Robert Bouquet's Key Points • The natural diamond industry has been severely impacted by the surge in lab-created diamond production and uptake. • The sale of the De Beers Group is a critical missing puzzle piece for the future of the diamond industry. • Natural rough demand has declined, and in some categories, it has been decimated. |
The diamond industry finds itself in the midst of an unprecedented era of upheaval, challenge, and opportunity right now.
Following the COVID-19 pandemic, the natural diamond industry experienced a significant surge in 2021, which caught many by surprise, with prices rising to record levels.
After this boom period, however, as the pipeline was replenished and eventually overfilled with goods, the diamond market entered the current protracted and worsening slump, which has persisted for the past three years.
More than a year ago, I wrote about the challenges the industry faced and how we might overcome them, in a bid to see the natural diamond industry return to recovery.
I stated that the first thing needed was a balanced market and suggested that in 2024, “stability would be a success.”
Alas, this phase of market stabilisation did not manifest itself. The supply of natural rough diamonds continues to exceed market demand, and prices of both rough and polished diamonds have kept falling.
As always, it is never that simple, and I think the situation deserves a fresh dive into the causes of this continued slump that, in truth, shows few signs of imminent recovery.
I have listed, in my declining order of impact and importance, the most significant issues and risks facing the industry right now. And of course, it should be accepted that many of these issues are heavily interlinked and are not purely isolated factors.
A dark cloud that still hangs over the diamond industry is the question of the future ownership of the long-time leader, the De Beers Group, which can and will have many far-reaching implications across the trade. Several interested parties have been reported in the trade press.
It would appear that, with the Anglo American merger with Teck of Canada, the disposal of the world’s most famous diamond company is soon to accelerate. De Beers was once considered the ‘crown jewel’ of Anglo American.
Still, over the past 30 years, the company has evolved from a dominant industry custodian and leader into a ‘transactional orphan’ in today’s bigger copper mining play.
I believe only the right buyer, one who understands the diamond business in all its complexity, has a chance to make such an acquisition work. A market recovery is essential for future profitability, and De Beers remains
the best-equipped vehicle to achieve it.
So, despite the clamour in some quarters for greater resource nationalisation, ‘caveat emptor’ would seem prudent advice right now.
There are so many moving parts here, and depending on who ends up with the asset, things could evolve in many ways.
For me, there remains a huge question mark over the wisdom of governments alone owning De Beers, which should not be ignored. Many, myself included, wait with bated breath.
As it stands, I must say it feels like the industry will be forced to radicalise, not stabilise. Perhaps, De Beers itself will be broken up into separate parts? Time will surely tell. I suspect that some very big news is imminent.
Another elephant in the room not to be forgotten is the impact of sanctions on the Russian diamond industry. While it is unquestionably important, it does not top my list of pressing issues facing the industry.
With that said, we should acknowledge that Russia is still producing natural diamonds, which are still being sold, either directly or indirectly, to India’s traders and manufacturers. And with that said, onto my list of the most pressing issues facing the diamond business.
1. Lab-created diamonds
It should come as no surprise to readers that lab-created diamonds are at the top of this list.
The natural diamond industry has been hugely impacted by the surge in lab-created diamond production and consumer uptake.
A large proportion of natural diamond consumers have been swayed and now buy the cheaper
man-made alternative. We also need to accept that the current and future generations of diamond consumers will not be the same as those of the past, with different desires, aspirations and financial pressures.
Of course, there is still demand for natural diamonds, and even increasing demand in
some quarters; however, intellectual honesty should oblige us to admit that lab-created diamonds have bitten a huge chunk out of the natural diamond business.
This is the biggest industry issue for me. The impact reverberates throughout the industry, altering demand, prices, viability of mines, consumer perception – everything.
Lab-created diamond production is still surging, and many manufacturers in Surat have switched to polishing while the natural trade continues to decline and suffer.
Unbelievably, I hear that there is a waiting list for lab-created diamond polishing despite the production surge. So, while we wait for the predicted market bifurcation, natural diamonds still appear to be losing further ground.
The recent increase in in-fighting and aggressive online debates between lab-created and natural diamond camps does nothing to improve the consumer perception of the whole category.
If anything, the large risk associated with this negativity is that consumers lose interest in all forms of diamonds.
