 global biodiversity framework, with clear targets and benchmarks, can put nature and people back on track,” the UN Secretary-General has said, adding that “this framework should work in synergy with the Paris Agreement on climate change and other multilateral agreements on forests, desertification and oceans.”

Such an agreement was reached in Montreal in December. Called the Kunming-Montreal Global Biodiversity Framework, it is being hailed by many as the “Paris momentfor nature.” And much like the Paris accords, the biodiversity framework could have far-reaching implications for business. Not only does the framework explicitly call for integration of biodiversity and climate strategies, but also for the first time a UN biodiversity agreement includes sections on how businesses will report on their impacts and dependencies and how they will act on them. The framework also highlights the role of business in providing finance and other support for the implementation of ambitious targets to protect and restore the land, waters and oceans. Through 2023 and into 2024, we will learn more about how this will be implemented, and how business can contribute to a nature-positive future.

4. Leveraging innovation for sustainability goals

According to an IMD report, at any given time, we have at least one million green start-ups exploring new energy solutions. Also, we already have 47 climate unicorns worth more than $1bn.  

As per this WEF report, “thanks to continual improvements in technology over the past decade, the cost of solar and wind power have fallen drastically, making renewables cheaper than fossil fuels. According to some estimates, the switch from fossil fuels to renewable energy will help economies save $12 trillion globally by 2050.”

In the jewelry industry, we know how technology disruption in areas such as blockchain and AI has now become crucial to fostering ethical sourcing practices, sustainable supply chains, and transparency. Examples of this abound: the Aura Blockchain Consortium, a collaboration between LVMH, Richemont and the Prada Group, the technology company Everledger, and Tracr from De Beers Group being just a few notable ones.

5. Collaboration to build momentum on circular economies

Multi-stakeholder partnerships between the public and private sectors are paramount in accelerating progress towards the building of circular economies. However, for collaboration to be truly effective, it needs to break past the constraints of power. An example here is intergenerational collaboration. The youth and children of today are the biggest “climate stakeholders” in that they will inherit the challenges and the risks, and hopefully the solutions, that past generations have created and set in motion. Their voices need to be heard, even when (and especially when) they seem unconventional or new to the powers that be. This includes giving young people power over decisions that impact their futures.

The World Economic Forum (WEF) Annual Meeting, which took place in Davos, Switzerland, from 16 to 20 January 2023, had the theme “Cooperation in a Fragmented World” — emphasizing the importance of a global conversation where no one is left behind.

2023 will be a crucial year for testing the solidity of collaborations. One example here is building on the agreement by 175 countries in 2022 to establish a legally binding treaty to end plastic pollution. The Intergovernmental Negotiating Committee (INC) will hold workshops over the course of 2023, with the aim of adopting the treaty in 2024. Another is the EU taxonomy on sustainable activities, which will start to include the circular economy for the first time from January 1, 2023, thus accelerating the incorporation of circularity in the investment community’s scrutiny of corporate activities.

6. Increasing focus on climate adaptation

One of the other themes emerging out of Davos this year was the need to increase focus on climate adaptation. This was also a dominant topic at the COP27 meetings last year. The thesis here is that even if we meet current goals, a significant portion of the changes in climate cycles that lead to changing weather patterns and extreme weather events are irreversible and, in essence, baked in. Also, the goal to keep global warming at less than 1.5 degrees Celsius above pre-industrial levels seems increasingly out of reach.

Hence, governments and businesses need to invest in their preparedness for these extreme events and natural disasters. These investments, or the lack thereof, have longstanding implications on business, politics, and natural ecosystems. This is especially the case in developing countries, which bear a disproportionate brunt of climate risk. It needs to be said that there are both synergies and trade-offs between climate-change mitigation and climate adaptation, the former being essential to achieving longer-term goals.

This is a position backed by WEF’s latest Global Risks Report, which highlights failed climate adaptation second only to failed emissions reduction as the biggest global risk when looking ten years out.

In the words of Nelson Mandela: “It is in your hands to make a better world for all who live in it.”

With that, I invite you to embrace, even amid uncertainty, hope, a collaborative spirit, and a renewed focus on the goals we have set for ourselves and for the planet to create a better world for all.

Image: Iris Van der Veken.

The post Sustainability in a Rapidly Changing World: A 2023 Perspective appeared first on Rapaport.

The bridal sector hopes the momentum will last following the busiest year for nuptials in almost four decades.

For nearly two years, the world came to a standstill as Covid-19 raged. Travel was limited, and fewer activities took place outside the home.

Yet something that seemed to continue in force during the pandemic was engagements. More people popped the question, perhaps realizing how short life could be — or they simply discovered they could thrive in close quarters with their significant others.

