The diamond industry is facing a significant decline in prices this year, leading companies like De Beers to take drastic measures to combat the situation. In a surprising move, De Beers offered its buyers the option to purchase nothing at all during their recent sales event in Botswana, breaking away from their traditional model. This shift comes as diamond prices continue to drop globally, with reduced consumer demand and increasing inventories.
De Beers’ competitor, Alrosa PJSC, has already canceled all sales for two months, and India’s diamond market has also halted imports. At the recent De Beers sale, buyers from India and Antwerp used this newfound flexibility, resulting in purchases of only $80 million worth of uncut gems compared to the usual $400 million to $500 million. This marks the lowest sales volume for De Beers since publicly disclosing results in 2016, except for the early days of the pandemic when sales were completely halted.
The unexpected decline in diamond prices has taken many in the industry by surprise. Initially, the industry benefited from the pandemic as consumers turned to luxury items like diamond jewelry. However, as economies reopened, the market quickly cooled down. The US, the industry’s largest market, faced inflationary pressure, while China, an important growth market, experienced a real estate crisis that weakened consumer confidence. Furthermore, the lab-grown diamond sector made significant gains in specific market segments, exacerbating the decline even further.
Wholesale polished diamond prices have dropped approximately 20% this year, resulting in even steeper declines of up to 35% in rough, or uncut, stone prices. As a response, the industry has taken drastic measures to reduce supply, leading to shortages and price increases in smaller tender sales and auctions. There is renewed optimism as Indian factories are set to reopen after the Diwali closures, suggesting that the worst might be over for the industry.
However, the decline in diamond prices aligns with broader weakness in the luxury sector. Companies like LVMH, Richemont, and Cartier have faced disappointing results, with China’s recovery not meeting expectations and US consumer demand cooling down. The diamond industry, in particular, is susceptible to slowing consumer demand due to its unique dynamics. De Beers, for example, operates through 10 sales each year, where buyers typically agree to the offered prices and quantities. During times of price increases, buyers often engage in speculation and make large purchases to secure future allocations. This speculative behavior leads to bubbles that burst when consumer demand slows down and inventory builds up.
To address this decline, Alrosa has completely stopped selling diamonds for two months, and the Indian diamond sector has halted imports until mid-December. De Beers has allowed customers to refuse purchases without any negative consequences for the last two sales of the year. These actions, although not unprecedented during major crises like the pandemic, are highly unusual in terms of their speed and scale.
While prices have stabilized or even slightly risen in certain areas, the industry’s performance during the critical holiday season and the reintroduction of large amounts of unsold gems by major miners will be crucial. Additionally, there is uncertainty regarding whether the slowdown is caused by macroeconomic weakness or a fundamental shift in consumer preferences. The rapid growth of lab-grown diamonds in specific market segments has raised concerns about how Generation Z consumers perceive traditional diamonds.
Analysts predict a potential cyclical recovery in the diamond market, but there are also concerns about long-term demand due to structural issues. The diamond industry must navigate the challenges of adapting to changing consumer behavior and preferences, which could significantly impact future demand.
Useful links:
– Financial Times: Diamond industry races to adapt as prices hit rock bottom
– JCK Online: As Diamond Prices Continue to Fall, Buyers Abandon Ship
