【South Korea】Why Diamond Prices Are Falling While Everything Else Rises [Business Focus]

While precious metals and mineral prices are soaring globally, diamond prices, a representative luxury item, are on a downward trend. The British company De Beers implemented the largest price cut for rough diamonds in January, the first in five years since 2019. De Beers is a company synonymous with diamonds, once distributing 90% of the world’s diamond production. It notably solidified the diamond ring as a symbol of marriage with its “A Diamond is Forever” advertising campaign. De Beers slashed the price of Select Makeables (a grade suitable for gem processing), rough stones primarily used for engagement rings (2-4 carats), by a significant 25%. The price, which was $1,400 per carat (approx. 1.85 million KRW) until 2022, fell to $850 (approx. 1.12 million KRW). The decline in rough diamond prices has placed even the world’s largest diamond supplier in crisis.
The diamond price index has been declining daily since the beginning of this year. While popularity and prices surged rapidly during the same period following the COVID-19 pandemic, it is assessed that the bubble has burst without recovery. According to the International Diamond Exchange (IDEX), the price index tracking changes in natural rough diamond prices (2021=100) was 110.19 as of January 3 this year, dropped to 107.05 in April, and was recorded at 105.28 as of June 12. After hitting a peak in February 2012, the sluggish diamond price index fell to 104.2 in July 2020, then soared steadily to 158.3 in March 2022 due to the aftermath of the COVID-19 pandemic and the Russia-Ukraine war, rising nearly 60% in about 20 months. However, prices began to fall again from early 2023, dropping to 107.4 in October. Although it recovered slightly to the 110s in December of the same year, the price graph has been consistently declining this year.

The reduction in diamond demand in China, the world’s second-largest diamond market after the US over the past decade, is cited as a factor. Market research firm Daxue Consulting analyzed, “Along with the decline in China’s marriage rate, the popularity of gold and lab-grown gems has led to a decrease in diamond demand.” The wholesale business revenue of Hong Kong-based jewelry company Luk Fook in 2023 decreased by 21.4% due to reduced diamond sales. Chinese diamond ring brand I Do also applied for bankruptcy restructuring in January 2023. Given that the shift in consumer interest towards luxury items like jewelry during the COVID-19 pandemic was one reason for price increases post-2020, demand naturally decreased as China’s lockdown measures ended. This year, the worsening financial situations of consumers in key markets like China and the US also played a role. China is experiencing a real estate recession, rapid aging alongside population decline, while high interest rates in the US have reduced disposable income, diminishing consumer interest in luxury goods. Furthermore, compared to gold and silver, diamonds have a different nature as an ‘asset.’ Gold and silver are generally considered ‘safe-haven assets’ as they are not influenced by macroeconomic factors like interest rates. Prices rose this year as expectations for the US Federal Reserve’s interest rate cuts persisted. However, diamonds refer to the rough stone itself, not a raw material like gold or silver used to make products, making them difficult to recycle. Their price fluctuates based on appraisal, cutting technology, and equipment development. Additionally, they are primarily purchased for luxury purposes, resulting in lower recognition as an investment asset and poor liquidity.

On the supply side, analysis suggests that the emergence of synthetic ‘lab-grown diamonds’ (lab diamonds), which are up to 85% cheaper than natural diamonds but composed of completely identical physical, chemical, and optical components, has fueled the price decline. Lab diamonds are not mined but created by artificially growing small diamond seeds in a laboratory. While natural rough stones form over hundreds of millions of years in the mantle 200km underground, this process is shortened to a few hundred hours. Citing a report by diamond specialist analyst Paul Zimnisky, CNBC reported, “Lab diamond sales, which accounted for only 2% of the global diamond jewelry market in 2017, surged to 18.4% in 2023.” Lab diamonds, which were difficult to mass-produce, were mostly used for industrial purposes. However, with advancements in polishing and processing technology, they began gaining attention in the jewelry market from the late 2010s. As production costs decreased, mass production became possible, lowering the cost burden for consumers.

This forecast was made by Ankur Daga, CEO of high-end jewelry retailer Angara. Global jewelry brands are also reaching out. Prada launched a jewelry line using lab diamonds last November, and Swarovski introduced lab diamond products domestically in April, a first for a global luxury brand. In South Korea, lab diamonds are beginning to be known, centered on the wedding market with high diamond demand. Recently, mid-to-low-priced brands are also releasing products, leading to increased consumption. According to E-Land Group’s Lloyd, “Sales of lab-grown diamond products in May increased by 195% compared to the same period last year.” Domestic lab diamond specialist brand Allod also reported over 500% sales growth during the same period. They also have the advantage of being relatively free from environmental and ethical criticism. In the 1990s, ethical issues surrounding diamonds emerged when it was revealed that rebels in African diamond mines used forced labor for mining. Diamond mines destroy soil and marine environments, disrupt surrounding ecosystems, and emit large amounts of greenhouse gases. They also avoid the disadvantage of geopolitical supply risks, as deposits are concentrated in only a few countries. According to the international certification body Kimberley Process, only 22 countries worldwide can produce diamond rough stones, with 30% in Russia, and 16% each in Canada and Botswana.

While prices are determined by supply and demand, some assessments point to the diamond market’s own weakness as a decisive reason. In May, Anglo American, the British multinational mining company and parent of De Beers, announced plans to sell or separate its 85% stake. This is part of a large-scale portfolio restructuring, stating, “We will exit the diamond business, which has poor future prospects and declining demand, and restructure the company around copper, considered a future growth industry.” Reporting on De Beers’ crisis, CNBC stated, “Diamonds are a powerful legacy left by De Beers, but it is no longer a suitable business.” This is a declaration that diamonds are not the necessary resource at a time when AI and ESG management have emerged as essential qualities.