But tying the knot was a different story. Pandemic restrictions meant many couples had to hold off on the ceremony itself. The trend led many in the industry to predict 2022 would be a banner year for weddings — and the reality appears to have proved them right.

“We definitely did have a boom in 2022, and it was pretty intense and insane, to be honest,” says Robyn Bruns, managing editor of Wedding Planner Magazine, a publication of the Association of Bridal Consultants (ABC). “It felt sort of like the industry had an earthquake. People were so eager to get married in 2022, they were willing to seal the deal on a Tuesday or Thursday even. They waited two years, and they didn’t want to wait anymore. I personally planned a wedding early in the year, which was supposed to have white roses, and my florist couldn’t get a white rose to save her life.”

By the numbers

A total of 2.6 million couples got married last year, the highest figure since 1984, according to a survey from wedding site The Knot. Of those pairs, the average engagement length was 15 months, though 13% had been waiting two years or longer to seal the deal.

The increase in nuptials was around 75% versus 2019, notes Veronica Foster, president of the ABC and head of ABC USA, based on her own experience and feedback from her community of wedding service providers throughout the US.

“The boom of 2022 sure did happen,” she explains. “A lot of our members were a bit overwhelmed. [They were] ecstatic, because there was no income for us in 2020, and little in 2021, but 2022 was still incredibly stressful.”

Wedding registry site Honeyfund enjoyed a 20% year-on-year rise in sign-ups, reports its CEO, Sara Margulis.

Meanwhile, Shane McMurray, CEO of data resource The Wedding Report, claims the vendors he spoke to in late 2021 were completely booked for 2022.

But does this indicate fundamental growth, or was it just a rollover of weddings that couldn’t take place while the world was on pause?

“I think this was the result of three years of weddings being stuffed into one year,” says Bruns. “Everybody came down at once, so you had kind of a dual thing going on. You had the people who waited, and then you had the people who would have normally gotten married in 2022, so it was kind of all compacted together.”

Bruns estimates the total number of weddings last year was about 50% to 60% higher than a normal, pre-pandemic wedding year.

Keeping the ball rolling

The high rate of engagements last year indicates 2023 will be another strong one for the sector, says Severine Ferrari, founder of Engagement 101, a multimedia platform for couples planning their engagements.

“From the feedback I’m getting, 2022 was not just a boom year for wedding-band sales, but the engagement-ring market was booming,” Ferrari reports. “It’s still very strong. People sold at least 30% more than the year before.”

Within the engagement-ring segment, diamonds remained the number-one pick, according to The Knot. Some 85% of respondents the site surveyed chose them in 2022, with 37% of those buying round diamonds and 21% veering towards ovals. More than one-third of center stones purchased during the year were lab-grown.

McMurray agrees this year will be strong, noting that many wedding service providers who were fully booked last year have similarly tight schedules for 2023, and some even for 2024. Honeyfund data also show that due to the immense backlog of postponed weddings, many couples will be saying “I do” in 2023, Margulis says.

It’s not just local hot spots that are getting booked up. One of the more popular trends is destination weddings, and Foster has struggled to find space for her clients seeking that type of event.

“We’re finding that a lot of the resorts’ wedding dates are already booked until fall 2023, and that is much earlier than usual,” she explains. “Usually, if I tried to book right now, I could definitely get a date for September, October, but I’m having a really hard time, and I’m having to push a lot of clients into January 2024 just to get a date, sometimes even for a weekday. I spoke with one of our vendors yesterday who’s a very high-end luxury florist, and she told me she’s already overbooked for all of 2023 and can’t take any more.”

However, Bruns at Wedding Planner Magazine doesn’t believe 2023 will be as busy as people predict.

“I think this year will be closer to normal, or even slower,” she says. “Most vendors have said their backlog from postponed weddings has been worked though. I think people have also lost the sense of urgency that was driving them last year, because they didn’t know when things might shut down again. I think the economy will also hinder weddings, and people may decide to wait a year or so and save some money before getting married.”

Bruns wonders if that hesitation might lead to a mini-boom in 2024. Either way, she says, the jewelry industry will continue to thrive.

“From a jewelry-industry standpoint, I think they have nothing to worry about,” she comments. “2023 is probably going to be a decent year for engagements. [People will] continue to get engaged [and] they’ll continue to buy rings. They just won’t necessarily get married right away.”

Main image: A wedding that took place in 2022. (Zach Nichols, supplied by Robyn Bruns)

The post Will the Wedding Boom Continue? appeared first on Rapaport.

The diamond market has yet to feel the full effect of the war in Ukraine. Initial predictions pointed to a potential supply shortage that would result from having Alrosa, with its large share of global rough production, off the market. However, those scarcities have not emerged significantly.

