In the past 18 months, the entire diamond industry has faced severe challenges and tests, but if we want to look ahead to the future, we need to consider several seemingly insignificant but actually crucial factors.
01
The role of proximate effects
The so-called "recency bias", also translated as "recent bias", is actually a very common psychological phenomenon. Under this psychological influence, people often make relatively blind assessments of the future based on recent events or their current state.
Under this psychological influence, people will feel that the future situation will be similar to their recent performance.
It is obvious that the diamond industry is often influenced by the 'near cause effect', especially when recent trends are 'very firm', the role of the near cause effect becomes even more prominent.
For example, when demand for bare diamonds is strong and market demand is rising, people often make overly optimistic predictions about the future. Then many operations become too much, resulting in oversupply, excessive inventory, and so on.
Similarly, when market demand shows a decline, people tend to assume that "demand will continue to decline in the future" - this is currently a popular viewpoint in our industry.
Dinesh believes that judging the future based on recent performance is wrong. When making plans and strategies, we not only need to analyze current data and facts, but also consider some historical background in order to make correct judgments about the future direction - although this information may not be very obvious.
02
Self repair and balance
Natural diamonds are a unique 'emotional product' that is often influenced by multiple factors such as economic cycles, human emotions, and consumer purchasing power.
In the past 15 to 18 months, the diamond industry has gone through a period of self repair and rebalancing, resulting in a decrease in supply and making the entire supply pipeline "lighter".
This' repair and balance 'is mainly reflected in the following aspects:
1) Control of bare diamond supply end.
Since the global consumer market experienced a decline in April 2022, the midstream has responded. From June 2022, the supply side of bare diamonds (i.e. diamond processing plants) will gradually reduce production, and the "Ripple effect" will lead to a decline in the demand for blanks. At present, the phenomenon of supply decline is already very obvious, and some "small products" (such as diamonds with smaller particles or purity below SI level) are in short supply - even at this time, demand is still relatively low.
2) The global demand for natural diamonds (bare diamonds) has bottomed out.
After the COVID-19 epidemic, there was a consumption boom, which led to high inflation in major economies. In 2022, due to geopolitical reasons, the entire market began to deteriorate. Central banks in various countries have significantly raised interest rates, with some countries even reaching their highest levels in recent decades.
However, similar actions have basically come to an end, with inflation in several economies beginning to be controlled, and interest rate hikes in some countries approaching or reaching an end. In China, loose economic policies are supporting and stimulating the generation of various demands.
The negative effects of the two major sectors of wedding and gift giving are now weakening, so the overall global demand for natural diamonds will gradually recover.
03
Changes in procurement
Jewelry retailers have been purchasing very little in the past year and a half, but with the approaching holiday and wedding peak at the end of this year, retailers will soon resume purchasing.
From a global perspective, the efficiency of the supply chain is constantly improving, such as the increase in online sales share of jewelry, retailers' control over inventory levels, and so on. These rationalized behaviors have been in operation for nearly two years.
The current low (retail) inventory base, coupled with the approaching wedding peak and holidays, will drive the demand for restocking by retailers in the second half of the year.
All of the above factors will ultimately stabilize the demand for natural diamonds. At present, these factors are hidden in pessimistic emotions, and pessimism itself comes from the "proximate effect" mentioned earlier. This mentality makes it difficult for many people, even in the industry, to see the "fundamental factors behind the fog" and make judgments about the future.
If we carefully examine what has already happened, we will understand that this is a logical process from "excess" to "rebalancing". The process of self-healing in the industry is painful, with one demand after another waiting to restart, leading to future industry recovery.