Experts believe that the diamond industry underestimated the threat of synthetic diamonds

The diamond industry underestimated the threat of synthetic diamonds and was unable to effectively counter it. The decline in demand for diamond products is due to both a change in generations and the economic downturn in China, experts interviewed by TASS believe.

Earlier, the diamond mining company De Beers cancelled a trading session for the sale of rough diamonds scheduled for the end of August due to a drop in demand for them in the world. The company noted that there was an excess of supply over demand on the market, and one of the reasons that led to an oversupply of rough diamonds was a significant drop in diamond production in India in July and early August.

Finam analyst Alexey Kalachev believes that the reasons for the fall in diamond prices are related to the decline in global demand for diamonds. According to the expert, consumer preferences have changed with the change of generations. "Todays youth is less inclined to prestigious consumption and is quite ready to limit their spending on gifts and wedding rings to the purchase of artificial diamonds. In general, the diamond industry clearly underestimated the threat from artificially grown diamonds and was unable to effectively counter it. Their production costs are falling, and their volumes are growing," he noted.

Kalachev clarified that against the backdrop of declining demand for natural stones and growing demand for artificial ones, their volumes in the United States (the largest jewelry market) were virtually equal last year.

Mikhail Seleznev, senior personal broker at BCS World of Investments, noted that diamond market participants are making significant efforts to stabilize the situation. Thus, De Beers recently reduced its production forecast for 2024 for the third time, and demand for products in end markets, in the US and especially in China, remains weak. "In their latest press releases, De Beers and Petra Diamonds note a decrease in demand for their products due to the economic downturn in China, the growing popularity of synthetic stones in the US and high interest rates. It is important to note that China and the US account for more than 65% of global demand for diamond jewelry," he added. Seleznev clarified that both companies emphasize the presence of significant diamond reserves among cutters, which, combined with the expected slow recovery in demand, will put pressure on the market until at least the end of 2024. 

Market Hopes and Risks

Finam analyst Alexey Kalachev added that the complication of the geopolitical situation in the world also failed to support the diamond market, unlike the gold market. "Hopes for the markets recovery may be based on increased demand from developing countries in Southeast Asia and the Asia-Pacific region, which have not yet completed the transition from an industrial to a post-industrial society and retain a traditional attitude toward luxury goods. In addition, at some point the market may finally realize the fact that diamond supply is falling due to the ongoing reduction in their production," he suggested. According to Kalachev, this could happen within two to three years. 

Seleznev, in turn, drew attention to the fact that there are also long-term risks in the diamond industry. "Diamond production is expected to decline by 1-2% annually, but demand will probably fall faster. The new generation prefers impressions to material goods, and interest in artificial diamonds is growing," he added. 

Source: TASS