In his presentation at the Bharat Diamond Bourse (BDB) Leadership Series on 11th October, diamond analyst Paul Zimnisky noted that the diamond industry, despite its current difficulties, remains a significant $80 billion global market.
Paul Zimnisky said that while the present scenario may appear challenging, the long-term prospects are closely tied to global population growth, expanding middle classes, and increasing wealth. Looking ahead to the next 10, 20, or even 30 years, the diamond industry continues to offer opportunities for growth.
A Catalyst for Change: The Impact of Global Markets
The United States, the largest consumer of diamonds, represents over half of the global diamond demand. While the country’s economic resilience post-pandemic has surprised many, with steady consumer spending despite slow economic growth, diamond sales are expected to drop slightly this year. However, demand remains higher than pre-pandemic levels.
In contrast, China, once the second-largest diamond market, has seen demand plummet due to the psychological and financial impact of extended lockdowns. Chinese consumers have been hesitant to spend on luxury goods like diamonds. Many are still recovering from the psychological and financial impact of the pandemic. Despite these issues, there are signs of recovery as the government initiates efforts to stimulate consumer sentiment by pumping in stimulus packages. However, the structural slowdown in China may take time to reverse.
Meanwhile, India has outpaced China and is emerging as the second-largest diamond market, showing promising signs of growth.
Supply Dynamics
Many of the world’s significant diamond mines, particularly those in Canada and South Africa, are nearing the end of their operational lives, further tightening supply. Production in Namibia mines will remain flat. Congo mines have seen a significant drop in production.
In the past 20 years, natural diamond production has dropped from a peak of 175 million carats to just over 100 million carats this year. It is forecasted to remain at multi-decade lows, ranging between 105-120 million carats through the end of the 2020s. Mining companies are responding to the current price downturn by reducing production. This reaction is expected, given that diamond supply is highly sensitive to profitability—higher prices typically lead to increased mining activity, while lower prices drive companies to put operations on hold.
This self-regulating mechanism within the industry helps maintain market stability during challenging periods.
Also, this decline is partly due to older mines nearing depletion, including notable sites like Diavik, Kimberly tailings, Murowa, Zamitsa and Almazy-Anabara, that are expected to either reach economic depletion or conclude conventional mining within the next decade; these mines currently account for a combined 15-20 million carats of annual production, representing approximately 15% of all global supply.
The Luele mine in Angola is the only major new source of supply expected this decade. However, De Beers is advancing its “Cut-9” expansion project at Jwaneng, which will extend the life of one of its most valuable assets into the 2050s, continuing to provide 15% of global diamond supply by value and 10% by volume.
In addition, a “Cut-3” expansion Orapa is also in the works; both are multi-billion-dollar expenditures that will extend the life of the company’s two most valuable asses through at least the 2030s.
At the same time, operating costs have risen due to inflation, squeezing profit margins for mining companies.
While the natural diamond supply is shrinking, midstream inventories have grown significantly over the last two years, squeezing manufacturers’ margins. In response, manufacturers have curbed rough purchases, companies like De Beers have cut production to stabilise prices, but a significant price recovery is not expected until at least 2025.
Market Dynamics
The global diamond jewellery market is estimated at $76 billion for 2024. Of this, LGD is projected to account for $15 billion of the global diamond jewellery market, though only $10 billion of that is estimated to be directly taking share from natural diamonds.
LGD production specifically for jewellery is estimated at 25 million carats annually, compared to 110 million carats of natural diamond production, of which only 50-60% is suitable for jewellery.
Since 2015, LGD production for jewellery has doubled every two years, while over 12 billion carats of man-made diamonds are produced annually for industrial uses.
LGDs with their significantly lower production costs have become a significant factor in the market, with production continuing to grow at a moderate pace after the explosive growth of 2021 and 2022. However, as the market becomes saturated with generic, low-cost LGDs, producers are exploring differentiation through innovative offerings in colour, shape, and design.
While LGD has primarily impacted the lower end of the market, natural diamonds continue to dominate the high-end jewellery sector.
End-Consumer Demand
The volatility of the pandemic era has left its mark on consumer behaviour, with US diamond sales expected to decline slightly in 2024, but remain well above pre-pandemic levels.
Major US companies are projecting a mid-single-digit decline in 2024 sales compared to the previous year, yet sales remain higher than pre-pandemic levels, such as Signet’s projected $6.98 billion in 2024 compared to $6.19 billion in 2019.
Engagement ring price deflation has been observed, partly due to the industry’s push of LGDs. Previous generations viewed diamonds as symbols of love and luxury, often spending significant sums on engagement rings. Recent trends suggest that younger buyers are less willing to invest heavily in diamonds, with the average engagement ring budget decreasing by 20%.
In the medium term, engagements are expected to rise by 25% from 2024 to 2026, as post-Covid relationship dynamics stabilise.
China and India, currently accounting for 25% of global diamond demand, are projected to surpass the US (which represents 50%) by the next decade, with optimism still strong for China. Although declining marriage rates in Western markets and China are affecting bridal diamond sales on a per-capita basis, overall population growth, an expanding middle class, and rising self-purchases by women are helping to offset this trend.
Meanwhile, China’s slow recovery continues to weigh on demand, although India remains a bright spot.
Longer-term, global population growth, expanding middle-class wealth, and rising self-purchases by women are expected to support diamond demand. Industry marketing efforts, such as the collaboration between the Natural Diamond Council, De Beers, and major retailers, will play a critical role in reinforcing the value of natural diamonds.
Marketing Challenges
One of the diamond industry’s most pressing issues is the need for better marketing. Historically, De Beers’ “Diamonds are Forever” campaign was instrumental in establishing the cultural importance of diamonds, particularly for engagement rings. However, as the De Beers monopoly weakened over the past 25 years, the industry has struggled to find a unified voice.
In recent years, the global marketing spend on natural diamonds has dropped to a fraction of what it was during the heyday of De Beers. Today, the annual budget is less than 20% of what it once was, leaving a significant gap in consumer awareness. To remain relevant, the industry must invest heavily in promoting the value of natural diamonds, particularly in the face of growing competition from lab-grown alternatives.
There are some encouraging signs of industry collaboration. De Beers has initiated partnerships with major jewellers, such as Signet (USA), Tanishq (India) and Chow Tai Fook (China), to train salespeople on how to promote the unique qualities of natural diamonds. This approach echoes the promotional efforts of the “Diamonds are Forever” campaign, focusing on educating consumers and sales staff alike on the enduring value of natural stones.
A Path Forward
The future of the diamond industry, while facing challenges from declining demand in China, rising competition from LGDs, and supply constraints, is far from bleak. Its ability to regulate supply, coupled with a growing consumer base in countries like India, offers hope for recovery.
Marketing will be crucial to the industry’s success. By reinforcing the emotional and symbolic value of natural diamonds, particularly among younger consumers, the diamond industry can re-establish its relevance. Collaboration between producers, retailers, and governments will be essential to navigating the complex dynamics of supply and demand.
While the short-term outlook may be uncertain, the diamond industry has the potential to adapt and thrive in the long run, continuing to shine brightly for years to come.