Bloomberg
The $80 Billion Diamond Market Crash Leaves De Beers Reeling
A slump in demand has left De Beers floundering — and threatens to frustrate its owner’s plans to sell what was once the titan of the industry.
4 februari 2025 at 23:00 CET
For decades, the inner circle of the diamond world has assembled 10 times each year for an invitation-only event, where hundreds of millions of dollars of uncut gems changed hands in a matter of days.
Until they didn’t.
The secretive gatherings hosted by De Beers are the main way the company that invented the modern diamond industry sells its precious stones to a select circle of clients. The sales have also long stood as a demonstration of De Beers’s power: the elite group of accredited buyers are expected to simply accept the prices and packages of diamonds presented to them by the iconic miner.
The relationship has been a lucrative one. The heads of the often family held businesses, known in the industry as “Principles,” have become millionaires, or even billionaires when business is booming.
But in recent months the sales have been roiled by tensions, as a prolonged crash crippling the diamond market has left De Beers floundering for answers, and its buyers furious and alienated. Now, many of the Principles have simply stopped showing up at all.
And while the company struggles with fracturing relationships and plummeting demand, De Beers’s owner Anglo American Plc is trying to find a way out. When Anglo Chief Executive Officer Duncan Wanblad announced a restructuring last year after rejecting a takeover proposal from BHP Group, the only issue both sides seemed to agree on was that neither wanted to own the world’s most famous diamond company.
Anglo has promised investors it will exit diamonds to focus on mining copper and iron ore. But finding a buyer to pay up looks increasingly challenging as De Beers stumbles its way through the crash.
Last year, De Beers for months refused to lower its diamond prices even though the rest of the market was collapsing — and so many of its customers simply refused to buy. When it finally capitulated in December, the cuts were seen as too little, too late. The miner has also angered its clients with an announcement that it plans to drastically cut their numbers.
This account is based on interviews with more than a dozen mining executives, traders and other industry insiders, including at some of De Beers’s biggest buyers, most of whom asked not to be identified discussing private information.
Speaking privately, some of the company’s biggest customers say they are frustrated that the one-time monopoly seems unable to provide the leadership the industry needs. But De Beers, which for years acted as a protector by providing its customers with built-in profit margins, says its own business must come first.
The company said it has already taken a range of actions, including reducing production, combining sales, offering additional flexibility to buyers and large-scale investments in marketing natural diamonds. It’s also been reluctant to pour even more discounted diamonds into an market awash with stones.
“My prime responsibility is the value of De Beers,” said CEO Al Cook. “But that is also what the industry needs. The industry needs a valuable and successful De Beers.”
The growing estrangement between De Beers and its buyers is just one symptom of the crisis gripping the $80 billion diamond industry, which stretches from the mines of Botswana to jewelry stores on New York’s Fifth Avenue. What started as a post-pandemic slump has spiraled out of control so that even in a market renowned for boom and bust cycles, industry veterans say the crisis is the worst they’ve ever seen.
For cheaper diamonds, a flood of lab-grown gems is rapidly squeezing out natural stones, especially in fashion jewelry and low-end engagement rings, and raising sweeping questions about the future shape of the diamond mining industry. At the same time, the industry is reeling from a collapse in China, the second-largest diamond market, where demand has plunged by 50% since before the pandemic.
The pain is spreading across the world: Chinese retailers have been shipping back tens of millions of dollars of unsold gems every month; Botswana, which hosts De Beers’s largest mining operations, has voted in a new ruling party for the first time in six decades as plunging diamond revenue reverberates through the economy; in India, factories have been shuttered and put up for sale.
There have been some recent early signs of stabilizing demand, particularly in the US. But analysts say that the more fundamental challenges facing the industry mean it will need to restructure and refocus.
“There’s not an obvious solution right now,” said Ben Davis, an analyst at RBC Capital Markets. “The whole market needs to recalibrate.’’
At De Beers, Anglo American has acknowledged internally that a quick exit is unlikely. In the meanwhile, the diamond unit’s management is under strict orders to reduce the financial drag on its parent, including by cutting costs wherever possible.
“The shareholders don’t want me to destroy value in the exit of it,” Anglo CEO Wanblad said in an interview. “But at the same time they don’t want it to be consuming value.”
Tight Grip
Founded in 1888 by British imperialist Cecil Rhodes, De Beers at its peak controlled nearly 90% of the world’s diamond production, and maintained a tight grip over the global market through the 1900s by stockpiling billions of dollars of gems in huge safes at its London headquarters.
t was also one of the world’s most successful marketing machines. Working with Madison Avenue PR men, De Beers was responsible for establishing diamonds as the ultimate luxury purchase. It created the slogan “A diamond is forever” and dreamed up the idea of counting the number of months of salary an engagement ring should cost.
