The cultivated diamond sector, which attracted a wave of investors' attention last year, seems to have a tendency to rebound after more than two months of sharp retracement.
Today, cultivated diamond concept stocks rose across the board. ST King Kong, who was on the verge of delisting due to financial fraud and was also caught in the storm of arrest of the legal representative suspected of illegal disclosure of information, was pulled by more than 20%, directly up and down the board. Yuyuan shares, China Machinery Seiko rose about 4%, the Yellow River whirlwind, power diamond rose more than 2%, Sifangda, Wold, Zhongbing Red Arrow and so on followed the rise.
Over the past year, the previously unknown cultivated diamond sector has set off a frenzied upward trend. The Yellow River Whirlwind soared by more than 348% from a low in February to a high in November; Red Arrow rose 248%; and Power Diamond achieved more than 16 times in just two months from September to November, including an 11-fold surge on the day of listing on September 24.
But after the November high, the cultivated diamond sector experienced a sharp retracement. The Yellow River cyclone fell 38 percent, the Power Diamond fell 33 percent, and the Red Arrow fell 41 percent. Before the Spring Festival, the sector rebounded, and the cultivation index has risen by more than 9% so far.
(Yellow River Cyclone Stock Price Chart)
On the news side, the comeback of cultivated diamond concept stocks is related to the reduction in the supply of natural diamonds under the epidemic, in addition, the global demand for diamond consumption has recovered significantly, resulting in short supply and increased prices of natural diamonds. At the same time, there is more demand for alternatives to cultivated diamonds that are cheaper but of the same quality.
At the first trade fair of the year in January 2022, De Beers, the world's largest diamond mining supplier, raised the price of raw diamonds by about 8%. Prior to that, in December, De Beers had raised the price of raw diamonds four times in a month. Not only that, but other natural diamond miners ALROSA, Rio Tinto and Petra Diamonds have all raised prices for virgin diamonds, and international polished diamond prices have risen sharply since January.
The data showed that the diamond product price index rose by 5.67% in January this year, an increase of 1.32 percentage points month-on-month, setting a record for the highest increase in the price of polished diamonds in many years.
Compared to natural diamonds, the price of artificial diamonds is about 20%-30%. The continuous rise in the price of natural diamonds has to a certain extent inhibited the demand for more price-sensitive consumer groups, making this part of the consumer turn to artificially cultivated diamonds that are basically the same as natural diamonds in terms of physical and chemical properties.
Guotai Junan believes that in the context of the peak demand season of the overall diamond industry, and the epidemic has affected the serious shortage of upstream supply, natural diamond Rapaport has shown a comprehensive price increase in refined diamonds, and the current pricing system for cultivated diamonds relies on Rapaport quotations; the overseas downstream demand for cultivated diamonds is strong, and it continues to be in short supply, and domestic consumers have a large room for improvement, and the industry has shown a long-term good trend.
However, the domestic "three giants of cultivated diamonds" Yellow River Whirlwind, Power Diamonds, and Zhongbing Red Arrow's cultivated diamond business is not mainly aimed at C-end consumers, but B-end industrial-grade diamonds.
Because of its special physical properties, diamonds can be used as better optical and semiconductor materials in the manufacturing industries of electronic communications, aerospace, semiconductors and consumer electronics.
However, due to the scarcity of industrial diamond resources in China, for many years the raw materials in this field have originated from imports. Russia, South Africa and Congo, Australia and Botswana are veritable industrial diamond powers, with a total reserve of 90% of the world's total.
But since 2017, global rough diamond production has begun to decline. Production was 152 million carats in 2017, compared to 111 million carats in 2020. Production growth has also fallen sharply from 20% in 2017 to -20% in 2020.
In order to solve the problem of insufficient raw materials for industrial diamonds, the country began to manufacture artificially cultivated diamonds. At present, in addition to China, india and Ukraine currently have this R&D technology.
But last year, due to the new crown epidemic, the global supply chain was in a state of tension, and many artificially cultivated diamond manufacturers in India were affected and had to stop work. As China took the lead in recovering supply chains from the epidemic, orders from related cultivated diamond companies soared.
According to the latest annual performance forecast released by the Yellow River Cyclone, the company will achieve a net profit attributable to the mother of 41 million yuan in 2021, achieving a turnaround. The announcement said that in 2021, the company's main business superhard material product structure adjustment has achieved results, and the production and sales of cultivated diamond products have increased significantly, which has greatly improved the profitability of the main business products.
Guosen Securities believes that with the upgrading of traditional manufacturing technology and the rapid development of emerging industries in the mainland, the demand for superhard materials continues to increase, and the total output of synthetic diamonds in the mainland will exceed 20 billion carats for the first time in 2020. Due to the increase in demand and the improvement of the pattern brought about by a large number of presses for the production of cultivated diamonds, the company's industrial diamond products are in full production and sales, and the price is continuously raised, and the operating efficiency is greatly improved.
It is worth noting, though, that the sharp spike in artificially cultivated diamond concept stocks last year is inextricably linked to global supply tensions. Although the Omiljung mutant strain is still rampant worldwide, the toxicity and fatality rate have been reduced compared to the previous NEW CROWN strains. As overseas pharmaceutical companies such as Pfizer have successively developed specific drugs for the new crown virus, the recovery of overseas supply chains also needs to be included in the changes in domestic order demand for artificially cultivated diamonds.
From the historical valuation of the cultivated diamond sector, after more than two months of retracement, the dynamic price-to-earnings ratio of the cultivated diamond sector has fallen below the average of the historical valuation.
In the current A-share market environment, the valuation of the plate is switched, a large amount of money spills out of growth stocks such as lithium batteries and photovoltaics, while real estate, steel, home appliances and coal in the previously undervalued cycle industry in the field of large infrastructure have obtained the opportunity to oversold and rebound.
However, unlike the white horse stocks with the value of the group last year and the new energy growth stocks of the group last year, the funds in the market since the beginning of this year do not seem to have found a suitable main line of the group, so that the concept of the previous sharp retracement in the A-share market has suddenly erupted. From the perspective of sustainability, the support of these sectors is still slightly insufficient. Whether the resurgence of the concept of artificially cultivated diamonds is only a flash in the pan remains to be seen.