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June 2024 Market Update: De Beers, G7 & Other Changes

De Beers Share certificate - June 2024 Market Update De Beers, G7, & Other Changes - Edahn Golan
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The diamond industry is going through changes on a number of fronts, some of them fundamental. Issues such as De Beers announced sale, the impact of G7 sanctions on Russian diamonds, the increasing importance of traceability, the rise in demand for lab-grown diamonds amidst sinking prices, China’s struggling economy, and growing tensions with the West are among those that are – or should be – on everyone’s mind in the industry.

Beyond the figures that frame the market story, some thoughts that address the framework are always needed.

Plus, we are introducing a jewelry index – one that considers actual consumer prices, the cost of related commodities, and more.

De Beers Sale: What Will a De Beers Sale Look Like?

The story dominating the diamond industry these days is the sale of De Beers. After months of rumors on the topic, Anglo American officially announced it is happening, setting off a new rumor mill in regard to who will buy the company.

Possible Buyer List is Short

There is a lot of discussion about talks with the Qataris as potential buyers. Indeed, De Beers has flirted with Gulf money over the past 15 years. During the 2008-9 economic crisis, then CEO Gareth Penny reportedly sought financing to get through the rough patch.

On another occasion, the Oppenheimers held talks with Gulf entities around the time they sold their stake in De Beers.

Besides Qatar or other Arab Gulf countries, large investment funds were also mentioned as potentially interested. While this is a possibility, a sovereign or Western fund would most likely require a strategic partner to join them in order to manage the company.

Another potential buyer is the government of Botswana. They already have a 15% stake in De Beers and possess a deep desire to run the show in ways that differ from how the company operates today. However, Botswana will also require a strategic partner.

A further possibility is a group of Indian Sightholders. They know the company and have the ambition to gain greater value from diamonds, as well as the financial ability to purchase De Beers.

The Indian diamond industry has a long tradition of banding together to drive value and protect itself. Years ago, when De Beers earmarked 10% of its annual production to supply the secondary market, a group of large Indian traders formed DIL – Diamonds India Ltd. Collectively, they acquired rough diamonds from De Beers and offered them to smaller companies in India that were struggling to purchase them.

With that go-to approach, what is preventing the top 3–10 largest firms from getting together and becoming more vertically integrated?

As is apropos of Gareth Penny, he has strongly encouraged the diamond midstream to become vertically integrated. It will be ironic if this materializes with Sightholders going upstream to purchase De Beers.

Obstacles to Buying De Beers

De Beers is the symbol of the diamond industry and has a lot going for it. It possesses a unique understanding of the diamond market and has operations in every aspect of it – from mining through diamond tech to retail. Every aspect except manufacturing.

Its internal knowledge base is unparalleled, and its mining assets are some of the best and richest around.

Yet, De Beers is in the middle of a challenging period, primarily due to external forces. After a record increase in consumer demand for diamonds in 2021-2022, demand today is below pre-COVID, especially due to a sluggish Chinese economy.

The emergence of lab-grown diamonds (LGDs), viewed as a cannibalizing product, looms over natural diamonds and may deter some potential De Beers buyers. But aside from any negative impact LGDs may cause to natural diamond demand today, there is another aspect to consider, and it is one that will not deter more sophisticated buyers.

LGD pricing is heading south fast, and this is undermining their perceived value. In fact, the gap between fine jewelry set with natural diamonds and fashion jewelry set with LGDs is increasing. Currently, the key issue here is bridal, where nearly half of the diamond engagement rings sold in the US last month were set with LGDs.

Ultimately, any purchase agreement must first secure Botswana’s consent.

What Will Happen?

Buying De Beers will require a long-term vision. Any proposal must be presented to the government of Botswana to obtain its approval. Then the right partnerships must be developed and any buyer must have the ability to deliver value to the industry. Without these essential components, buyers will be set to fail.

