Volatile Markets: Giants Under Pressure

In recent years, the allure of natural diamonds, once cherished and coveted by many, has begun to dimThe soaring prices that kept potential buyers at bay are now dropping significantly, marking a remarkable shift in the market dynamicsDe Beers, the world's largest diamond producer, has recently made headlines by drastically reducing the prices of rough diamonds sold in the secondary market by 10% to 15% as of December 3, Eastern TimeThis move is not an isolated instance but rather part of a troubling trend; earlier in January 2024, the company had already cut its diamond prices by approximately 10%.

De Beers’ price reductions, while alarming, are historically seen as a last resort to counter market fluctuationsThe frequency and magnitude of these price cuts signal a growing desperation in the face of a challenging market environmentAs a leader in the industry, De Beers is clearly feeling the pressure of declining demand and an inability to sustain diamond prices, raising concerns about the health of the diamond market overall.

The diamond jewelry sector initially thrived during the pandemic, as homebound consumers turned to luxury products such as diamonds and other fine jewelry, causing prices to spike

However, with the lifting of pandemic restrictions, demand for diamonds has cooled dramaticallyReports indicate that from September 2022 to September 2023, certified diamond prices plummeted by 35% to 40%, particularly affecting diamonds ranging from half a carat to three caratsDe Beers’ price cuts in its flagship 2 to 4-carat natural diamonds reached an alarming 40% during this decline.

Industry insiders forecast continued downward pressure on diamond prices, predicting an additional reduction of 20% to 25% over the next year in a worst-case scenarioThe current market trends indeed suggest that the predicted decline has become a reality.

De Beers has long held a dominant position in the global rough diamond market, conducting ten sales events each yearAlthough buyers have the option to refuse purchases during these events, doing so could jeopardize their future access to diamonds from De Beers, hence buyers typically acquiesce to the prices and quantities set by the company

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However, during the last two auctions of 2023, De Beers altered its rules, indicating a shift in the company's bargaining power.

These changes have evidently affected De Beers’ financial performanceIn 2023, the company reported total revenues plummeting by 34.84% from their previous highs of $6.6 billion in 2022, down to $4.3 billionAdditionally, sales of rough diamonds dropped from $6 billion to $3.6 billion, a substantial decrease of 40%. The decline in diamond prices can be attributed to several factors, including economic slowdown, a shift in consumer preferences towards gold jewelry, and a significant drop in the number of weddings, which traditionally act as a major driver for diamond purchases.

De Beers’ CEO previously mentioned the changing macroeconomic environment, observing that consumers are gradually moving from purchasing goods to servicesThis shift has led to a sharp drop in demand for luxury items, including diamonds.

According to Wan Zhe, the former chief economist of China Gold Group, the primary reasons for plummeting diamond prices encompass three critical factors

First, the pandemic's impact has severely dampened global demand, especially in wedding-related expendituresMany couples opted to postpone or simplify their weddings during confinement, resulting in decreased demand for diamonds, which fundamentally underpin the diamond market's stability.

Secondly, the uncertainty surrounding global economic conditions has influenced the diamond market, leading consumers to become increasingly cautious with luxury purchases, preferring instead to invest in more stable assetsLastly, geopolitical tensions and other global risk factors have pushed investors towards safer assets like gold, undermining interest in higher-risk assets, including diamondsIn this turbulent backdrop, the downward trajectory of diamond prices shows no signs of reversing.

As diamond jewelry companies grapple with declining sales, numerous Chinese brands primarily focused on diamond jewelry, including publicly traded companies, have suffered significantly

Di’A shares, which became publicly traded in 2021, specializes in branded jewelry operations and custom salesTheir tagline “One diamond for a lifetime” has resonated with consumers, yet even they aren't spared from the market downturn.

In the year following their stock market debut, Di'A's performance began to falter, with a reported revenue of 3.68 billion yuan and a net profit plummeting by nearly 44%. Moreover, in 2023, revenue slipped to 2.18 billion yuan, representing a staggering year-over-year decrease of 40.78%, alongside a 90.54% drop in net profit.

Another player in the natural diamond jewelry market, Laishengtongling, showed similar results in its third-quarter report, reflecting significant financial loss alongside a decline in revenueIn 2023, they registered a total revenue of around 733 million yuan, nearly 20% lower than the previous year, with net losses expanding significantly

The continued struggles of Laishengtongling highlight the broader challenges pervading the diamond industry as retail demand wanes.

According to the research team for China’s diamond price index, geopolitical instability has disrupted the natural diamond supply chain and eroded consumer confidence, leading to a sluggish recovery in China’s diamond jewelry marketNotably, data from Chinese customs indicated that diamond imports in 2023 amounted to $5.972 billion, a 29.5% decline from 2022.

Diamonds and other jewelry represent strong social symbols; during prosperous economic conditions, consumers often chase after these sparkling itemsHowever, in recent years, both synthetic and natural diamond prices have experienced a dramatic collapseThe second-hand market serves as the most reliable indicator of an item’s value preservation, revealing that few would buy back small diamonds at high prices unless they are significantly undervalued