Are diamonds yesterday’s status symbol, or can we expect a bullish rally following the resounding price shock witnessed in 2023?
It’s a difficult question to answer, but according to the upper echelons of the diamond mining industry, there is reason for optimism.
Take De Beers, the world’s largest miner of these beautiful (and often controversial) carbon structures.
With natural diamond prices holding firm against lab-grown alternatives, De Beers raised hopes for 2024 after a disappointing 2023.
“We view 2024 as a recovery year,” De Beers CEO Al Cook recently said in an interview on Bloomberg TV, although “we expect the rebound in diamond demand to be gradual and not sudden.”
Recovery: Are diamonds yesterday’s status symbol, or can we expect a bullish rally following the resounding price shock witnessed in 2023?
He agreed that 2023 “was a very challenging year for the diamond industry.”
The lower demand was driven by a combination of a drop in economic growth, a delay in “engagement rates” in the United States and China and the invasion of the sector by lab-grown diamonds.
However, Cook sees less competition from lab-grown diamonds as status symbols in 2024, as their prices have fallen more than 90 percent in just two years.
“Customers now clearly see that natural diamonds and lab-grown diamonds are two completely different things,” he said.
As John Teeling, chairman of AIM-listed diamond explorer Botswana Diamonds plc, put it: “Both a Ferrari and a Ford Mondeo are good cars, but that’s the only common point they share.”
According to StoneAlgo’s lab-grown diamond price tracker, the average price of a one-carat lab-grown diamond fell more than 37 percent in the past 12 months alone, from more than $1,200 in February 2023 to around 750 dollars today.
By comparison, natural diamonds fell less than 19 percent, from more than $5,000 for a one-carat diamond in February 2023 to around $4,100 today.
“The lab-grown diamond market is subject to the same supply and demand imbalances that affect all markets,” StoneAlgo said.
“Lab-grown diamond prices are primarily affected by decreasing costs of growing and manufacturing lab-grown diamonds, increased competition from suppliers and jewelers, which has resulted in lower profit margins.” at the retail level.”
StoneAlgo said it is unclear whether lab-grown diamond prices will stop falling as the technology for growing diamonds continues to become cheaper and more available, which is driving competition and driving down lab-grown diamond prices. laboratory.
Additionally, lab-grown diamonds offer poor value retention and resale value compared to their natural alternatives.
Still, De Beers, as the world’s largest diamond miner, is clearly under pricing pressure for one reason or another.
In its first sale of 2024, the group reduced prices by 10 percent in a bid to stimulate demand.
In essence, the natural diamond industry is suffering the same fate as other discretionary items, with prices overcorrecting following record demand for luxury goods in the Covid-19 lockdown era.
However, signs of a diamond recovery are emerging.
De Beers rough diamond sales of $370 million for Cycle 1 (representing sales between December 19, 2023 and January 30, 2024) increased 170 percent sequentially as a result of demand Christmas in the United States and the resumption of sales in India.
You wouldn’t be surprised to learn that market valuations in the small cap space are low right now.
Botswana Diamonds is down 60 percent year-on-year to 0.45 pence, while actors in the production stage Petra Diamonds and gem diamonds are down 40 per cent to 46.2p and 70 per cent to 9.98p respectively.
Speaking on the state of the diamond industry, Petra chief executive Richard Duffy said: “While we are seeing encouraging signs of price recovery and some stabilization in the rough diamond market, following measures taken by both producers and intermediaries, we continue to take a cautious approach to the market in the short term.
In a similar tone, Gem Diamonds observed: “The global rough diamond market continued to experience downward pressure in the fourth quarter of 2023.”
“There is cautious optimism for 2024 (and) any rebound will transform sentiment,” Teeling told investors in December.
Recovery will not be easy. The funding crisis means explorers are finding it harder to explore, while producers continue to battle price compression.
But if you share the optimistic sentiment that “diamond profits have declined,” as Jefferies analysts recently claimed, then buying a stake in the industry hasn’t been this cheap in a long time.
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