Here in brief are a few options:

  • An IPO – Pro: Possible high valuation. Cons: Expensive. Anglo American will remain a stakeholder while it is expressing a desire to sell, not keep. My take: Going public is a long shot, especially as an immediate move. This is perhaps a way for Anglo to tell possible buyers to bid high and fast as Anglo has an alternative and patience.
  • An Indian consortium – Pros: They have the money and knowledge to sell the output and add value in the form of manufacturing. Cons: They lack the needed background in mining. An aversion from significant investment in consumer marketing efforts may eventually undermine their efforts. Most importantly, Botswana may oppose such a plan because it is counter to the local beneficiations it desires. My take: This is more market talk than a real possibility.
  • A Qatar/Gulf fund – Pros: They have both the money and the appetite. They may be able to gain Botswana’s support if they promise to enhance local beneficiation through increased local manufacturing and investment in local infrastructure. Cons: Because they have no experience in mining, they will need a strategic partner to run the company, and most likely will be impatient to see quick results. My take: While this group is currently viewed as the most likely possibility, I doubt they will go on their own.
  • The Government of Botswana – Pros: It has the desire to expand its control over its own natural resources. Buying De Beers aligns with their goal of creating “Botswana Made,” and bringing more beneficiation. Cons: For Botswana to go all in on a finite resource may be shortsighted. It needs to leverage its diamond wealth to divest its long-term future. With rare exceptions, governments do not make good business operators because the objectives of government differ from those of business. My take: This is a remote possibility, but a twist could make it work.

A Reasonable Option

This possible twist would involve a combination deal of strategic partners, outside financing (SoftBank?), and an increased Botswana share in the company.

Las Vegas Expectations

The diamond industry is experiencing considerable challenges. Diamond origin, traceability, pricing, along with a decline in consumer demand for diamond jewelry are on the minds of every industry member.

Traders, a worrisome crowd by nature, are taking a cautious approach to the show, and their expectations are aligned with this. Retailers will likely be out to take advantage of the opportunity and improve their buying – especially of lab-grown diamonds in loose and finished jewelry.

More than anything else, the event will serve as an excellent meeting opportunity for all facets of the industry to get a grip on what Is currently happening in it.

Lab-Grown, Engagement Rings, and Value

In April, nearly half (45%) of diamond engagement rings (DERs) sold by US specialty retailers were set with lab-grown diamonds (LGDs). Measured as cash through the register, they accounted for less than a quarter of income from diamond engagement rings (DERs).

Natural & LGD-Set Engagement Ring Unit Sales
Natural & LG Set Engagement Ring Unit Sales Jan 2020-Apr 2024 Source - Tenoris.bi

Their average price of $2,777 this year is below the historic annual averages of $3,200-3,600 for DERs sold in the US. A big part of the appeal is the lower price, which raises a number of questions.

Are we heading towards a point where LGD-set DERs are just too low in cost? At what point will a bride-to-be question if her partner is just too cheap? Because once most LGDs are D/FL with excellent makes, the only characteristic that will command a higher price will be their size. From a practical standpoint, that has a limit too.

I can’t imagine many women choosing to wear a 15-carat solitaire ring daily, no matter how much it cost them. So at some point, LGDs just won’t cost enough for an engagement ring, and Americans will most likely gravitate away from them.

After discussing this point with retailers, fashion designers, and brides in a wide range of ages, another thought has emerged, especially after speaking with women in their late 20s.

Is the move to LGD-set DERs a result of a devalued importance of engagement rings? If engagement rings still carry symbolic value, but this is of less importance than in the past, then why spend so much on them?

The answer to these two questions will chart the path of LGD-set DERs. Either the decline in LGD prices will result in their reduced interest as a center stone in an engagement ring, or reduced interest in a high-cost DER could make LGDs the stone of choice.

Natural Diamond Prices Decline, While Consumers Spend More

The decline in consumer demand for natural diamonds has resulted in a 7% decline in the number of loose diamonds sold by retailers. These are diamonds set in store per client requests, and they represent 20% of specialty jewelers sales.

The decline is possibly a reflection of the changes in the demographics of consumers who buy natural diamonds. While the average price per carat and number of units sold are declining, the average expenditure per diamond sold is actually rising.