This might be because the industry is still adjusting to the impact of US sanctions placed on Alrosa as the world will mark the one-year anniversary of Russia’s invasion of Ukraine on February 24. We recognize three areas in which the trade was, or will be, affected:

1. A slowdown in demand as the war fuels global economic uncertainty;
2. The decline in rough-diamond supply due to US sanctions on Alrosa;
3. A bifurcation of the market as the industry splits into two streams, between ethically sourced diamonds and those that are not.

Among those factors, the industry most acutely felt the impact of the war on global demand in 2022. Trading slowed because of that event, along with the economic uncertainty already in play, with the conflict fueling high inflation. Polished prices peaked a week after the invasion and have been on a downtrend since (see graph below).

The effect of the war on global economic growth is tapering off. The outlook for the US remains cautious due to continued inflation, higher interest rates and the inevitable drop-off from the strong recovery following the pandemic.

Meanwhile there is some optimism for a rebound in China since the government opened its borders after lifting its zero-Covid policy.

While that all plays out, the trade is now focusing on the second and third factors tied to Russia, which didn’t fully exert their influence in 2022. Those relate to how sanctions on Alrosa will affect supply and push the market toward showcasing its responsible-sourcing credentials.

This report is the first in a three-part series that Rapaport will publish about the diamond industry’s Russia crisis. In this installment we aim to understand Alrosa’s position in the market and the repercussions of the largest producer being excluded from the mainstream pipeline. Part two will focus on the sanctions and what they really mean for the industry. The third report will project what a split market might look like, outlining the industry’s options for tracing its supply and providing assurances to consumers that their diamonds are ethically and legally sourced.

A fox in a hole

Legend has it that a fox led geologists to the site where the first diamonds were found in Russia’s Yakutia Republic. More accurately, after recognizing a similar geological landscape to that of South Africa’s kimberlite ore formations, geologists in post-World War II Russia descended on Yakutia, a vast 1.2 million square-mile territory about 3,000 miles east of Moscow, scrutinizing the banks of the Vilyuy River for volcanic pipes. By the spring of 1955, geologist Yuri Khabardin was excited to come across a foxhole in a ravine that exposed blue earth, indicating high diamond content. (See “Alrosa the Diamond Fox” in the July 2013 issue of Rapaport Magazine).

Much was at stake, with the directive to find diamonds coming from the highest levels. Joseph Stalin recognized the need for industrial diamonds to help rebuild Russia after the war, and he knew he couldn’t rely on De Beers goods for fear they might boycott supply to the Soviet Union.

From that initial discovery of the Mir mine, Yakutia emerged as arguably the most diamondiferous region in the world. With its immense resource, the Russian government agreed to sell its production through De Beers, which enabled the then-South African miner to maintain its control of the diamond market.

While the volume of goods sold to De Beers varied over the years, the arrangement was terminated only in 2009 after the European Commission ruled the arrangement breached its competition laws.

That set Alrosa on a new path toward independence and influence in the diamond market. With an initial public offering (IPO) in sight, the company began offloading its noncore subsidiaries, which included oil, gas iron ore, hydropower, banking, aviation and hotel units. By the time of its listing in 2013, the company was focused on leveraging its rough-diamond production volume to spur growth.

While De Beers had shifted focus to branding, Alrosa was building its credentials as the largest volume producer of rough diamonds. It recovered an average of around 35 million carats a year in the past decade (see graph), and although that dropped a bit in recent years, Alrosa was still the largest volume producer in 2021 — just above De Beers (see chart). Alrosa had projected production of 33 million to 34 million carats for 2022, though it hasn’t published its results since the onset of the war.

The company has some 20 mines across five divisions, including Aikhal, Mirny, Udachny, Nyurba, and Lomonosov (Severalmaz) carrying an impressive resource of over 1 billion carats, according to its website. Those consist of a mix of kimberlite, alluvial and tailings operations, while Alrosa has invested heavily to go deeper with underground mining at the famed International, Aikhal and Udachny operations. A flood at the Mir underground mine in 2017 forced its closure, with reconstruction expected to begin in 2024.

The company has enjoyed steady growth over the past decade. Revenue jumped 51% to RUB 326.97 billion ($2.99 billion) in 2021, spurred by the recovery from Covid-19, while net profit grew to RUB 91.32 billion ($834 million), almost triple 2020’s figure of RUB 32.25 billion ($297.3 million) (see graph).

Approximately 70% of sales are made to contract clients at monthly events through the Alrosa Alliance program, similar to De Beers’ sight system, while it also holds regular auctions and tenders as well as spot sales to individual clients. Its sales gradually became a barometer for the trade in a similar — though arguably less influential — manner to the De Beers sights.

