Natural Diamond Oversupply and Lab Grown Diamonds – The Latest Challenges for the Diamond Industry

It is an open secret that during the ‘high tide’ of natural diamonds not only manufacturers, but also investors, dealers and as well as retail jewellers overbought natural diamonds blindly. This buying spree was based on the old adage that has been synonymous with the diamond industry that dictates that the most critical success factor for the diamond industry revolves around ‘the way diamonds are bought and not on how they are sold.

Albeit that this is true to a certain degree that the greatest challenges for the diamond market almost always presents itself during good times, it also causes the industry to lose its way due to being unable to control buying urges leading to overbuying. This inevitably leaves the industry in vulnerable position when the market starts sliding.

Both the diamond and jewellery market are in a predicament that is proving to be a significant stress factor for industry players attributed directly to overbuying during the strong recovery period between 2021 and the first half of 2022. Coupled with the growing demand for lab grown diamonds, the natural diamond industry could be said to be facing its biggest challenge yet.

It is an inevitable situation as the market pulled back from the rough market, which is play currently attributed to aggressive buying that took place between 2021 and the first-half of 2022 at inflated prices. The difference this time is that the scenario is occurring within the retail segment due to the excessive buying post COVID.

According to market observers, diamond store suppliers and retail jewellers have seen sales significantly slower compared to the previous years as jewellers reduced purchases after the middle of 2022, leaving both manufacturers and as well as dealers with an excess in polished diamond supply and to this has led to polished natural diamond prices to decline.

According to RAPI™ (RapNet Diamond Index), the price of a one carat diamond declined by almost 11% in the first half of 2023 after declining by about 10% in the second half of 2022. At 1.2 % lower than prices of 2020, it becomes evident that gains from the recovery period (mid2021 – mid-2022) were neutralised.

Industry players were basically blindsided by the general economic prudence of governments and the rise in demand for lab-grown diamonds.

Adding salt to the wound was the discretionary consumer spending that followed rising interest rates, inflationary pressure and competitive discounting as dealers and retailers tried to unload access inventory into the market in order to stabilise their respective working capital and cash flow.

Rising caution within the sphere of industry players has left the diamond market in a rather ‘sticky situation’ as major players such as De Beers and Signet expressed negative sentiment towards the market resulting in all parties becoming meticulous about their respective inventory management.

The only way forward currently is to stimulate demand to the point where the market strikes a positive balance between supply and demand that would return the market to an upward trajectory in the coming months.