Wednesday, June 5, 2024

Diamond Industry Faces Decline as Lab-Grown Gems Undercut Prices

The diamond industry is grappling with a significant downturn as lab-grown gemstones continue to drive prices down. Despite De Beers’ iconic slogan “A diamond is forever,” many consumers are now opting for lab-grown diamonds, gold, and other colored gemstones.


Anglo American’s Strategic Shift

Anglo American, the largest shareholder of De Beers, plans to divest its stake as part of a business restructuring following the rejection of a takeover bid from BHP. CEO Duncan Wanblad acknowledged that selling De Beers would be “the hardest part” of the restructuring. Independent diamond industry analyst Paul Zimnisky noted that Anglo American is shifting focus towards commodities that support green infrastructure, such as copper, in response to shareholder demands.


Dwindling Demand in China

The demand for diamonds has notably declined in China, a key market, due to decreasing marriage rates and a growing preference for gold and lab-grown gems. Market research firm Daxue Consulting highlighted that the end of pandemic restrictions has also shifted consumer spending towards travel rather than diamonds. Diamond prices have fallen 5.7% this year and are down over 30% from their peak in 2022, according to Zimnisky’s rough diamond index. Economic conditions have led De Beers to reduce prices by 10% earlier this year.

Impact of Lab-Grown Diamonds

The rapid growth of lab-grown diamonds is a critical factor in the price decline of natural diamonds. Ankur Daga, CEO of jewelry e-commerce company Angara, stated that in the U.S., lab-grown diamonds now make up half of engagement ring stones, a significant increase from just 2% in 2018. Lab-grown diamonds, up to 85% cheaper than natural ones, now account for 18.4% of the global diamond jewelry market, up from 2% in 2017.

Investment Appeal Diminished

The investment appeal of diamonds has also waned. Once seen as an asset and inflation hedge, this perception has diminished as prices have dropped. Daga predicts that natural diamond prices could fall another 15%-20% over the next year.

Industry Challenges and Optimism

While some industry experts are more hopeful, they acknowledge the need for substantial marketing efforts. Anish Aggarwal, co-founder of diamond advisory firm Gemdax, emphasized the necessity of creating consumer desire for diamonds, similar to other luxury goods. He pointed out that the diamond industry has not conducted large-scale marketing for nearly 20 years, leading to its current struggles.

Recent collaborations, such as the marketing partnership between Signet Jewelers and De Beers, aim to boost demand for natural diamonds. Signet anticipates a 25% increase in engagements over the next three years. Anglo American’s Marcelo Esquivel noted that higher engagement rates and rising disposable incomes could help mitigate the market challenges.

“The diamond industry is in trouble,” Daga told CNBC. However, with targeted marketing and strategic efforts, there is potential to revive consumer interest and stabilize the market.

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