In the world of precious gemstones, diamonds have long held a revered status, symbolizing eternal love and timeless elegance. However, even these coveted jewels are not immune to the ebb and flow of economic currents and shifting consumer preferences.
The diamond market has experienced a notable shift characterized by a decline in diamond prices. The gravity of the situation in the diamond markets cannot be overstated, as the real diamond market is undergoing a notable reduction in size.
In a recent warning to the industry, Martin Rapaport shared that:
The price decline has been a consistent trend since March 2022, with the average price for one-carat diamonds falling by 35%, ranging from a 26% to 47% decrease.
De Beers is expected to experience a substantial drop in revenue, declining from a high of $6.6 billion in 2022 to $4.7 billion in 2024, representing a decrease of $1.9 billion or a 29% reduction during that period. The price decline has been a consistent trend since March 2022, with the average price for one-carat diamonds falling by 35%, ranging from a 26% to 47% decrease. This adverse trend is likely to persist moving forward.
Lab-grown diamonds created through advanced technological processes have gained popularity among consumers and have substantially impacted the pricing dynamics of natural diamonds. The forthcoming decline in revenue across the natural diamond industry is poised to be far-reaching and will notably affect the unbranded, business-to-business (B2B) diamond markets.
This decline primarily stems from the intensifying competition posed by synthetic diamonds. Unlike economic fluctuations, which are transient, the shift of consumer preference toward synthetic diamonds is enduring and stable.
Moreover, the decreasing prices of lab-grown diamonds have reached a level where, even with higher profit margins, their sales revenue may need to prove adequate for conventional jewelers. This impending change underscores a significant and sustained transformation in the diamond market landscape, driven by the increasing prominence of lab-grown alternatives.
Approximately five years ago, lab-grown gems were available at a 20% lower price compared to natural diamonds. However, this discount has surged to nearly 80% today as retailers continue to offer them at increasingly lower prices, driven by the decreasing production costs. This year alone, the wholesale prices of lab diamonds have plummeted by over half.
The primary factor leading to the substantial price decline in a valuable commodity like diamonds is, shortly put, China's sluggish growth.
The once-overvalued Chinese stock market has experienced significant weekly declines, reaching up to 7%. This downturn has had a profound, lasting effect on the diamond market. As China's economy expanded in recent years, diamonds became a popular investment choice and gift item. It has surpassed the United States as the world's second-largest diamond market.
However, when the Shanghai index was on the rise, many Chinese investors shifted from buying diamonds to investing in stocks at an inopportune moment. This coincided with the devaluation of the Yuan, the Shanghai index collapsing under its weight, and a sharp decrease in discretionary spending in China.
Consequently, the Chinese diamond inventory has significantly reduced due to these factors. Coupled with the global weakening of the diamond market, these circumstances have resulted in remarkably low diamond prices.
The U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) has officially labeled Alrosa as a Russian state-owned enterprise – soon known as SOE - and the leading worldwide company responsible for mining notable diamonds. Responsible for the majority of the country’s mining capacity, this status entails significant implications, mainly regarding financial transactions involving Alrosa.
Under this designation, all transactions related to property or interests in property of designated or otherwise blocked persons, such as Alrosa, are prohibited for U.S. individuals or entities. These transactions can only occur if they are authorized explicitly by OFAC through a general or specific license or fall under an exempt category.
The enforcement of sanctions poses particular challenges given the ongoing importation of diamonds sourced from Russia into the United States. Complicating matters, OFAC has faced criticism for not providing clear guidelines regarding the substantial transformation of products originating from Alrosa and other entities subject to OFAC sanctions. This lack of clarity has raised concerns about these regulations' arbitrary and unpredictable nature.
The current global diamond market is characterized by an oversupply of diamonds coupled with subdued demand, setting the stage for a significant decline in diamond prices. This trend affects both polished and rough diamonds alike. A notable player in the industry, De Beers, the world's largest diamond producer, responded to this situation by reducing prices and production back in 2015 as a strategy to stimulate demand.
Moreover, this downward price pressure has been exacerbated by reduced activity in crucial diamond trading hubs, such as Russia, Israel, and the United States. These factors collectively contribute to the ongoing decrease in diamond prices, creating a challenging market environment for the diamond industry.