Editor’s Note
The global diamond market faces significant headwinds, with the rough diamond price index hitting a 52-week low and major producers adjusting strategies. This article examines the current pressures and shifting dynamics within the industry.
The diamond market is undergoing a severe test.
As of January 27, the global rough diamond price index has fallen by 18.5% over the past 52 weeks, hitting a 52-week low on the 27th.
Behind the decline in the rough diamond price index is an overall market downturn. At the first rough diamond sight of 2024, the international diamond giant De Beers Group also implemented one of its most significant price reduction strategies in recent years.
According to reports from CCTV Finance, multiple sources revealed that the price reduction for rough diamonds over 2 carats exceeded 15%; for diamonds between 0.75 and 2 carats, the average reduction was 10% to 15%; for diamonds below 0.75 carats, the reduction was 5% to 10%; the comprehensive reduction reached approximately 10%.
Not only that, the price reduction for Type I diamonds even reached 25%. So-called Type I diamonds refer to a product named “Select Makeable Diamonds.” These diamonds weigh between 2 and 4 carats and can be polished and cut into high-quality diamonds about half the size of the original rough.
According to media reports, De Beers had already significantly lowered the prices of such products last year.
Faced with market fluctuations in natural diamonds, De Beers Group has been making continuous adjustments in recent years. On one hand, starting from August 2023, De Beers Group relaxed its sightholder purchasing policies to alleviate inventory pressure on midstream companies in the industry. At the same time, De Beers Group also halted all rough diamond online auctions, holding only offline sights for the last two sales cycles of 2023. On the other hand, De Beers Group has repeatedly stated it would provide “full flexibility in rough diamond allocations,” allowing sightholders to defer up to half of their rough purchase plans to 2024 and permitting them “not to purchase rough diamonds over 2 carats.”
The continuous adjustments stem from pressure due to a significant sales decline. According to rough diamond sales data released by De Beers Group, in the month ending November 3, 2023 (the 9th sales cycle), De Beers sold only $80 million (approximately 582.84 million yuan) worth of rough diamonds. This represents a staggering 82% year-on-year plunge compared to sales of $454 million (approximately 3.308 billion yuan) in the same period of 2022, and a 60% month-on-month drop compared to the 8th sales cycle in October 2023.
This marked the sixth consecutive month of declining rough diamond sales for De Beers Group in 2023. After steady growth in diamond rough sales in the first quarter of 2023, De Beers’ diamond rough sales fell to $479 million in May (the 4th cycle), $456 million in June (the 5th cycle), $411 million in July (the 6th cycle), and $370 million (approximately 2.687 billion yuan) in August (the 7th cycle).
To address this situation, De Beers Group announced it would continue to reduce the supply of rough diamonds in the month ending November 3. Prior to that, in September, Russia’s largest diamond mining and processing company, Alrosa, also announced it would halt all diamond sales for two months to support prices. Subsequently, the major cutting and trading center, the Indian market, also announced a suspension of imports.
However, various measures have still failed to halt the downward trend in the natural diamond market. In this process, the rapid development of the lab-grown diamond market has played an extremely important role.
Unlike natural diamonds, which take billions of years to form, lab-grown diamonds are products synthesized by artificially simulating the crystallization conditions and growth environment of natural diamonds. Their production time is only a few weeks, and they possess physical, chemical, and optical properties identical to natural diamonds.
Not only are the physical attributes and chemical composition the same, but lab-grown diamonds also have higher purity than natural diamonds. With continuous improvements in technology, they can even be made more visually impactful, making it difficult to distinguish between the two using traditional methods.
Of course, the more critical issue is price. According to a price list released by the Shenzhen Shuibei market in November 2023, the quoted price for a one-carat D-color diamond was 73,158 yuan, while a lab-grown diamond (loose stone) cost only 3,500 yuan.
Regarding this, Filip Van Laere, a director of the Belgian Diamond High Council, once publicly stated that two years ago, lab-grown diamonds were 40% cheaper than natural diamonds. By 2023, they were 70% to 80%, even 99% cheaper. “In the future, when you buy a bar of soap at the supermarket, perhaps they will give you a diamond.”
