US Government to Industry: Know Your Supply Chain; De Beers and Alrosa Cut Rough Sales
August 22, 2019
The US State Department told jewellery industry representatives in April to tighten chain of custody reporting on all the materials – gemstones, diamondsand metals – used in their products.
Last week, the department came back and told the industry it was not doing a very good job.
According to a JCK report, the industry is still lagging behind on adopting “Know Your Customer” rules that require businesses to file “Suspicious Activity Reports” on transactions involving large amounts of cash or where criminal activity is suspected. State Department officials told attendees that “very few” such reports have been filed and that everyone up and down the supply chain needs to do more.
The State Department said that these regulations are necessary to prevent funds from going to “malign” regimes, such as Iran, Venezuela and several African nations.
The industry voiced concerns after the April meeting about a new round of restrictions placed on its supply chain that require the documentation of every step of every coloured gemstone or diamond in the pipeline.
Attendees agreed last week that cooperation is beneficial for all sides and called for greater due diligence in the future.
ROUGH DIAMOND SALES
De Beers, Alrosa and other diamond mining companies have severely cut rough sales in an effort to reduce stock in diamond manufacturing centres and to help temper the softening of rough and polished prices. Sales will probably remain low for the rest of the year because there is no sign of a quick resolution to the diamond manufacturers’ credit problems or high stock levels.
De Beers and Alrosa said the banks reduction of credit to diamond manufacturers and the prospects of an increased trade war between the US and China were the main reasons for the difficult rough diamond market today.
De Beers announced its smallest allocation in three years – $250 million (£206 million) – and allowed clients to defer purchases of a wider range of goods. Rough revenues are down nearly 25% for the year compared to last year.
Alrosa reduced its rough sales by more than 50% to $169 million (£139 million) compared to June 2018 levels. Its sales are down more than one-third for the year. Rough prices have declined by about 6% this year, while polished prices for diamonds of one carat and under have declined by 1.5% to 3.5%, with larger drops coming in the smaller sizes.
In addition, Rio Tinto reported a $5 million (£4.1 million) loss in its diamond division for the first half of the year, compared to a profit of $55 million (£45 million) for the same period of 2018. While the loss is due in part to the company shifting mining activities to lower ore grades (a means of trimming production in a soft market without disrupting operations), sales of rough diamonds were down 16% for the period. The company will close its largest diamond operation, the Argyle mine in Australia, next year.
Demand for diamonds, while not depressed, remains mired in very slow growth worldwide and is not sufficient to absorb excess stocks. Part of the reason for the slow demand growth is the unsettled political and economic climate around the world. In addition, young people seem less interested in jewellery than their parents. A study of the US market, conducted by Harris Poll for TD Ameritrade, found that Gen Z and millennials place much less value on an engagement ring than their parents – two-thirds believe a ring should cost less than $2,500 (£2,050).
Russell Shor is senior industry analyst at GIA in Carlsbad.