Decades ago, De Beers’ game changing ad campaigns induced a behavioral change in the Japanese wedding market where engagement rings were almost non-existent. However, today the scenario has dramatically changed when Japanese are selling their stockpiles of diamonds gathered over the years for cash to enjoy travel, technology products and unique experiences. This says a lot about the global trend of diamond demand. Most of the earlier industry forecasts had predicted a linear diamond demand growth to be lasted for years and a huge demand-supply gap due to falling diamond production. Though diamond supplies have indeed fallen over the years – 26% down since 2005 levels, demand hasn’t exactly picked up as estimated leading to a much less diamond shortage.
Cost of diamond mining has risen significantly in recent years, as many of the mines are turning underground. De Beers’ current projects are costing more than USD 3 billion, while Alrosa spent USD 1 billion each to develop its 3 underground diamond mines. Increased cost of operations has led to drastic increase in the prices of diamond roughs, which rose by 63% in the past decade. At the same time, prices of polished stones have not increased proportionately due to jewelry retailers’ pressure of trying to maintain retail prices to keep sales going, especially true in a weakening demand scenario and rising cost of jewelry retail operations.
Caught between all this, the biggest casualties have been the diamond manufacturers whose profit margins have almost vanished. Global profits share of diamond manufacturers by cutting, polishing and other related activities was only USD 100 million in 2015 out of a total USD 80 billion diamond jewelry sales, 100% down from last year and against the 2010 levels of USD 900 million.
This has resulted in laying off an estimated 300,000 diamond processing workers in China and India alone. In India, around 2,000 diamond processing units have been shut, with around 70-80% of the workers in the sector affected by pay cuts, reduced working hours and retrenchments. Since past one month, almost no diamond rough purchase has happened in Surat – India’s diamond processing capital. The manufacturer’s woes are further multiplied by lack of liquidity and access to credit crunch. Defaults in the Indian diamond industry are now a commonplace. Since 2013, 42 diamond firms have defaulted and many have either already declared or are on the verge of declaring bankruptcy.
The effect of the diamond slowdown is seen across the industry pipeline and geographies as well. A recent Zimbabwe government audit report has revealed that most of the diamond mining companies operating in the country are facing huge losses with the overall financial situation in red. Sluggish market conditions have also had an adverse effect on the recently concluded Hong Kong Jewellery & Gem Fair.
Stuart Brown – CEO of Firestone Diamonds and former finance chief at De Beers, expects the diamond industry to remain depressed, sales to remain weak and traders and manufacturers to struggle. While the industry is indeed going through a period of turmoil and with no respite in retail prices of diamonds for consumers, many are shifting to more affordable artificial jewelry. As it is, the industry is facing innumerable problems, which it has not been able to satisfactorily address, but the weakening demand and market slowdown aggravates the situation and indicates that a long dark winter is coming for the diamond industry.