With the continuous decline in lab-grown diamond prices, Van Laere’s envisioned scenario is gradually becoming a reality. In this year’s cultural tourism campaigns, Luoyang, Henan province, launched a marketing activity giving diamonds to tourists. It is reported that the largest lab-grown diamond given away weighed 1 carat.
As the largest diamond production base in China, Henan supplies 90% of the country’s lab-grown diamonds. Shangqiu, Zhengzhou, Xuchang, Nanyang, and other places in Henan are important production bases for lab-grown diamond and related products, nurturing several industry leaders and listed companies. Zhecheng County in Shangqiu City is even known as the “Diamond Capital of China,” cultivating and processing 6 million carats of diamond rough and diamond jewelry annually, sold domestically and internationally.
Not only that, but Henan’s lab-grown diamond output not only supports the Chinese market but also forms a crucial part of the global lab-grown diamond market. According to data from the Superhard Materials Branch of the China Machine Tool & Tool Builders’ Association, China currently produces about 95% of the world’s lab-grown diamond, with Henan accounting for 80% of China’s output.
Sun Zhaoda, Secretary-General of the Superhard Materials Branch of the China Machine Tool & Tool Builders’ Association, once introduced that, according to incomplete statistics, Henan produces about 12 billion carats of industrial-grade lab-grown diamond and over 6 million carats of diamond rough annually. A significant portion of this is exported to places like India for cutting and processing, then shipped to regions like Europe and North America.
According to data from global jewelry industry analysis institutions, the market share of lab-grown diamonds has been increasing since 2021. By July 2023, the market share had reached 49.9%, very close to the 50% tipping point.
At the same time, lab-grown diamonds are increasingly gaining attention from global consumers. Institutional data shows that up to 80% of consumers in the United States are aware of lab-grown diamonds, and awareness among young consumers in Europe is as high as 77%. It is estimated that by 2025, consumption of lab-grown diamond jewelry in China will reach $1.5 billion, with penetration expected to rise to 17%.
However, despite the huge market prospects, the concentrated release of production capacity has led to a continuous decline in lab-grown diamond prices, significantly affecting the profits of related companies.
According to data released by Huanghe Whirlwind, one of the “big three” upstream rough diamond manufacturers, the company is expected to incur a loss of 645 million yuan for the full year of 2023. The company stated that its important segmented product, lab-grown diamonds, saw prices drop significantly year-on-year in 2023 due to changes in market supply and demand, leading to a substantial decline in the company’s main business profit.
In addition, China North Industries Group Red Arrow Co., Ltd. achieved total operating revenue of 1.914 billion yuan in the first half of 2023, a year-on-year decrease of 40.25%.
Data released by the International Diamond Exchange (IDEX) platform shows that since the beginning of the year, natural diamond prices have entered a downward trend, with the price index in August alone falling 20.1% year-on-year. Additionally, diamond sales have also declined significantly. This has also affected lab-grown diamonds, with moissanite and lab-grown diamonds experiencing price drops of up to 80%.
Despite this, the market still holds relatively good expectations for the prospects of lab-grown diamonds.
Wanlian Securities released a research report stating that due to their identical composition and structure to natural diamonds and significant price advantages, coupled with media and brand education of downstream consumers in recent years, the penetration rate of lab-grown diamonds is expected to further increase in the future.
With the continuous development of China’s lab-grown diamond industry in terms of technological capabilities, marketing methods, and product capabilities, China’s lab-grown diamonds may gain greater industry influence. However, the volatility in the diamond market, on one hand, provides a strategic development opportunity for the lab-grown diamond industry. On the other hand, it is also a process of demystifying natural diamonds. This process, accompanied by changing perceptions among young people, could also potentially lead to “the city gate catching fire and harming the fish in the moat.” How to respond to changes in consumer demand may be the biggest challenge for lab-grown diamonds in the future.
