De Beers Diamond Inventory Soars To Highest Since 2008 Financial Crisis As Prices Plummet
Three weeks ago the diamond industry, one of the world's most conservative and boring, was shocked by news that diamond giant De Beers (which accounts for 30% of global diamond production market share) was forced into a rare 10-15% price cut, taking wholesale diamond prices a stunning 40% lower in the past 2 years. That was the first major price cut since the start of the year and a "historically large reduction", according to Bloomberg.
Unfortunately, it is going from bad to worse for the diamond price setter, which in an attempt to keep demand artificially high has throttled supply, and the FT reported that De Beers has amassed its largest diamond stockpile since the 2008 financial crisis.
The company, which dominates the $80 billion diamond jewelry industry, has seen inventory levels hover around $2 billion throughout 2024.
The slump in demand has been attributed to weak sales in China, growing competition from lab-grown alternatives, and the lingering impact of the Covid-19 pandemic, which disrupted global marriage rates.
“It’s been a bad year for rough diamond sales,” CEO Al Cook said.
To mitigate the downturn, De Beers has cut production by around 20% compared to last year and reduced prices at its most recent auction of rough diamonds. These auctions involve selling uncut stones to a select group of certified buyers, known as sightholders, who are pivotal players in the diamond trade.
Still, even after the steep cut in prices, the company’s stones are still more expensive than the going rate in the secondary market. The company also removed some of the flexibility it had offered at previous sales, according to Bloomberg.
Revenue for De Beers fell to $2.2 billion in the first half of 2024, down from $2.8 billion in the same period of 2023. The decline comes as De Beers prepares to be spun off by its parent company, Anglo American, which promised to divest the diamond producer following a thwarted takeover bid by BHP. Anglo American CEO Duncan Wanblad has warned that the weak market complicates potential sale or public offering plans.
In response to market pressures, primarily the result of explosive sales from cheap lab-grown diamonds, De Beers launched a marketing campaign in October highlighting the unique appeal of natural diamonds. Cook outlined plans for the company to invest in advertising and retail, expanding its network of global stores from 40 to 100.
Competition from lab-grown diamonds, which cost a fraction of natural stones, has intensified, particularly in the US, the world’s largest diamond market. However, Cook expressed optimism for a global recovery in 2024, citing recent credit card data showing increased US purchases of jewelry and watches in October and November.
Industry analyst Paul Zimnisky projected a 6% rise in global diamond jewelry sales to $84 billion in 2025, offering hope for an eventual market rebound.
Tim Treadgold
Contributor
Dec 26, 2024
Selling De Beers, the biggest transaction ever attempted in the diamond industry, just got a little harder with news that it is sitting on a $2 billion stockpile of unsold gems.
The De Beers business, which is 85%-owned by London-listed Anglo American, is one of the units being off loaded as part of a defence against an attempted takeover by arch-rival BHP.
Diamonds are getting harder to sell. (STR/AFP via Getty Images)AFP via Getty Images
Coal mines have already been sold by Anglo American with nickel and platinum assets poised to go.
But the crown jewel in the Anglo American stable of assets collected over the last 120 years is De Beers which rose to control the diamond industry but has since lost most of its pricing power.
The latest crop of problems started for De Beers with the creation of near-perfect laboratory grown gems which are undercutting prices for natural (mined) stones which dominate the De Beers offering, compounded by the Covid pandemic which cut overall jewellery demand.
Now comes news of the stockpile which has not previously been reported but was identified in a story published yesterday by London's Financial Times newspaper.
Too many diamonds. De Agostini via Getty Images)De Agostini via Getty Images
According to the FT the stockpiled amassed by De Beers is the biggest since the 2008 financial crisis when diamond demand dried up and De Beers stepped in as a buyer of last resort to remove excess material from the market with the objective being to support prices.
Similar moves have been made in the past by De Beers, which has long seen itself as the custodian of the diamond industry.
But the era of De Beers being big enough to dominate diamond mining, processing, and marketing, has passed with the entry of new miners such as Rio Tinto and the dramatic improvement in synthetic stones which even a skilled jeweler finds hard to tell apart from natural gems.
A slowdown in demand for diamonds in China, where conspicuous consumption runs against government policy, has added to the overall problems for the industry.
The FT quoted De Beers chief executive Al Cook saying: “It’s been a bad year for rough diamond sales”.
Tough trading conditions, and a buildup of the stockpile, will also be a problem for Anglo American as its tries to price De Beers for outright sale or a spin-off into a separate stock-exchange listed company.
Overall diamond sales by De Beers fell from $2.8 billion in the opening six months of 2023 to $2.2 billion in the first half of this year.
Anglo American chief executive Duncan Wanblad has acknowledged that the week state of the diamond market will complicate the De Beers sakes process.
More Stores
But it is understood that the disposal of De Beers, one way or another, will proceed, as will a plan to grow the retail arm of the business through the opening of more stores with the aim being to grow from 40 De Beers outlets today to 100 around the world.
Cook told the FT that as De Beers becomes an independent business it will focus as closely on marketing as it has traditionally focused on mining.
“This feels to me like the right time to be driving marketing and getting behind our brands and retail, even as we cut the capital spend on the mining side,” Cook said.
Tim Treadgold has been covering the global mining and oil industries for more than 40 years from his hometown, the Australian resources capital of Perth
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