The monopoly was finally ended at the turn of the century when De Beers lost a 10-year legal battle with the US over price fixing. While its market share has slowly eroded since then, De Beers still accounts for roughly a third of global supply.
Today, its biggest problem lies in China, where the collapse in demand has become so severe that Chinese retailers have been selling back massive numbers of unwanted stones, further crashing the global market.
People are generally buying less diamond jewelry because they are uncertain about the future, both for the wider economy and their own salary growth, said Liu Houxiang, a consultant at the Shanghai laboratory of the National Gemstone Testing Center. But there’s also been a clear impact from social media posts about lab-grown diamonds, making natural stones less appealing to younger consumers, Liu said.
“The market in China is dead,” said William Lamb, CEO of Lucara Diamond Corp., which produces some of the world’s biggest gems. “I don’t see a recovery in China in the next few years.”
Trade buyers and industry experts estimate that between $30 million and $40 million a month of excess polished diamonds are being dumped back into the Indian wholesale market by Chinese retailers, with about $700 million in total flowing back to India. More than $1 billion has recirculated in China, they say.
Traders say they can buy unsold Chinese stones — many laser-engraved with the names of China’s biggest luxury retailers — at a more than 10% discount to going rates for polished diamonds on the wholesale market.
As a result, an entire sub-industry has grown up just to repolish diamonds emblazoned with the branding of big Chinese retailers.
Rough diamond prices have plunged nearly 50% in the past two years, while the price of polished stones has fallen about 35%.
De Beers says the worst is over in terms of diamonds flowing back out of China and while there’s no sign of recovery in the crucial market, it should start to stabilize.
“I’m very confident that we are getting to the phase where the backwash ends,” said CEO Cook. “But a Chinese recovery in terms of an increase in demand will take longer.”
Made in a Lab
While the collapse in Chinese demand represents a clear and present crisis, the diamond world is grappling with an even larger question.
Manish Shah has worked in New York’s diamond industry for 25 years, and owns GEMXO, a wholesale business supplying loose gems to dealers, manufacturers and big-box retailers, operating from an office in the diamond district. Until about five years ago, all the diamonds that flowed through his business had once been dug up from a mine.
Today, that number is down to roughly half. The rest were made in a laboratory.
“Right now this is unprecedented. This is something groundbreaking, this has never happened before,” Shah said in an interview. “The whole industry is in a turmoil.”
The spectre of fake diamonds has stalked the market for more than half a century, ever since a Swedish company synthesized the first diamond in 1953. But for decades the threat failed to materialize.
But technological improvements over the last decade led to a sudden flood of supply, predominantly in China and India, drawn by the lure of huge profit margins and with practically no barriers to entry.
Unlike imitation gems such as cubic zirconia, diamonds grown in labs have the same physical characteristics and chemical makeup as mined stones. They’re made from a carbon seed placed in a microwave chamber and superheated into a glowing plasma ball, creating particles that can eventually crystallize into diamonds. The technology is so advanced that experts need a machine to distinguish between synthesized and mined gems.
Cheap fashion jewelry has been hit especially hard — customers who previously would spend a couple of hundred dollars for flawed stones can now get perfect synthetic diamonds for the same price. Boston Consulting Group estimates production of lab-grown diamonds has grown 10-fold in six years, dragging down both demand and prices for their natural equivalents.
And while the production of lab-grown stones has exploded, the price has plunged. Insiders say that wholesale prices have fallen more than 90% in the past half decade and now sit just above the cost of production.
De Beers itself had developed its own technology decades ago, and entered the market in 2018 with a company called Lightbox to sell very cheap synthetics, hoping to force a clear pricing distinction between natural gems and what it calls “costume jewelry.”
The strategy raised eyebrows: De Beers had broken one of the industry’s great taboos by selling lab-grown diamonds, something it had always forbidden its own buyers from doing themselves. And the plan was overtaken by events, as Chinese mass production sent prices crashing far lower than it could compete with, and De Beers finally announced last year it would give up synthesizing diamonds for jewelry.
The company still sees the two products as vastly different, CEO Cook said.
“It’s a little bit like taking a poster of the Mona Lisa and putting it up in the art gallery and telling people it’s the real thing. It’s not,” he told Bloomberg TV this week. “A natural diamond is created over a billion years under the surface of the earth, whereas a lab grown diamond is created in a microwave in China over three weeks.”
Globe-Spanning
The scale of the global slump in rough diamond prices is hitting across the globe.
