A diamond may not be forever

DeBeers is learning the hard way. Diamonds are not forever. The miner, owned by the multi-national, Anglo American, has been synonymous for decades with the $80 billion global diamond industry. But today, with a slowdown in demand and a stockpile of $2 billion worth of roughs, Anglo American is considering a second write down after cutting DeBeers’ valuation by $1.56 billion last year. It is also actively scouting for a buyer. For India’s labour intensive diamond cutting and polishing industry all this is bad news.

Anglo American has reduced DeBeers’ 2025 production plan by 10 million carats to reflect “challenging rough-diamond trading conditions,” it said in its fourth-quarter operational report. The company’s 2024 earnings before interest, taxes, depreciation, and amortization (EBITDA) will be “marginally negative,” the parent company projected. 

It has been a crisis year. Sales for calendar 2024 fell 25% to $2.72 billion. The average price index, which tracks like-for-like rough prices at sights across the entire year, fell 20% compared with 2023. 

The company is facing an inventory crisis with stock worth of $2 billion piling up, the largest since the 2008 meltdown. The downturn has reduced production by 22% to 24.7 million carats in 2024, and cut its outlook for 2025 to between 20 million and 23 million carats, compared with an earlier forecast of 30 million to 33 million carats.

China market contracts

The diamond industry is no stranger to boom-and-bust cycles, but what the takeaway from the DeBeers saga is there is a significant and permanent change for the worse. The trickle of lab-grown diamonds has become a flood, rapidly squeezing out natural stones, especially in fashion jewelry and low-end engagement rings.

There has been a steady fall in the production of rough natural diamonds. The Argyle mine in Australia is depleted, and major mines in Canada are also nearing exhaustion. The ban on trade of Russian diamonds as a part of the Ukraine sanctions imposed by the West has knocked out a major source of roughs. Russia produced 37.3 million carats in 2023, or roughly 35 percent of the global production.

This has resulted in natural diamond production diving to 111.5 million carats, an 8 percent drop from 2022, and a 20 percent drop in value, the lowest level since the Kimberley Process began publishing data. Despite the lower supply, the average price of a diamond fell 14% to $114 per carat.

On the other hand, the growth of the laboratory grown diamond is robust. From market sales valued at $22.79 billion in 2023, lab-grown diamonds are expected to grow to $74.45 billion by 2032. The growth projection for Indian lab-grown diamonds is $1,192.3 million by 2033 from $299.9 million in 2023 with the corporate backing of Tata Group’s Trent and Senco Gold and Diamond. Pandora, the world’s largest fashion jewelry company, too has launched a lab-created diamond line. 

Simultaneously, the industry is reeling from a collapse of the China market, which has plunged as much as 50 percent compared to the pre-pandemic levels. Demand for natural diamonds has ‘fallen off a cliff’ amid plunging marriage rates, while its factories are churning out synthetic alternatives that are up to 90 per cent cheaper, the South China Morning Post reported.

Not all newlyweds in China can afford a name-brand, natural diamond in today’s tough economy. But many no longer want one, anyway. “They don’t necessarily need something from Tiffany’s,” Vivian Wu, a 40-year-old founder of the Shanghai-based diamond business Wei An Shang Mao, was quoted as saying.

Crisis in India

India is not a producer of roughs, but is a big ‘downstream’ player as the largest cutting and polishing hub for stones and jewelry. The industry employs 1.3 million craftsmen mainly concentrated in towns around Surat and Mumbai; and exports polished stones and jewelry worth $18.2 billion. 

However, the crisis in the industry is palpable now with a marked fall in both imports and exports over the last 3 years. There is a huge build-up of inventory of unprocessed roughs and a once vibrant industry is now struggling to survive. Thousands of units have shut down and many foresee a downturn of between 10 and 15 percent in both volume and value by 2030.

“The crisis has triggered defaults, factory closures, and widespread job losses. Tragically, more than 60 people in Gujarat’s diamond sector have committed suicide, reflecting the severe financial and emotional strain India’s diamond sector is facing,” Global Trade Research Initiative (GTRI) Founder Ajay Srivastava said.

After adjusting for re-exported rough diamonds, net imports declined by 25.3 per cent, from $17.5 billion to $13.1 billion, indicating reduced demand for processing in India. Exports of cut and polished diamonds fell by a higher margin of 34.6 per cent, from $24.4 billion in FY 2022 to $13.1 billion in FY 2024, the October 2024 GTRI report claimed.

It suggested a host of steps including extending export credit terms, exempting foreign rough diamond sellers from corporate tax in India; and reconsidering zero tariff import of cut and polished diamonds from Dubai under the India-UAE trade pact.

These measures could help moderate the crisis. However, till international demand picks up and natural diamonds find new markets, the industry will continue to be in the doldrums.