Natural Diamonds – Average Consumer Expenditure Per Loose DiamondNatural Diamonds Average Retail Price Per Unit Sold - Jan 2020 - Apr 2024 - Source Tenoris & Edahn Golan

The average spend on loose diamonds was $9,643 in the first four months of 2024, more than a 40% increase over the pre-COVID average spend. This increase is spurred by consumers buying larger diamonds, 1.34 carats in the January-April period, versus 1.13 carats pre-COVID,

While consumers buying engagement rings spent less or moved to LGDs, older and more affluent consumers moved to larger diamonds. This is something to keep in mind when a client steps into the store.

Company Reports

De Beers

Sight 4 held on May 6-10 totaled $380 million – a 21% decline year over year. The decline reflects both a smaller supply and lower prices.

Prices of smaller diamonds and melee, -3+7 for example, were down -5-8%. According to a number of Sightholders, there were many refusals to buy 2-carat and larger diamonds, and no premiums were offered on the secondary market.

Due to the still declining prices, Sightholders and other large manufacturers want to sit on rough or polished diamond inventory that is as small as possible.

First-quarter sales volume of 4.9 million carats was up 77% quarter over quarter, but down 50% year over year. Production declined 23% to 6.9 million carats. This is to say that the inventory that manufacturers are avoiding is held by De Beers and other diamond miners.

De Beers Diamond Production
De Beers Diamond Production volume - Q1 2013-Q1 2024

ALROSA

Although the sanctions may have had a certain impact on ALROSA’s sales, the Russian diamond miner has a client base that keeps buying. Currently, the company is holding tight to pricing, but there are indications that this steadfast stand is slowly loosening.

The company’s largest challenge is not just the ban on exports to the US, Japan, and Europe, but that the Chinese market is not recovering, leading to an estimated 20% decline in sales volume. That explains its pressure on the Russian Finance Ministry to give Gokhran approval to buy more rough diamonds.

Lucara

Lucara posted a $7.9 million net loss in the first quarter of 2024, versus a $1 million profit in the prior year, and revenue declined 4% to $41.1 million. The miner pinned the sales decline on the quantity of large diamonds it recovered and delivered to HB Antwerp, with which it signed a new 10-year sales agreement in February.

On a like-for-like basis, Lucara reported that prices were up 4% quarter over quarter, reflecting Lucara’s better-than-average industry output.

Burgundy

The Ekati mine owner reported a 3% decline in production to 1.15 million carats in the first quarter (Q1). Sales volume was up 65%, mainly as it reduced diamonds held in inventory.

Sales totaled $117 million.

Sarine

The manufacturing tool maker, with its revenue closely tied to the level of manufacturing, is a good reflection of midstream performance.

The company reported a 2.6% year-over-year decline in revenue in the first quarter of 2024 to $11.2 million. But just as De Beers’ volume sales rose quarter over quarter, so did Sarine’s revenue – up 27% from Q4 2023.

Gross profit of $7.2 million in the quarter was up 44% quarter over quarter, but down 12% year over year.

Keep in mind that Sarine benefits not only from a rise in the volume of natural diamond polishing, but also of lab-grown.

Brilliant Earth

The online diamond retailer reported $97.3 million in Q1 sales, practically flat (-0.4%) year over year. Its US sales rose 1.1% to $93.6 million as international sales sagged. Gross profit in the quarter was 60%.

A significant decline was reported for average transaction value, down 12.4%, as consumers reduced their average spend to $2,402.

The biggest issue with buying a pricy diamond item online is buyers’ need to see the item before making up their mind. Understanding that, Brilliant Earth is continuing to expand its physical presence.

Pandora

Danish jewelry company Pandora is continuing to see success from its strategies. Total revenue in the Denmark krona was up 17%, boosted primarily by US retail sales rising 18%. Same store sales in Germany, an important market for Pandora, were up 67%, and their non-major markets performed above average too.

Pandora Lab-Grown Diamonds performed well – up 87% in same store sales. At the same time, they remain a small source of revenue for the company, just 0.9% in Q1 2024.