Botswana, which owns 15% of De Beers and depends on diamonds for about a third of budget revenues, has just experienced a seismic political shift, with the party that ruled the country for almost six decades voted out of power.
In India, where around 1 million people work in the industry, cutting factories have been shuttered and many around the diamond cutting center of Surat are now up for sale. Those that are still operating are often running well below capacity, while some are cutting and polishing cheap lab-grown stones just to keep from losing skilled labor.
The industry has also faced severe volatility after Russia’s invasion of Ukraine. Western sanctions on Russian miner Alrosa PJSC have disrupted trade flows and the Group of Seven nations continue to try and squeeze Russian diamonds out of their markets. Alrosa has nonetheless continued to sell its diamonds, predominantly to Indian customers, with pricing closely tracking De Beers.
And while the two largest producers have sought to keep a floor under prices — De Beers from Botswana and Alrosa from its Russian mines — those efforts have been further undermined by a flood of cheaper stones coming out of Angola.
Strained Relations
For De Beers, the crisis is increasingly straining relations with its elite customers.
At November’s sale, buyers arrived in Botswana’s capital Gaborone to find that De Beers was pricing its rough stones about 25% above the going rate in the broader market. Many simply refused to buy.
Commenting on the sales, diamond-trading head Paul Rowley said the company takes a long-term view on rough-diamond pricing and uses a range of inputs to make decisions.
“Secondary market trading prices can provide a data point, but the key will always be to look at the profitability of diamonds once they’ve been polished and sold,” he said. “We’ll continue to keep a close eye on developments and will respond as appropriate,” he said.
By December, the company had capitulated with a cut of between 10% and 15%. But De Beers rough diamonds were still far more expensive than diamonds in the secondary market, where traders and manufacturers sell among each other. Even worse: a temporary concession allowing buyers to reject portions of each box of diamonds had now been removed. While the top-line price was lower, customers were expected to buy more loss-making diamonds.
Relations were already tense after the company’s head of sales wrote to customers telling them that De Beers plans to reduce the number of accredited clients. While a final decision hasn’t been made, it’s expected numbers may fall to around 50 from the previous 70, according to people familiar with the situation. It has also told customers that if they want to remain as accredited buyers – or “sightholders” — they need to buy more diamonds.
Now, the Principles are voting with their feet and their wallets. Attendance of the top bosses has fallen steeply at recent sales. They are also buying fewer stones, despite pressure from De Beers, which is sitting on about $2 billion of inventory even after having reduced production from its mines.
The breakdown in such crucial relationships comes at a particularly sensitive time for De Beers, as Anglo American considers its options for exiting the business.
The iconic history and brand mean that the company’s leaders are determined to realize a strong price for what Anglo still insists is a “trophy” asset, despite the current weakness. The view internally is that investors are willing to be patient rather than seeing De Beers offloaded in a fire sale, according to people familiar with the matter.
But the clock is ticking. Anglo has already announced a plan to sell its coal business and is well on its way to spinning out the platinum unit – leaving diamonds as the final leg of the restructuring. In the meanwhile, Anglo has told De Beers that it needs to stem the bleeding, which means no more building stockpiles, and cutting costs wherever possible.
Green Shoots
Some industry participants are still hopeful about the outlook. They argue that the absolute collapse in the price of lab-grown diamonds is a good thing, saying consumers won’t want a “luxury” item that costs almost nothing, which means the appeal of natural stones should remain in place.
“Eventually it’s going to become a completely separate category where people who want lab-grown diamonds will go for the lab-grown diamonds, and people who want natural will go for natural,” said GEMXO’s Shah. “I don’t think they’ll compete with each other.”
Key traders also say that holiday sales in the US — the critical period between Thanksgiving and New Year — were strong, pointing toward a recovery in the most important market. India is also growing strongly, while some key luxury brands have pointed to early signs of recovery in China. De Beers has also committed to spending more on promoting diamonds than at any point in the past 15 years.
Yet despite those “green shoots,” much of the industry remains deeply pessimistic. Categories that have been surrendered to synthetic diamonds have probably been lost forever, while the upstart products continue to make inroads elsewhere. And crucially there is little sign that China will return to anything like the diamond buying behemoth it was before the pandemic.
Perhaps tellingly, investors seem to have lost patience with the market too. The once dozen or so pool of junior miners have all but been irradiated, having either collapsed or been reduced to penny stocks.
“There’s no doubt that the last year has been very difficult,” said Anish Aggarwal, a partner at specialist diamond advisory firm Gemdax. “But there are pathways to a better future. The industry will need to effectively restructure and grow demand.”
— With assistance from Yvonne Yue Li, Maddie Parker, Winnie Zhu, and William Clowes