How Russian sanctions could impact the diamond industry

Founder & CEO of Diamond Cutters International Fred Cuellar, also known as “The Diamond Guy", sits down with Yahoo Finance Live to discuss disruptions to the diamond industry due to the Russian invasion and sanctions, pandemic-era trends in engagement ring sales, comparisons to oil trading, and the forecast on diamond prices.

Video transcript

JARED BLIKRE: Welcome back. The white hot diamond market is on fire with jeweler sales up 29% in 2021, diamond cutters up 55%, and miner revenue up 62%. But new sanctions on Russia, which accounts for over a quarter of global diamond supply, may keep those stones forever in Russia. And for more on this, we want to talk to Fred Cuellar, a.k.a. the Diamond Guy, founder and president of Diamond Cutters International. Fred, great to see you here. And just think the situation--

FRED CUELLAR: Thanks for having me.

JARED BLIKRE: You bet. We'll get to your business in a second, but we want to talk about the breaking news here in Russia and exactly what they're doing to keep some of those stones off the market potentially.

FRED CUELLAR: Well, the idea is that about one in every four diamonds is coming out of Russia. And so the question becomes one of solidarity in the diamond industry to not allow these stones into the US markets so that you don't have somebody worried that they're somehow supporting the atrocities that are going on right now.

And what's nice now is it's not like back in the old days. You can use blockchain technologies in order to track diamonds from mine all the way to an engagement ring finger. So it's not that difficult for somebody to walk into their jewelry store and say, hey, I don't support Russian diamonds. And I want to make sure my diamond is 100% not a Russian diamond. It's actually not that difficult.

KARINA MITCHELL: Topic close to my heart because I have so many family in the jewelry business based in Antwerp and India as well, nobody based on Russia. But I'm wondering, so mining, polishing, retail, all now above pre-pandemic levels. There's really been a remarkable recovery in the diamond business since the worst of the pandemic. But I'm wondering, how does that impact now the sort of recovery? How does Russia impact, how does a conflict impact that? And does it sort of turn the clock back on recovery, do you think?

FRED CUELLAR: Well, what's interesting is during the pandemic or right at the beginning of March 2020, my original thought was, uh-oh, this can't be good for business. But what was interesting, we found that two rings showed up during COVID. Either you wanted to wring somebody's neck or you wanted to put a ring on it. There were literally women all over the world who said, if you're not going to commit to me during a global pandemic, then you're never going to commit to me. So you're right. The demand actually skyrocketed when, suddenly, women all over the world said, enough's enough. You know, Beyoncé style, just put a ring on it.

But no, I don't believe we're going to turn back. Just yesterday alone, Botswana has already said, hey, look, short-term wise, if we have to step up, work a little bit harder, and mine a few more diamonds out of the ground so that we can meet what's being pulled from the marketplace, we'll do so. We see this all the time with oil when someone says, well, wait a second, there's a disruption in the market, then someone says, OK, it's time to go some reserves.

JARED BLIKRE: Well, and let me ask you about the diamond industry in general. We've had artificial diamonds coming online in recent years over the last decade, or two decades, getting better and being more difficult to discern from them. This takes away supply from the market. And [INAUDIBLE] is historically probably the most successful cartel over time. Is this, in fact, a boon for prices?

FRED CUELLAR: I think I hear two questions there. One question is, at least that I've heard, is, is it possible that diamond prices get so high in the natural market that some people may decide they're going to move towards a lab grown stone? I'm really not seeing that. If anything, the prices keep dropping on the lab grown stones to just a few hundred dollars per carat.

What we're seeing is people really want the real thing. They want something that's natural, something that has value to them. So as far as we can see, even with the overhang, we don't see there be any issue with somebody saying, geez, I want something that was made in a lab in three weeks versus something that took 800 million years to grow.

KARINA MITCHELL: You know, there are so many seasons in the diamond industry. And we just came off engagement season. We're right in the middle of wedding season. So many weddings held off last year because of the pandemic. So I'm wondering, are you seeing demand sort of surge now for naturally mined diamonds? And then also wondering, when do those prices-- the sanctions on Russia start to hit the prices of naturally mined diamonds here in this country and drive prices up?

FRED CUELLAR: Yeah, I think it's a great question. Because of the way the supply chain works is in the short-term, you don't see any fluctuation in prices. So that's not going to be an issue because it takes a while for them to come down the pipeline. The question becomes is, what will the price range be midterm? Based on what it appears to be with Botswana, South Africa, other countries that are going to be filling in the gaps, it's very possible that you could see 5%, 10%, 12% price increases six, eight months from now. But is Russia being off the market a disruptor? I don't see it.

KARINA MITCHELL: All right, we'll have to leave it there. I still had so many questions for you, including which is the most popular cut of diamond that people are looking for--

FRED CUELLAR: Round.

KARINA MITCHELL: --but we'll leave that-- round, OK, thank you. Thank you so much for your time today, Fred Cuellar, founder and president of Diamond Cutters International.