After an extremely difficult year, monopoly diamond mining company De Beers has sharply cut diamond prices again this year in an attempt to revive the sluggish market. In the second half of 2023, the industry came to an almost complete standstill as the two largest producers all but stopped supplying diamonds in an attempt to stem a collapse in prices. While these measures do help the market recover, it's unclear how much appetite traders have.
According to people familiar with the matter, De Beers lowered the price of rough diamonds by about 10% in its first auction of the year, which is usually one of the largest auctions of the year. It is worth noting that De Beers has made larger price reductions on large diamonds, with the price reduction for one category of diamonds being approximately 25%.
The luxury goods industry has been in intense turmoil since the start of the pandemic. During the epidemic, sales of major luxury goods companies have soared, pushing the stock prices of related companies to record highs. However, the luxury craze is now cooling significantly, leaving many companies with excess inventory.
Due to inflation and economic turmoil, as well as competition from man-made diamonds, in September last year, Russian diamond giant ALROSA announced that it would stop all diamond sales within two months to support the market, and the Indian market, a major cutting and trading center, also subsequently announced a halt to imports.
De Beers holds 10 auctions a year to sell rough diamonds to specific customers, and buyers usually must accept the price and quantity specified by the company. While buyers can refuse to buy, doing so will affect future distributions they receive, so buyers generally accept De Beers' terms.
But at its last two auctions last year, De Beers changed that rule, meaning the company's bargaining power is diminishing.
It is reported that at the January auction, the biggest price reduction was for a type of diamond called "selected machinable diamonds", which weigh between 2 and 4 carats and can be cut into diamonds about half the size of original diamonds after polishing, thereby producing high-quality but not flawless diamonds and setting them in rings.
People familiar with the matter said that although De Beers had significantly lowered the price of such products last year, it lowered the price by 25% this month. Due to the growing popularity of man-made diamonds, these gemstone categories have been hit hard, and the price of man-made diamonds has also seen a significant decline.
The key question now is whether recent price cuts will help revive demand, and whether the weakening in demand for diamonds is temporary or permanent. Diamond prices began to rebound toward the end of last year as buyers needed to build new inventories to keep factories running, driving demand amid limited supply.