Why the Price of ‘Eternal’ Diamonds Has Fallen

According to Bloomberg, De Beers, which has long monopolized the diamond supply, recently cut the price of 2-4 carat rough diamonds by 40%. De Beers stated it will relaunch the iconic “A Diamond is Forever” advertising campaign to boost diamond demand.
As a result, the price of rough diamonds, which was $1,400 per carat (approximately 1.85 million KRW) in July last year, has fallen to $850 per carat within a year.

For a long time, diamonds were a stable investment for investors. According to a 2015 paper by Luc Renneboog of Tilburg University, investors in diamonds between 1999 and 2012 could expect an annual return of 8%, comparable to returns from stocks or real estate.
This stable return was thanks to consistent demand. Like gold, diamonds have high liquidity, and demand tends to increase during times of economic uncertainty. Simultaneously, prices tend to rise during boom periods due to increased demand for jewelry.
De Beers’ monopoly was the most crucial factor in maintaining diamond value. Controlling 80% of the world diamond market in the 1980s, De Beers maintained a dominant role in diamond production, stockpiling excess supply to preserve scarcity.
However, the emergence of competitors like Russia’s Alrosa has rapidly eroded De Beers’ market share. As De Beers’ share fell to around 30%, price competition intensified.

The advent of lab-grown diamonds has rapidly pulled down diamond values. Lab-grown diamonds are synthetic gems created by applying high temperature and pressure to carbon, not mined. Unlike synthetic diamonds made by processing carbon compounds to be transparent, they are 100% identical to natural diamonds in physical, chemical, and optical properties. Without equipment, even jewelers struggle to distinguish between natural and lab-grown diamonds.
While lab-grown diamonds held a negligible share of the total market until 2018, they now command over 10%.
Paradoxically, De Beers also led the spread of lab-grown diamonds. In 2018, De Beers began selling lab-grown diamonds at 80% of the price of natural diamonds.
Engagement ring seller ClearCut fueled the popularity of lab-grown diamonds by offering customers who purchased rings over $10,000 a free alternative diamond made from lab-grown material. Customers could use this alternative diamond in their original ring settings while traveling.
De Beers expected the price gap between natural and lab-grown diamonds to widen as lab-grown supply accelerated, but in reality, natural diamond prices are rapidly falling, following the decline of lab-grown diamonds.

– The Economist