The integrated IDEX Online polished diamond index for 2024 looks like this:
The graph shows an obvious crisis in the natural polished diamond market caused by the following reasons, given in order of importance:
- Lab-grown diamond (LGD) expansion, which resulted in the cannibalization of the natural polished diamond market estimated today at 30 to 50 percent depending on the polished diamond market sectors;
- failure of generic marketing programs for natural polished diamonds;
- sanctions against Russian rough and polished diamonds;
- obvious success of competing luxury industries (tourism, entertainment, electronic gadgets, branded clothing, footwear, accessories, etc.);
- stagnation of China’s polished diamond market.
Let’s consider the above reasons in more detail, taking into account the Russian realities.
Five years ago, we pointed out that ALROSA’s ignoring the problem of LGD expansion and unwarranted expectations for an ‘automatic’ subdividing of the markets into the ‘precious’ natural diamonds and synthetic ‘fashion jewelry’ is a strategic mistake. Indeed, there was no subdivision in the market, because over the past five years, LGDs captured about 50 percent of the engagement jewelry market in the USA, and engagement rings are not fashion jewelry. And the diamond industry has not yet been able to give any reasonable response to the cannibalization. Indeed, the price for LGDs fell 2-2.5 times during this time, but synthetic diamonds did not move into the category of fashion jewelry. They ‘bit off’ a piece of the natural polished diamond market in 2024 five times bigger than in 2019, and even increased their margins. It is quite possible that in 2025, LGDs production costs and, by extension, prices will further decline due to technological developments. However, this will only increase the desire of LDG producers to further cannibalize the natural polished diamond market to maintain or even increase profits due to increased sales. The events of the outgoing year show that they are quite capable of doing so, since the LGD marketing model has proven to be significantly more effective than the marketing model of the natural polished diamonds.
Having quickly identified the vulnerable areas in the traditional image of natural polished diamonds (primarily the environmental damage caused by mining), LGD manufacturers launched a marketing campaign that was successful in the most promising age groups of potential consumers of diamond jewelry. It’s worth mentioning that this process was not organized, centrally financed or controlled by any coordinating structure. LGD producers, operating in a tough competitive environment, essentially in a state of price war with each other, were able to come to the understanding that the main condition for their development was effective marketing that allowed them to cannibalize the natural polished diamond market. Therefore, the competitors closely monitor any innovative ideas in this area, immediately embrace them and competently implement them in information channels - from commercial platforms to environmental publics. This is the classic market’s way of working without a bureaucratic burden like industry superstructures and counterproductive sanctions of a political rather than market nature. This market situation is in stark contrast to the ‘convulsions’ of the natural polished diamond market where fruitless discussions are still held about ‘entry points’ and ‘traceability mechanisms’ against the backdrop of the Kimberley Process that is completely at a loss due to anti-Russian sanctions.
Commenting on the results of the Dubai Diamond Conference and characterizing the state of generic marketing of natural polished diamonds, CEO of NDC David Kelly said, “We have completely screwed this up, and it’s because we haven’t focused on demand.” It’s self-critical. It’s true. Indeed, this is an exhaustive description of the long-term ‘work’ of the DPA and the NDC. But from Russia’s perspective, a little clarification is required, it’s in the style of a character from a famous Soviet comedy, “Not us, but you!” Currently, the NDC’s programs are financed by De Beers, Rio Tinto, Petra Diamonds, RZM Murowa Diamonds, and Okavango Diamond Company. ALROSA, Lucara Diamond Corporation, Gem Diamonds, and Burgandy Diamond Mines do not participate. According to the status of the NDC, it is a non-profit partnership, there are no clear and specific criteria to determine the effectiveness of its activities.
It should be recognized that ALROSA’s withdrawal from the NDC in 2022 is one of the few, if not the only, successful strategic decisions taken in the more recent times. Why should they invest tens of millions of dollars in ‘chairwarmers’ and ‘armchair scientists’ who, actually, bear no responsibility for the results of their highly dubious activities? The generic marketing of natural polished diamonds was a failure, it simply does not exist. The DPA with its budget of $100 mn failed it, the NDC with its budget of $35 mn failed it, and it will be a failure even if the NDC’s budget is increased again to $100 mn, as David Kelly insists on. Because it’s not about money, the NDC does not have a creative team and breakthrough ideas. The only thing these ‘outstanding’ marketers were able to do was to get back to the 1947 slogan “Diamonds are Forever”. Respect for the memory of ancestors is commendable, but the jugglery of such museum exhibits is unlikely to impress today’s buyers.
The image of natural polished diamonds, considerably tarnished by the lack of quality generic marketing, has suffered a severe blow as a result of sanctions against Russia’s diamonds. The sanctions didn’t have the slightest effect on the Russian-Ukrainian conflict, but they have undermined - as expected - the consumer confidence in polished diamonds (and it’s no wonder because every third stone on the market is declared as ‘bloody’ and ‘illegitimate’), generated conflicts within and between industry institutions, contributed to the rapid development of the ‘gray’ and ‘black’ markets, disrupted traditional logistics and financial flows, and made a significant contribution to the decline in prices for rough diamonds, while Russia is now forced to engage in predatory pricing. And, as a result, they have given additional opportunities to a generic competitor - LGDs. The natural polished diamond market has never been hit this hard in its entire history. Moreover, to a large extent, the diamond industry knocked itself out because the idea of the sanctions against Russia’s diamonds was produced in the diamond industry superstructures (mainly in the WDC) and was actively promoted (and continues to be promoted) by diamond industry’s bureaucrats.
Obviously, there are no reasons to hope for the rapid development of China’s natural polished diamond market. The reason is not that China’s economy has turned sluggish very quickly. China’s population has money. In any case, it is no less than the Japanese had in 1968 when De Beers began its marketing campaign that ended triumphally a decade later. At that time, Japan rose from zero to second place in global sales of diamond engagement rings thanks to competent marketing, second to the United States only. But using this marketing trick in China will not work, and not even due to NDC’s helplessness and lack of professionalism. In mid-2024, the leading social networks of the PRC announced the launch of a campaign restricting using luxury goods, including in the wedding industry. Of course, this campaign is sanctioned by the Communist Party of China. It’s impossible now to advertise diamonds amid the call of the Communist Party of China’s leadership to “put an end to vulgar wedding practices” such as great ceremonies and expensive wedding gifts!
Summing up the not-so-merry 2024, we have to admit that the natural polished diamond market is on the verge of a catastrophe. This market was created and developed thanks to two main conditions: the supply management through a monopoly (cartel) structure, and the demand management through generic marketing. Today, both of these anchors have been destroyed, unfortunately, with some help of the diamond industry itself. And there is no one in the foreseeable future who could offer a way to cope with the pressing issues. One can only hope that the possible stabilization of the political situation in 2025 will be able to contribute to the search for constructive solutions.
Sergey Goryainov for Rough&Polished
