Diamond prices have fallen 18% from their peak, and analysts predict more pain

Diamond rings and bracelets on display in a shop window in Antwerp, Belgium. (Photo by Yuriko Nakao/Getty Images)

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“Diamonds are a girl’s best friend”, as the old song goes.

But they are not currently an investor favorite, with the gemstones losing significant value in recent months.

Diamond prices are down 18% from their all-time highs in February 2022 and are 6.5% lower since the start of the year, according to a global rough diamond price index. And their value is about to plunge further, market watchers predict.

“A 1-carat natural diamond of slightly above average quality cost $6,700 a year ago, today that same diamond sells for $5,300,” Paul Zimnisky, CEO of Paul Zimnisky Diamond Analytics, told CNBC. .

Diamonds, alongside other jewelry, have seen their prices rise during the Covid-19 pandemic, which peaked at the start of last year.

“Consumers were willing to spend,” management consultancy Bain & Company said in a report dated February last year. “They were full of money from buoyant capital markets and economic stimulus programs, and eager to spend it on meaningful gifts for loved ones,” they said.

A diamond necklace in a Harrods department store in London.

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When people couldn’t travel or eat out, all that excess money was invested in luxury items and jewelry, said Angara Jewelry CEO Ankur Daga.

And when the economy started to open up again, diamond prices began to moderate and slipped into a “sharp decline”, he added.

Continued competition from man-made diamonds, a slower Chinese economic recovery and an uncertain macro backdrop are also driving the lackluster market, industry experts said.

A “perfect substitute?” »

A growing number of consumers are turning to lab-grown diamonds, Edahn said.

“The share of sales of lab-grown diamonds versus natural diamonds is increasing. In 2020, they were only 2.4%. In 2023 to date, they are already at 9.3%,” he said.

Lab-grown diamonds are made in a controlled environment using extreme pressure and heat that recreates the way natural diamonds are forged hundreds of miles away in the earth’s mantle.

They are chemically, physically and optically identical to natural diamonds and are considered a “perfect substitute”, Daga said. But more importantly for the most part they are much cheaper.

And more and more people are turning to them for their choice of engagement rings.

“The lab is indistinguishable from the mined diamond, and if I can get a bigger diamond for the same price, why not?” said 29-year-old Singaporean Jonathan Lok, who offered his fiancée a 0.76-carat lab-grown diamond ring late last year.

He added that his fiancée had requested a smaller diamond and did not want him to spend an exorbitant sum on the ring.

Lab-grown colorless diamonds at the Diam Concept laboratory in Paris, France, March 16, 2023. The lab-grown diamonds are made in a controlled environment using extreme pressure and heat that recreate the way natural diamonds are forged to hundreds kilometers in the Earth’s mantle.

Bloomberg | Bloomberg | Getty Images

Lab-grown diamond prices have “nosed down,” said Edahn Golan, CEO of Edahn Golan Diamond Research & Data, as prices have fallen 59% over the past three years.

“Three years ago, you could buy lab grown equivalent to 20% to 30% off the natural price. Now it’s 75% to 90% off the natural price,” Daga said, awarding the lower prices to machines are becoming more efficient to produce more man-made diamonds.

The energy-intensive lab-grown diamond industry has also seen soaring energy costs decline from its peak.

In the downside scenario, he expects natural diamond prices to see a 20-25% decline from current prices over the next 12 months, which would mark a 40% drop from the peak of FEBRUARY. And Daga is not alone.

“There is room for continued price declines, and that is a very likely scenario, especially as retailer margins for lab-grown diamonds are particularly high, around 60% compared to 34% for diamonds. natural diamonds,” Golan said.

However, even so, the fall could eventually reach a “natural bottom” due to labor costs.

“Labour costs have gone up again, and labor is still a very critical part of diamond production. So there is a natural bottom somewhere,” Daga said, adding that a flatline will follow after a 25% drop.

Haul trucks drive down the Jwaneng Diamond Mine in Jwaneng, Botswana on May 11, 2023.

Monirul Bhuiyan | AFP | Getty Images

The middle stage of diamond production involves cutting and polishing the diamond before turning it into jewelry, which is the “most complex” and extensive part of the value chain, according to Bain & Company.

Sanctions on Russian diamonds

Moreover, diamond market watchers do not expect sanctions against the world’s largest producer, Russia, to lead to serious price spikes.

Earlier in May, G7 economies convened a discussion on imposing sanctions on Russian diamonds, with the UK taking the lead in sanctioning Russian state-owned company Alrosa.

“The Russians have increased their diamond sales in recent months in an effort to recoup market share lost last year following the disruption of trade,” Zimnisky said.

Russia is the world’s largest diamond producer, followed by Botswana and the Democratic Republic of Congo, according to the Diamond Registry.

According to Edahn, Russia will have no problem selling its diamonds despite the sanctions, especially if the biggest buyers continue to shine the precious stones from Moscow.

“Countries like India, the United Arab Emirates and even the EU have not imposed sanctions on the import of rough diamonds. So again, no real shortages,” he said.

India is the world’s largest importer of diamonds, with the United States coming second, followed by Hong Kong, Belgium and the United Arab Emirates.

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