The first jab at the diamond market landed when the largest economy in the world, the United States of America (USA) wobbled and since then it has been a gloomy road for diamond sales.
De Beers, the world’s largest diamond producer by value, reached a three-year low in sales in November netting a provisional $80 million, the lowest amount since April 2020 when demand and prices crashed due to COVID-19.
Before that, the August sale by De Beers, brought in a provisional $370 million, a 42% sale drop on a year-on-year comparison reflecting the challenging period rough diamonds are enduring. By comparison, sales at the previous auction, the sixth of the year, were measured at $411 million.
Leading contributors to this year’s tough diamond performance were weakening demand from the world’s leading economies. The USA which accounts for more than 50% of the world’s retail diamond market demand, has been battling inflation with the Fed hiking interest rates in progressive quarters. Fed hikes shrank consumer disposable incomes, weakening demand for the rough stones.
In addition, a slow start in another key market, China, after prolonged lockdowns due to the resurfacing of COVID-19, piled more pressure on diamond demand.
The result has been that high sales in 2021 and 2022 have met retail market pushback, causing oversupply on shelves, a situation worsened by the deeper infiltration into the market of lab-growns and the distaste for diamonds caused by the continuing flow of sanctioned Russian production.
State-owned diamond trader, Okavango Diamond Company (ODC), saw revenues in the first six months of the calendar year dropping by nearly 40% compared to the same period last year, as the rough diamond industry experienced a sharp downturn last seen four years ago.
The figures came as India – which cuts and polishes at least 80% of the world’s rough diamonds – announced that it is banning imports of the stones for two months in order to “better manage the balance between supply and demand”.
The ODC has since suspended its auctions for the rest of the year, as part of an industry-wide push to clear the glut in the market and resuscitate demand from retailers.
While the diamond industry traditionally has boom and bust cycles, this year’s crunch has raised worries over whether the slowdown is more structural; a settling in of what could become the new normal for the shiny stones.
The major difference between previous downturns and 2023 is synthetics, the increasingly cheap lab-grown diamonds that are taking up more space in the diamond jewellery market and a year of economic uncertainties, providing a strong alternative for the natural diamonds dug by producers such as Botswana.
The fears are particularly strong for Botswana’s mineral-dependent economy. Diamonds alone generate over 80% of Botswana's foreign exchange earnings and almost half of government revenues which are used to finance both the development and recurrent budget.
The impact of the diamond downturn on the broader economy is clear from Gross Domestic Product (GDP) figures released by Statistics Botswana on Wednesday. According to the data agency, year-on-year real growth in the third quarter was measured at 0.5 percent compared to 3.3 percent in the second quarter and five percent in the third quarter of the previous year.
While most sectors recorded growth in the third quarter, mining shrank by nine percent and diamond traders (which consists of cutting and polishing activities) by 20.4%.
Despite the gloom, the slump in diamonds appears to be bottoming out.
On Wednesday, De Beers Group CEO, Al Cook, who has spent his first year at the helm of the diamond giant fighting to maintain an upbeat approach, shared a positive outlook on the situation.
“As the end-of-year holiday season progresses, we are seeing signs that the diamond industry is regaining its balance between wholesale supply and demand,” he said. “Polished diamond prices look to have stabilised as inventory levels have decreased, though we expect improvements in rough diamond trading conditions to be gradual.”
