Stagnation in the natural rough and polished diamond markets has been going on for more than three years. Price indices for rough and polished diamonds have noticeably declined from their peak values of 2022 and there are no signs of a turnaround yet. The current situation in the industry is usually explained by a whole range of reasons: from political ones, which led to sanctions against Russian diamonds, to macroeconomic ones related to the slowdown of the Chinese economy, as well as intra-industry ones, expressed in the failure of generic marketing programs and expansion of diamond synthetics. Of course, all these factors affect the fading markets for natural diamonds and polished diamonds. But there is another problem that is undeservedly rarely mentioned, and yet it is the fundamental and objective threat that is very likely to contribute decisively to the destruction of the industry today.
Imagine an automobile market in which cars are sold and resold for years without becoming obsolete, breaking down or being scrapped. Millions of new cars are produced each year, but all the previously produced cars are still on the market. Obviously, such a market is doomed: the steadily growing stock of goods will push the price down until it is below the cost of production and the manufacturer is ruined. This simple model is, in fact, an exhaustive description of the modern diamond market. Let us supplement it with a few figures.
From 1870 (the discovery of the first primary diamond deposits) to the present day, the cumulative production of diamonds amounted to about 5.5 billion carats according to the most conservative estimates. The share of gem diamonds averaged about 30% or 1.65 billion carats. If we take the average cut yield as 50%, we get 0.825 billion carats of polished diamonds. The share of the U.S. diamond market has always been about half of the world market, so it is very likely that today the U.S. has 0.41 billion carats of polished diamonds that are not prevented from circulating on the market. It makes sense to consider the American market, firstly, because it is the largest, and secondly, it has never been subject to devastating military cataclysms (unlike the European market), and therefore its analysis gives a much more objective picture.
In 1900, the U.S. population was 76.2 million. From 1871 to 1900 the world production of gem diamonds amounted to about 20 million carats. Based on the above considerations, the U.S. accounted for about 5 million carats of diamonds by 1900, or 0.065 carats per person. In 2024, the U.S. population was 340.1 million. From 1871 to 2024, approximately 410,000,000,000 carats of diamonds entered the U.S. market and today there are 1.2 carats per U.S. resident. Thus, the relative commodity mass has increased 18.5 times or 1850% in 124 years.
Markets that accumulate commodity mass are extremely rare. Usually, goods are either consumed in the direct sense of the word: agricultural products disappear in the digestive system of buyers, hydrocarbons are burned in engines and boilers, etc.; or sooner or later they leave the market in the form of obsolete, exhausted resource, out of fashion, etc. products. An exception is the markets of precious metals and diamonds. But for the former, the accumulation of commodity mass is the realization of the savings function, the main one for these markets. And the accumulation of commodity mass in the market of diamonds is a deadly side effect. Precious metals are suitable for thesaurization, as they are able to perform the function of a standardized base asset, they are a highly liquid exchange commodity suitable for investment, speculation and hedging, and the main players in these markets are central banks of the most developed countries that form national reserves of precious metals. But natural diamonds cannot play the role of an investment asset, at least due to the fundamental impossibility of their standardization, which has been repeatedly proved by unsuccessful projects in this direction.
So, the «consumption» of polished diamonds and the accumulation of commodity mass (both absolute and relative, in terms of per capita) are synonyms. Can this process be viewed as a continuous growth of supply? Why not? Since the creation of the modern diamond market, 5 - 6 generations of polished diamond consumers have already changed. Where are the diamonds they owned? They have found new owners. And then another one. And then some more... There is no reason to claim that they are somehow utilized and leave the market. And although no one really knows the exact volume of the secondary market for polished diamonds (expert estimates range from several hundred million dollars to a trillion), the undeniable fact of accumulation of the mass of goods makes us assume that the pressure of the secondary market on prices is quite serious and continues to increase every year.
Today, prices for polished diamonds on the U.S. secondary market range from 20% to 60% of the price for similar diamonds on the primary market. Here is a rather impressive example: «The ring, which cost $4,500, was a 0.53ct round diamond in a classic Tiffany solitaire setting. It's worth noting that Tiffany & Co. charge a very high price for the diamond rings, meaning we were anticipating a significant difference between what we paid and what we'd be offered. We sent the ring to three different companies that purchase pre-owned diamonds - White Pine Diamonds, Worthy and Abe Mor. Abe Mor gave, hands-down, the best offer, offering us $1,850 for the ring, or about 41% of its original price. White Pine Diamonds and Worthy offered us $1,000 (22% of the ring's retail price) and $1,200 (27% of its retail price, after Worthy's commission was deducted), respectively. In short, the best offer we received for a $4,500 ring was $1,850 - just over 40% of the amount it cost at retail».
The beauty of this fairly recent (2023) experiment is that the Tiffany & Co. ring was brand new and thus actually lost 60% to 80% of its value as soon as the buyer walked out the door of the boutique. What accounts for this drop in value? When you buy or sell a used car, the price is largely determined by the remaining life: a car with a mileage of 50 thousand kilometers will cost more than a car of the same model and configuration with a mileage of 200 thousand kilometers. But what is the «resource» of a diamond? To demand a premium or discount on the basis of the diamond's production time is an obvious absurdity. Common sense suggests that with equal characteristics a diamond on the secondary market should cost the same as on the primary market - the time of «use» cannot be a factor affecting the quality and price of this product, and in general it is even impossible to determine it. But practice contradicts this assumption.
The paradox is simply resolved if we assume that the secondary market price is the real market price determined by the balance of supply and demand. And then it should be recognized that the discount of 60% - 80% is due to the pressure on the market of the accumulated commodity mass, which continues to increase continuously. The secondary market operators mentioned in the example are companies with a good reputation, qualified experts and multi-million turnovers; it is unlikely that they set themselves the task of earning a looting margin on hapless fans of a famous jewelry brand. Everything is exactly the opposite - brands are trying to sell an item at a double-digit premium to the market, counting solely on marketing.
But if the assumption that secondary market prices are balanced is correct, then we get a very disappointing forecast: polished prices will continue to fall until they reach a level close to the secondary market price levels. This trend has always existed, but it has become truly threatening in recent decades - after the loss of the single-channel (monopoly) market structure. The difference between prices today is such that further movement of prices to the benchmarks set by the secondary market will practically destroy acceptable profitability at all parts of the «diamond pipeline», including mining companies. This is the price for the commodity mass accumulated for more than a century and the obvious inability of the market to create new consumers. And this is an objective threat that gives the slogan «Diamonds forever» a touch of bitter irony. Alas, they are indeed forever, they do not spoil, they do not disappear, they are not utilized, their per capita quantity on the main market has been continuously growing and may have already reached a critical threshold. Of course, in the days of monopoly, demand was expanded by generic marketing creating new audiences of buyers, and this fact allowed the market to last so long. But today, even marketing genius can hardly make the market dimensionless, let alone NDC.
It remains to add that since 2014 De Beers, having created the International Institute of Diamond Valuation (IIDV), has been researching the secondary market for polished diamonds quite thoroughly. In 2019, this work was discontinued without publishing detailed reports. Since it was during these years that the price gap between the secondary and primary polished diamond market began to approach today's values, there is some reason to believe that the idea to radically get rid of the diamond business began to take shape at Anglo American at that very time.
Sergey Goryainov is an independent journalist, who writes on topics related to the diamond industry. He is an author of several books and over 200 publications in specialized press. From 2000 to 2006, he was a member of the ALROSA Information Policy Council. Sergey is currently working on a book about the operations of the Third Reich and Stalin's USSR in the diamond market. This article reflects solely his personal opinion.
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