Diamond Freedom: Major Price Drops by World's Largest Producer?

The diamond market has historically been a realm dominated by natural gems, often symbolizing luxury and prestige. However, recent developments in the sector, particularly regarding cultivated diamonds, have stirred interest among investors and consumers alike. As of December 4th, the A-share market witnessed a notable uptick in stocks associated with cultivated diamonds, spotlighting companies like Huanghe Xuanfeng and Huifeng Diamond, which experienced significant increases in their stock values. This uptick reflects a broader trend of acceptance and demand for cultivated diamonds, paralleling shifts in consumer purchasing habits.

The momentum occurred against the backdrop of a monumental decision made by De Beers, the world’s largest diamond producer, which recently announced price cuts of over 10% on a substantial portion of their offerings. This was a remarkable move, representing the largest scale reduction in prices since the beginning of the year and reflecting an unusual shift in a market that has been traditionally propped up by the allure of diamonds as a rare and timeless gift. Established in the late 19th century, De Beers has historically controlled a significant portion of the diamond market, at one point holding nearly 80% of the global diamond production share. Today, despite a decrease in market share to about 40%, De Beers continues to hold considerable sway in defining diamond prices.

Advertisement

News reports indicated that during De Beers’ last sales event of the year, they chose to abandon their previous stance on price stability, marking a significant turning point in the diamond pricing landscape. Given that De Beers generates most of its revenue from rough diamonds, the implications of these price reductions could resonate throughout the industry, potentially engendering a reduction in the prices of polished diamonds, as the costs across the supply chain tend to be interconnected.

Interestingly, even amid these reductions, De Beers remains competitive, as the lowered prices may still exceed those found on secondary markets. This highlights the tension within the diamond sector as consumer preferences evolve, especially with the increasing acceptance of cultivated diamonds—laboratory-made stones that possess the same physical and chemical properties as their mined counterparts.

Today’s market landscape poses challenges for De Beers, as they contend with fluctuating demand and an oversupply in the face of evolving consumer preferences. Earlier in the year, their parent company Anglo American rejected a substantial acquisition offer from BHP valued at $49 billion, choosing instead to streamline their operations and reconsider the essential strategies guiding their diamond business.

In light of these industry shifts, the performance of cultivated diamonds cannot be overlooked. The U.S. market research firm Tenoris recently predicted that the retail revenue for jewelry incorporating these cultivated diamonds would see an astounding growth rate of 46%, while their natural diamond counterparts would grow only modestly at a rate of 4.7%. This trend underscores a significant consumer shift towards purchasing cultivated products due to their more accessible price points.

The stark affordability of cultivated diamonds has been emphasized by steep drops in their market prices. An insider in the cultivated diamond production sector revealed that the price of rough cultivated diamonds has plummeted from nearly $100 per carat at the beginning of 2022 to roughly $15 today—a staggering decline of approximately 85%. Retail vendors have reported that, compared to previous highs, a carat of cultivated diamonds is now over 80% cheaper. While experts in the field anticipate continued price declines, they project that these will stabilize rather than lead to further drastic decreases.

Moreover, a substantial portion of cultivated diamonds, estimated at about 80%, is produced in Henan province, China. Here, local manufacturers have capitalized on technological advancements and have developed a robust industry that caters primarily to the global demand for cultivated diamonds. Reports reveal that China is responsible for about 95% of the world’s diamond monocrystal output, highlighting the country’s dominance in both the natural and cultivated diamond markets.

Several notable companies that experienced stock surges in the cultivated diamond sector, such as Huifeng Diamond and Power Diamond, are situated in Henan. Despite the notable growth in stock prices, these companies have reported significant declines in revenue, indicating that market dynamics may not translate seamlessly into profitability. For instance, Huifeng Diamond stated that their revenue for the first three quarters of 2024 fell 57.24% year-on-year, while Power Diamond reported a 4.08% decline in the same timeframe.

Furthermore, investment analysts from Wanlian Securities suggest that as the macroeconomic landscape progressively stabilizes, coupled with the rising “self-indulgence” consumer trends, the demand for diamonds—both natural and cultivated—could gradually recover. Given that cultivated diamonds are structurally indistinguishable from natural ones and offer considerable price advantages, experts believe the penetration of cultivated diamonds in the jewelry market is likely to continue expanding.

Consumers are increasingly becoming informed about the nature of cultivated diamonds, aided by marketing efforts that emphasize their appeal. This shift in consumer education serves to enhance the perception of cultivated diamonds not as inferior alternatives, but as viable and equally attractive choices. As we move forward into 2024, the diamond industry is poised at an interesting crossroads where traditional barriers are being challenged, consumer awareness is on the rise, and economic considerations are leading to a more informed purchasing landscape.

In summary, the landscape of the diamond industry is evolving as cultivated diamonds rise in popularity, notably in the wake of significant price adjustments from leading players like De Beers. As consumers gravitate towards more affordable options without sacrificing quality, the future of both natural and cultivated diamond sales remains intertwined with market trends, consumer education, and technological advancements that continue to reshape this storied industry.