Luk Fook Jewellery

The Hong Kong-headquartered jewelry retailer reported a 10% decline in same store sales in Mainland China in the March ending quarter. Diamond jewelry sales were especially low, down overall 37% year over year. Diamond jewelry sales in Mainland China dropped 60% in the last quarter and 33% in the past year.

These figures are clear testimony of the mediocre performance of Mainland China since COVID, and underscore one of the issues impacting the global diamond industry.

Luk Fook’s approach is to decrease diamond jewelry marketing, which will probably hurt the diamond industry even further.

Signet

Signet and De Beers announced a marketing campaign partnership. Set to launch in the third quarter, the campaign will target 20-somethings, aka Zillennials, and aims to promote engagement rings set with natural diamonds.

According to company research, Signet anticipates a 25% increase in engagements in the next three years.

This is an interesting collaboration. For Signet, it is a pivot away from lab-grown diamonds. For De Beers, it is the first time in many years that it’s supporting a specific retailer’s marketing in such a way.

Diamond & Jewelry Markets

US

According to the US Department of Commerce, consumer expenditures on jewelry in the first three months of 2024 increased 4.1% year over year. We estimate total US jewelry sales by all retail channels at $16 billion in the first quarter.

The value of US polished diamond imports declined 20% to $4.2 billion in the first three months of the year. At the same time, the average value of imported natural polished diamonds fell 39.6%.

Gross US Polished Diamond Imports
US Gross polished diamond imports Jan 2023-Mar 2024

According to Tenoris data, sales by specialty jewelers are estimated to have increased 1.3% in April, Year to date, sales have declined 1.1%.

India

In April, Indian traders imported $1.19 billion worth of gem-quality rough diamonds and exported $1.15 billion worth of polished diamonds, a decline of 19.3% and 16.7%, respectively.

Besides the poor profitability it highlights, this also tells the story of the trade these days: low-level activity and lower prices.

China

Overall, jewelry retail sales increased 4.5% in the first three months of 2024, according to the National Bureau of Statistics of China.

The slump in the Chinese economy is not encouraging consumers to splurge, resulting in a two diverging jewelry trends. China, like most Asian countries, is very value oriented when it comes to jewelry, which is why gold jewelry is doing well. It’s considered not solely as jewelry – it’s a store of value.

Diamond jewelry’s declining value is, therefore, far less attractive. As long as the declining diamond price trend continues and until the Chinese middle class regains its confidence in their local economy, we shouldn’t expect a major recovery in diamond jewelry demand in China.

Hong Kong

Hong Kong’s jewelry and watch sales fell 17.7% in March, after posting a large 22.8% increase in January. Coupled with a decline in February, first quarter sales decreased 0.5% year over year.

Israel

Israel’s diamond trade declined in the first four months of the year, reflecting its two most crucial issues: shrinking global consumer demand and a loss in market share to other diamond centers.

The value of polished diamond exports was down 29.7% in the January-April period. April’s trade data reveal some unusual figures, reflecting the issues surrounding trade through Antwerp under the new G7 rules.

Belgium

The diamond center stopped publishing its diamond trade figures in 2022, a step that reflects local traders’ concerns of revealing the deterioration in trade.

It is estimated that rough diamond imports into Antwerp have dropped 30% by volume since December 2023. This goes beyond the declining trade volume dictated by the slowdown in consumer demand.

A series of incidents have led traders to avoid shipping through the European diamond center.

According to local traders, the implementation of measures to block trade in Russian diamonds has resulted in slowdowns in releasing diamond imports from other sources, plus a number of confiscations, led traders to conclude that the system is more of a hassle and a hindrance to business.

Elections for the new AWDC board will be held on June 17. Former board members who supported the single-node system are apparently discouraged from running again.

G7 Sanctions: Incomplete and Chaotic

Steps towards full implementation of G7 sanctions on Russian diamonds on September 1 are ongoing, albeit at a sluggish pace.

Procedures & Bureaucracy

According to industry sources, the EU is considering adding nodes, a departure from the single-node stance it ardently held until recently.

As reported over the weekend, the AWDC strongly supports this change. Industry members stress that allowing multiple nodes strengthens sanction enforcement, stating that 4-5 nodes can better check diamonds than an overwhelmed single node.