The debate around cannibalisation and incremental demand is one that merits greater analysis. I remain unconvinced that lab-created diamonds will drive demand for natural diamond jewellery rather than replace it.
For now, one positive is that the brands have not embraced lab-created diamonds; however, many have remained committed to using natural diamonds. And as lab-created diamonds potentially shift to tech/semiconductor applications, the existential threat to natural diamonds might, by extension, dwindle.
2. Oversupply of natural rough diamonds
Because of the lab-created diamond effect and other lesser factors, natural rough demand has declined; in some categories, it has been decimated. We have seen demand for sub 2-carat natural diamonds - grainers and melee, as they are referred to in the trade - plummet with subsequent impact on prices.
Producers have suffered and continue to struggle. Those with a greater proportion of these goods in their production profile have suffered the most. The majors, with the exception of Angola - the new ‘major’ - have cut back production.
Some junior miners are, it is true to say, clinging on for dear life. Retrenchments, refinancing, and cost-cutting measures abound, and yet few have actually gone to the wire - for now at least.
Global rough production still stands at more than 100 million carats per annum; however, it is still simply too much.
The top three producers - Alrosa, De Beers and Angola - account for around 70-75 million carats per annum.
To achieve a more balanced market in the short term, production will have to be reduced further, with the obvious difficult decisions this entails for some producer companies and countries.
Long-term, we know there are no new mines on the horizon, so unless new significant discoveries are announced, there will naturally be fewer natural diamonds around in the coming decades.
3. Weak rough prices
Hand in hand with the oversupply of rough, prices have generally weakened. It must be stressed that this does not apply to all diamond categories.
Natural diamonds above +5 carats have enjoyed good demand, and even a strengthening of prices, as production has been cut and volumes in this range are generally low.
However, by my estimates, these stones only account for around three per cent of global production by volume, while above +2-carat stones account for around 10 per cent of global production.
For the rest of the goods, oversupply - relative to actual demand - continues, and prices have continued to slide. In 2024, rough prices fell on average by 20 per cent; 2025 looks to be a similar situation. Smaller sellers using tenders and auctions have struggled to perform. Predictions of ‘better times’ keep getting pushed out further.
The split between +5-carat, and maybe +2-carat, diamond demand and the smaller-sized diamonds does not look likely to reverse anytime soon, primarily due to the impact of lab-created diamonds. That said, when things improve, we all know how quickly things can turn around in the rough diamond market.
4. Weak polished prices
At the polished level, prices have also fallen. Excess supply, coupled with a notable shift to
lab-created diamonds for consumers and retailers, has weakened polished prices across 2024 and 2025. Before any recovery in polished can be seen, stability is required.
In the diamond business, increasing consumer demand and scarcity of product drive polished prices upwards, which in turn drives rough prices. We are not at that inflection point yet. Stocks in the pipeline remain high currently, except for +1.5-carat polished.
Add to this the record price of gold, which has increased by almost 50 per cent this year alone, and is predicted to keep rising in the near term. This impacts diamond jewellery costs and has a detrimental effect on polished sales and prices.
The graph above, kindly provided by diamond broker and consultancy firm I. Hennig & Co Ltd, shows the continued decline in polished prices over the past four years.
5. Ownership of De Beers
As mentioned previously, a huge unresolved piece of the industry jigsaw puzzle is the future ownership of De Beers.
Anglo America is the 85 per cent owner of De Beers, and the company’s stated intention
is to divest De Beers either through a sale or IPO, and it seems this process is now gathering momentum.
Reports of several bids having been made, including various signs of intent from both the governments of Botswana and Namibia, along with Endiama, the state-owned diamond mining company of Angola, signal that interparty negotiations are underway and that a resolution on this matter is imminent. In fact, it is overdue and essential for an industry that is struggling without visible leadership.
What remains to be seen is who the final winner of this process will be - and with whose actual money - and what it actually means for the various parties, and then what the outcome will mean for the rest of the diamond industry.
It is important to recognise that the relevance of this issue far exceeds the actual market share
of De Beers due to its breadth of activities outside of its core role of mining.
With all that said, at the end of the day, Anglo American wants to sell, and may be driven to conclude a deal. The degree to which the company is concerned with the broader future of the diamond industry is unclear.
News of this should hopefully come soon.