Opening up

The October 2013 IPO gave the company a market capitalization of $8.12 billion. More importantly for the industry, it forced the miner — which was previously seen as secretive — to become more transparent as it now had a broader range of shareholders to whom to answer and had to meet the reporting requirements of the Moscow Stock Exchange.

In its current shareholder structure it is 33% owned by the Russian Federation, 25% by the Republic of Yakutia, 8% held by the local Yakutia municipalities, and 33% traded on public markets. The transparency drive brought informative quarterly trading updates, earnings reports, monthly sales disclosures, and open dialogue about its operations.

Management also made a concerted effort to engage with the industry, taking central roles in organizations such as the World Diamond Council (WDC), Responsible Jewellery Council (RJC), Diamonds Do Good (DDG), and the Natural Diamond Council (NDC), among others.

In addition, it stepped up to its role as a responsible company, contributing to local community projects, and embracing environmental, social and governance (ESG) issues surrounding its operations.

In a slight deviation from its production-centric approach, the miner also began diversifying its portfolio, building up a sizable polishing division that was boosted by its acquisition of Kristall of Smolensk in 2019. It started using its polished unit as a platform to build some brand equity of its own, with initiatives such as the Romanov collection and its more recent efforts to promote diamonds with fluorescence, since its production contains a higher-than-average percentage of these goods.

The company targeted the US, the largest consumer market for diamond jewelry, to elevate its position as an important, ethical, and diverse diamond producer.

The devil is in the data

Those marketing programs and the company’s involvement in industry affairs came to a halt when the war broke out last February — in some cases in controversial fashion. It also stopped publishing reports about its sales and operations.

That has left a gap, making it more difficult to assess global production, rough sales and how they relate to the market. The miner reportedly changed its Alrosa Alliance client list recently, with more secrecy regarding who it includes. Very few admit they continue to buy rough from the company. And if they are purchasing, it is also unclear how they are paying, given that Russia has been blocked by most international transfer systems.

US sanctions on Alrosa and the restrictions placed on international money channels to Russia limited access to the world’s largest producer of rough diamonds. But the sanctions have loopholes and are being revised. They restricted only direct imports from Russia but allowed orders of diamonds sourced in Russia yet polished in other centers. (We will examine in greater depth the mechanics of the sanctions in the next instalment).  

In addition, other countries have not imposed sanctions — notably Belgium, the largest prewar trading center of Alrosa diamonds; India which typically manufactures them; and Dubai, which facilitates their trade to India. Russian goods still have a path to market, and they are clearly filtering through.

Data from the National Bank of Belgium suggest that country’s imports of nonindustrial rough diamonds from Russia fell 8% year on year to EUR 1.26 billion ($1.35 billion) in the first 10 months of 2022, and by 53% in volume terms to 11.6 million carats.

Meanwhile, statistics from India’s Ministry of Commerce suggest its nonindustrial rough imports from Russia rose 23% by value to $902 million during the same 10-month period, while by volume they increased 14% to 4.1 million carats. India’s Gem & Jewellery Export Promotion Council (GJEPC), which tracks its own data based on the ministry’s, did not respond to Rapaport’s request to explain the increase by press time.

It is likely that some of the goods lost to Antwerp are being sent direct to Surat, whereas they would typically stop in Belgium en route to India even in a normal market. The combined imports from Russia for the two centers fell 44% year on year to 15.7 million carats (see graph) for the period January to October. Import data by source country was not available from other major rough-trading centers — notably Dubai, Israel and China.

The bigger test

Either way, Russian diamonds are clearly entering the market, and Alrosa appears active. And assuming they’re not going to the US, considering the legal and reputation implications of dealing in these goods, there are other destinations that don’t have the same concerns — namely China and India.

While there are retail outlets in these non-American markets to which suppliers can sell, the greater challenge is for dealers and manufacturers to ensure that Russian and non-Russian diamonds don’t mix in the trading, cutting and polishing stages. Can the trade give US jewelers the assurances they seek that their supply is not from a banned source? Can it trace its supply to facilitate the full ESG story that luxury brands and jewelers need to tell?

That will be the big challenge for the diamond industry in 2023 as the Russia crisis lingers. Alrosa supply will likely increase this year. The trade will need to decide how best to disclose these goods.

Correction, February 22, 2023: Belgium’s rough imports from Russia fell 53% by volume to 11.6 million carats in the first 10 months of 2022, and not 29% to 2.6 million carats as initially reported in this article. The combined imports of Russian rough to Belgium and India amounted to 15.7 million carats during the same period, down 44% by volume from the previous year, and not as stated previously.

This article first appeared in the February edition of the Rapaport Research Report. Subscribe here.

Image: Rough diamonds recovered by Alrosa. (Alrosa)

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