The diamond industry is facing a critical challenge with an oversupply of both natural and lab-grown diamonds, presenting an unexpected predicament for miners, manufacturers, and jewelers, just as the holiday shopping season approaches.
Several adverse factors, including global economic uncertainties and ongoing conflicts in regions like Ukraine and the Middle East, have disrupted the diamond market precisely when it needs stability the most.
A substantial drop in diamond prices and a decline in buyers’ interest have resulted in lackluster sales for De Beers, a traditional leader in the diamond industry. In response, the company has launched a $20 million marketing campaign, marked by the revival of its iconic 1947 slogan, “A diamond Is Forever.”
The extent of the demand slump became evident during De Beers’ last month sales, which recorded a 61% decrease compared to the same period a year ago. The company’s response to this challenging situation included the cancellation of online diamond auctions for the remainder of the year.
De Beers’ Chief Executive, Al Cook, described the situation as “stock accumulation” in certain segments of the industry, highlighting the urgency for action.
The industry’s next test will be the ninth sales cycle, scheduled to begin tomorrow and conclude on November 12. Cook emphasized that the $20 million advertising campaign is designed to “help drive consumer demand during the holiday season.”
Diamond demand, known for its cyclical nature and sensitivity to consumer confidence, typically wanes in challenging economic times, especially when potential buyers face high-interest rates and rising living costs. However, this time, the industry is grappling with a new challenge – the increasing share of the market controlled by lab-grown diamonds.
Lab-grown diamonds, once dismissed as unlikely to gain traction, have gradually encroached upon the diamond market, particularly in the lower-priced segment. Advances in technology and the absence of entry barriers have led to the flourishing of the lab-grown diamond sector, causing price declines and challenging the traditional notion of diamonds as high-end luxury products.
A sign of the lab-grown diamond oversupply is the recent bankruptcy of U.S.-based WD Lab Grown Diamonds. The company attributed its financial troubles to a flood of cut-price gems from Indian and Chinese manufacturers.
De Beers, which had a presence in the lab-grown diamond sector through its subsidiary Lightbox, had to withdraw from a major segment in September, engagement rings, citing low prices.
Another significant diamond producer, Russia’s Alrosa, suspended sales over the last two months and is now facing potential bans on its products by European and U.S. jewelers. Renowned jewelers such as Tiffany and Van Cleef & Arpels have ceased stocking Russian diamonds.
The RapNet diamond index reported that diamond prices have experienced a substantial decline: three-carat stones are down 15.3% YoY, one-carat stones are down 25.9%, and half-carat stones have seen a decline of 31.6%.
The situation has sparked a debate in South Africa, historically a center for diamond mining, about whether De Beers is a suitable fit for Anglo American. Anglo American, one of the world’s largest mining companies, primarily derives its profits from industrial materials like copper, iron ore, platinum, and coal.
The decline in De Beers’ financial performance is challenging to gauge accurately due to its position within a major mining conglomerate. However, the impact of the diamond glut is evident in the stock market performance of dedicated diamond miners. Two London-listed miners, Gem and Petra, have seen their share prices drop by 64% and 51%, respectively, since the beginning of the year. Meanwhile, two Australian-listed miners, Lucapa and Burgundy, witnessed declines of 36% and 27%, respectively.