More than one node likely means adding a node in Africa, specifically in Gaborone, Botswana. A side benefit to nodes in different countries is this will also spread the responsibility around, a commodity always in demand.

The US and UK are still contemplating whether to go with self-declaration or to join the node system. With multiple nodes, there is a greater chance that they will choose the node system.

KP to the Rescue? Almost

The UAE, current chair of the Kimberley Process (KP), and the World Diamond Council introduced a proposition that would eliminate some of the ambiguity related to KP certificates of mixed origin, which are parcels of rough diamonds that were mined in different countries.

At first, these parcels were viewed as sanction loopholes. But slowly it was understood that they must be allowed in some form. The proposition suggests that the countries of origin – where the diamonds were mined – should be listed in the certificate of mixed origin goods, reducing ambiguity.

This is an excellent and practical solution to the mixed origin issue. However, KP decisions require a consensus and Russia was against this change. The result: a suggestion that when the countries of origin are known, they will be added voluntarily to a mixed origin KP certificate as part of best practices.

Problem Solving

After many months, the final decision on grandfathering is expected this week as part of the EU’s 14th sanction package.

Delays in the Antwerp Diamond Office have largely been resolved, mainly as traders are now submitting their paperwork on time. Over the past couple of months, several diamond shipments were held up, some for more than several weeks.

Several Antwerp-based companies threatened to sue over these delays. Reportedly, only one company is actually taking such legal steps.

The issues in Antwerp predominantly revolved around paperwork and mixed origin.

Spillover Effects

On a number of occasions, correspondent banks in the US delayed rough diamond transaction payments for weeks because of unclarity on the origin of these diamonds. This was eventually settled after viewing the diamonds’ Kimberley Process certificates.

With a lack of clarity, the sanctions are already creating chaos among some stakeholders. A shipment of De Beers rough diamonds in transit through Germany was held for weeks. According to those involved in the matter, German customs officials apparently didn’t fully grasp the sanctions rules in place regarding mixed origin.

In Switzerland, authorities confiscated diamond watches. Although Switzerland is not a G7 member, it volunteered to join the sanctions. It’s not clear what rules the country intends to adopt.

Jewelry index

The jewelry index is a tracker that follows jewelry commodity spot prices. It includes gold, silver, platinum, rough diamonds, 1-carat round polished diamond COGS, and wholesale LGD prices, plus a component of jewelry COGS. All prices are spot/cash prices, indexed to January 2023.

After more than a year of price declines, in April, the index posted its second month of price increases. The main price elevator was gold, enjoying an extended price their sprout.

If the rise in the index continues, we could cautiously estimate that average jewelry purchase prices will be on a rising trajectory.

The Jewelry Index: Second Month Increase
Edahn Golan - The Jewelry Index - jewelry commodities weighed index Jan 2023-Apr 2024 line chart

Year over year, commodity prices experienced a mixed trend. Gold and silver prices increased, whereas platinum and diamond prices declined.

Jewelry Commodities Year over Year Price ChangeEdahn Golan - Jewelry Commodities Year over Year Price Change - May 2024 chart

Speaking Engagements: JCK Panels

I will be moderating two panels at the JCK Talks. The first, on May 31 at 10 am, is an update on the natural diamond market. Panelists are Hearts on Fire CEO Rebecca Forester, GIA CEO Susan Jacques, Sissy Log Cabin COO William Jones, and De Beers SVP/WDC President Feriel Zerouki.

The second panel is on the LGD market. Panelists are Surreal by JB Bhanderi President George Prout, Smiling Rocks CEO Zulu Ghevriya, Lightbox Jewelry’s Commercial Director Nick Smart, and Borsheim VP Sean Moore. This will be held on June 1 at 10 am.

All eight panelists are insightful and well spoken, and as such, I highly recommend these sessions. If you attend, please make a point to say hello! Wishing you a great show.

For more details on the specific data behind these trends, please contact us.

About the Author:

Edahn Golan
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Edahn Golan has 20 years of experience as a diamond industry analyst. He has a unique ability to provide a global view with context to the exclusive granular data he shares. The New York Times, Wall Street Journal, Business Insider, and other leading publications quote him regularly.

