Luxury crisis: De Beers reaches highest diamond inventory in 15 years

Drop in Chinese demand, competition from synthetics and consequences of the pandemic leave South African De Beers with a record stock of diamonds

The De Beers group has accumulated its largest inventory of diamonds since the 2008 financial crisis, highlighting the company’s challenge in reviving demand for jewelry that has long been seen as the pinnacle of luxury.

A drop in Chinese demand, growing competition from lab-grown diamonds and the legacy of pandemic lockdowns that have reduced the number of weddings have left the world’s biggest diamond producer by revenue with a stockpile valued at about $2 billion.

According to the company, the size of the inventory, which had not been previously reported, remained around $2 billion for much of the year.

“It’s been a bad year for rough diamond sales,” said CEO Al Cook.

The prolonged drop in demand, which began with the Covid-19 pandemic, forced De Beers to take measures to curb the supply of precious stones. The company has reduced production from its mines by around 20% compared to last year’s levels and cut prices in the most recent auction held this month.

Auctions are used to sell rough, or uncut, diamonds to a group of about 50 certified buyers known as sightholdersthe industry’s most influential traders.

With a workforce of 20,000, De Beers has been a dominant force in the $80 billion diamond jewelry market since its founding in the late 19th century. Group revenue fell to $2.2 billion in the first half of this year, compared to $2.8 billion in the same period in 2023.

Its biggest rival, Russia’s Alrosa, faced sanctions imposed on Russian diamond exports by G7 countries as a consequence of the large-scale invasion of Ukraine in 2022.

Difficulties in the diamond market come at a time when De Beers is about to be separated from its parent company, Anglo American. The FTSE 100 mining group has vowed to spin off De Beers after rejecting a £39bn takeover bid from rival BHP this year.

Anglo CEO Duncan Wanblad warned that the sale or initial public offering of De Beers could be complicated by the weakened state of the diamond market.

To boost sales, De Beers launched a marketing campaign focused on “natural diamonds” in October, echoing its famous advertising campaigns from the second half of the 20th century.

Cook, who took over the leadership of De Beers in February 2023, said that as the group prepares to be spun off, it will increase investment in advertising and retail, including expanding its store network from 40 to 100 globally.

“The restart of this huge category marketing campaign… I think it’s an early indicator of what an independent De Beers will look like,” Cook commented.

“With independence, we will have the freedom to focus on marketing with the same intensity as we focus on mining,” he added. “This seems like the right time to invest in marketing and strengthen our brands and retail, even as we reduce investments in mining.”

Weak demand in China was a significant factor this year. In a sign of the fragility of a market that normally imports diamonds, Chinese jewelers have begun exporting cut stones to reduce their own stocks.

Competition from lab-grown diamonds, which cost about one-twentieth the price of a natural stone, has also grown, especially in the United States. The country is the largest diamond market in the world and accounts for around half of the industry’s sales.

Cook insists next year could bring a “gradual recovery” globally, including in the US.

“We see emerging signs of a recovery in retail [nos EUA] in October and November,” he said this month, highlighting credit card data that showed an increase in jewelry and watch purchases.

Paul Zimnisky, an independent industry analyst, said De Beers’ rough diamond sales are expected to fall about 20% this year after a 30% drop in 2023.

“Given the low level, any recovery in trade should result in some relative growth in 2025,” he said, adding that he expects global diamond jewelry sales to rise by around 6% to $84 billion next year.

With information from the Financial Times*