Unless the right buyer prevails, De Beers could be set up for a fail. Any new owner of De Beers will face tough decisions to return it to profitability. Underground mines require massive capital investment. Added to this, I must stress that a new owner of De Beers is unlikely to suddenly make the natural diamond business a booming financial proposition!
6. Lack of natural diamond marketing
It has been recognised industry-wide that the lack of marketing expenditure and activity has led natural diamonds to fall in the hierarchy of consumer minds, consequently weakening diamond jewellery sales.
Some steps have been taken to address this, with several producer countries committing to contribute to the Natural Diamond Council’s marketing budget.
Although significantly, Alrosa has withdrawn its funding in view of sanctions against Russian diamonds. De Beers has also led some new marketing initiatives, such as Origins and Desert Diamonds. With that said, it is not enough.
The issue for me is resources, research, and promotion. In terms of resources, finance is critical; however, marketing ability is also driven by deep consumer research to allow well-targeted messaging and promotion.
Once upon a time, De Beers undertook category marketing to the tune of $200 million per annum, with a large global team spearheading these efforts. Diamonds were marketed with an emotional relevance and resonance that worked.
The world is changing so fast that the biggest challenge for marketers in the diamond industry will be finding a way to succeed with limited resources amid rapidly changing consumer attitudes and preferences. Provenance seems to be such a big buzzword these days; however, the truth is consumers do not care where diamonds come from – not yet, at least.
Natural diamonds are competing against many other products – lab-created diamonds, other luxury and tech products, and an increasing desire for ‘experience’ based spending.
The industry has lost momentum, and along with it, potentially and critically, the diamond consumers of the future; and this needs to be redressed urgently. With that previous example of the
De Beers marketing expenditure in mind, imagine how a $200 million annual budget, inflated to today’s money, could be used.
7. Market Watch: India & China
Once the world’s second biggest consumer market for diamond jewellery, Hong Kong and China, have fallen out of love with diamonds.
Perhaps, more importantly, the belief in diamonds as a store of value has declined in this market. This is a critical industry weakness. Although India, newly promoted to second place, has great potential - as long as lab-created diamonds do not take a grip there, the issue is that we have
lost the all-important Chinese market.
Hopes are that the market has bottomed out and that, as the Chinese economy revives, demand for natural diamond jewellery will follow. The most recent Hong Kong jewellery fair was still a disappointment in terms of sales, so clearly, the recovery is not yet happening. Marketing is key here, and of course, the competition from lab-created diamonds will be ever-present. If China could rejoin India on a similarly positive trajectory, it would better support industry fundamentals.
8. US tariffs & the American market
Adding to the already significant challenges the natural diamond industry faces, the recent imposition of substantial tariffs on key polishing centre imports into the US has created considerable uncertainty.
The immediate industry reaction was to ship large volumes of polished to the US before the tariffs kicked in, which now means that the US is sufficiently stocked for the upcoming season.
The future remains uncertain as lobbying to reduce or remove tariffs continues.
The EU achieved a significant result in September, as tariffs for natural diamonds processed in Europe were cancelled; however, this is a small manufacturing hub compared to the industry behemoth that is India, which, at the time of writing, has a 50 per cent tariff. Indeed, the broader issue of tariffs for diamond manufacturers outside the EU remains.
However, it should be noted that the US market shows remarkable resilience in natural diamond jewellery sales and is now estimated to account for up to 60 per cent of the global market by value. A strong US economy is a critical pillar for the industry going forward.
So, what happens next?
The natural diamond industry faces significant challenges, and the next 12-24 months will likely prove pivotal in shaping how the industry will be structured and operate going forward.
There are many challenges to the business.There are also positives to be found in all the doom and gloom. The US and Indian consumer markets are performing well, and natural diamonds still have a good chance to recover. With reduced production volumes, improving global macroeconomics, and calmer geopolitical tensions, the industry recovery can happen.
In the short term, rough and polished prices need to stabilise. De Beers will eventually emerge in its new form, with new owners and a strategic direction. I have long held the view that a strong De Beers is vital to the global industry; I still do.
My belief is that it is not the ‘Kodak Moment’ for the natural diamond business. The industry will eventually emerge smaller, more resilient, more profitable, and less volatile. With that said,
we are certainly not at that stage – not yet.
THE GREAT DIAMOND DEBATE III
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