De Beers famously told us all that diamonds are forever. But the last few years suggest that, in fact, diamonds may be over.
For the last few years, demand for the rough diamonds that De Beers sells has been steadily declining. The sales at its final 2019 auction were up from November, but 20% down year-on-year.
The industry has been beset with challenges, some self-inflicted and many others beyond its control.
___STEADY_PAYWALL___
For example, a massive bank fraud by a prominent Indian diamond tycoon created a crisis of confidence in the industry that has made it difficult for diamond middlemen, who buy rough stones from De Beers and others and turn them into polished stones for sale to jewellers, to get financing. This lack of liquidity has affected rough diamond sales – smaller operations simply don’t have the working capital to buy the gems they want to buy.
There has also been a supply glut. Once upon a time, De Beers exercised a virtual monopoly on the sale of rough diamonds. By doing so, the company managed to create a false scarcity for the stones. Diamonds are, in reality, very common. But by controlling sales, De Beers made them rare and precious.
Once De Beers lost its de facto monopoly, diamond supply grew rapidly and today, the supply of rough diamonds is abundant. This excess supply means lower prices. Indeed, De Beers has realised this, unilaterally cutting prices by 5% at its November sale.
And then there’s the market. Demand for diamond jewellery hasn’t collapsed, by any means. But diamonds are now competing with a lot of other luxury goods, and there is some evidence that their status as love gems is fading. Once upon a time, a diamond engagement ring was a mandatory part of life for most people. But these days, people are getting married later in life – or not at all – and many are opting for alternatives to the diamond ring (I, for example, chose a conflict-free, rough, uncut black diamond ring made by an Etsy jeweller for my engagement ring, at a cost of less than $100).
While the jewellery industry benefited from a surge in demand from emerging China, the trade war has put a dampener on that market, and the uncertainty that the trade war has caused has led jewellers and diamond wholesalers in the rest of the world to cut back on their purchases.
Finally, there are lab-grown stones. Lab-grown diamonds are upending the industry – they are just as good as natural diamonds for jewellery (and often better for industrial purposes), and they cost less too. Combined with the abundant supply of natural stones, the rapid growth in lab-grown diamonds is pretty much putting an arrow through the heart of the idea that diamonds have some kind of special, rarity value. Indeed, many consumers have already learned the hard way that diamonds have virtually no resale value.
So, what does this mean? Well, for consumers, it means getting smart about buying jewellery. Diamond prices are still artificially high, so try to avoid spending too much on gems this Christmas. Hold out and wait for falling prices to trickle down to the consumer level.
For the broader industry, it means a top to bottom rethink. Diamond mining is not something that makes long-term sense anymore. This will be devastating for many communities that rely on mining for their livelihoods and governments must address this reality. As lab-grown diamonds get cheaper, larger, and prettier, there will be a steady shift in the market, especially if producers can get on the renewable energy train and make artificial stones more sustainable (they’re already more sustainable than natural stones – mining is not eco-friendly). This will require large diamond companies like De Beers to rapidly adapt their businesses to fend off smaller and more nimble players.
In short, unlike the stones themselves, the outlook for diamonds is anything but clear.