The G7 Russian Diamond Bombshell Holiday Gift
Comments 7
  1. Should De Beers get floated in an IPO why would Anglo have to retain a stake, as you suggest? I see no reason why it should or would.
    I see an IPO as the most likely option, given all of the issues with the alternatives.

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      Author

      That is usually what happens. It’s tough roadshowing a company and trying to convince prospective shareholders of its value, while saying at the same time that you are bailing out.

  2. There is no doubt diamond mining is in trouble. The created “natural” diamond mystique is evaporating. If all diamond mining ceased due to declining prices from generational indifference, competition from LGD’s and a unbridled, perhaps renegade ALROSA, natural diamond prices would rise for the [higher qualities] of existing natural diamonds in the market … 30% of the existing market of natural? That would give natural diamond maybe 10 to 20% [by value] of the whole diamond market? This is where it needs to be to re-claim its rare, luxury status. As generations pass and prices go up more recycled diamonds come back in the market producing supply without mining. At the same time LGD’s are creating a new market for diamond that many folks and investors are pouring cash into … not mining.
    Any guesses or knowledge as to how many mined diamonds are already in the market … I imagine a mind-boggling number for such a RARE commodity?
    Technology will continue to disrupt many products like oil and automobiles, shelter and the food we will need to sustain living things as well as the way we manage our environment.

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      Author

      Mark, diamonds were desired centuries before they were marketed to middle-class consumers. The marketing question is how to make an already desired gem relevant to new generations.

      1. Edahn:
        Thank you for this question. I can’t envision the current set of natural diamond marketing initiatives such as origin, history lessons and dynamite slogans enough to raise this sinking ship. In my experience “price is king unless price is no object.”
        I have followed the development of LGD for 50 years when I first stood behind a diamond counter. At that time, Morris B. Zale, the entrupenur who created a way to make diamonds obtainable to the American middle class decided to diversify Zales fortunes into other areas of retail. In the end his worries about the coming wave of LGD didn’t materialize so he sold off the other retail and went back to diamonds and jewelry and built, at the time, the largest jewelry company in the world.
        In the back of my mind for the next decades I always had a feeling when LGD did materialize it would be not a trend but a staple with the middle class in the US … an opportunity.
        In 2000, a client was interested in developing a diamond business. After investigations into areas of the “diamond pipeline” (Chaim Zohar) I wasn’t familiar with then decided against recommending the investment. I suggested to my client there’s something coming to market in time that will be a better opportunity. The client was skeptical until we visited GE Super Abrasives where the CEO placed a fine quality 1.5ct. blue diamond in his hand (2003). My investigations regarding diamond turned to LGD fo quite some time. Fortunately my clients company was the patient kind in business for 100 years.
        In America, in China, in India price is king. Today, in America, the dream of buying a starter home along with the dream of owning a new car is in serious jeopardy … not to mention the (financed) cost of education and high cost healthcare. We see priorities such as the boom in travel and these necessities take center stage in the wallets of new generations especially when exact diamond alternatives are available for a much, much lower price … a way to carry on a meaningful tradition. Don’t get me wrong I respect slogans and stories. I dislike seeing capital wasted trying to right a ship caught up in a storm of change. I have empathy for those caught up in disruption. The magic of initial globalization, QE (both history) and the possible disruption of global democracy weigh on new generations dearly.
        IMO, lower LGD prices are remaking the diamond jewelry industry in a positive way … opportunity that brings investment and new blood to the industry, otherwise, hard to come by.

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          Author

          Will be interesting to see what promotional initiatives will get introduced for this holiday season. I’m not a marketing expert so can only speak for what works for me.

  3. IPO looks like the most straight forward of all options. But the carrying value of more than $7B of De Beers in Anglo’s books is way overvalued. Even if you count their 2021 profits of $400M as a base case (which is a very favorable assumption), the value comes out to be less than $5B at 12P/E. And their share from Botswana is set to decrease for this decade on top of that. It would be a pretty unattractive stock to own.

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