According to Paul Zimnisky, an independent diamond and jewellery analyst and consultant based in the New York metro area, the natural diamond industry will see a modest recovery in demand and prices this year.
In an exclusive interview, he told Rough & Polished's Mathew Nyaungwa that the comparative base has come down quite a bit, given the difficult conditions of the last two years.
Zimnisky said a moderate recovery would require a stable U.S. and a slightly better China, which he sees as a possibility this year.
A drop in Chinese demand, increasing competition from lab-grown diamonds and the legacy of pandemic lockdowns, when the number of marriages fell, left diamond miners with massive inventory.
De Beers is said to have an inventory worth about $2 billion forcing it to reduce production from its mines by about 20% from 2023’s levels and cut prices at its last auction for 2024.
Zimnisky said a lot of excess inventory moved from the midstream and downstream to the upstream as miners were proactive in curtailing supply to market last year.
He advised that the natural diamond industry should lean into the price-over-volume strategy –as it needs higher prices, which will help improve sentiment, which could become self-fulfilling.
NB: Zimnisky produces a leading subscription-based monthly research report called State of the Diamond Market, publishes the Zimnisky Global Rough Diamond Price Index and hosts a regular podcast called the Paul Zimnisky Diamond Analytics Podcast. He will be speaking at European jewellery show INHORGENTA on February 22 in Munich, Germany. Zimnisky will also be in Milan and Rome, Italy in late February and can be contacted at paul@paulzimnisky.com.
Below are excerpts from the interview.
What was the level of natural diamond jewellery during the festive season?
Expectations were relatively low for holiday 2024 and I would say results met or slightly exceeded most assumptions from what I can gather. In the U.S. in particular, consumer sentiment seemed to get a boost following the elections in November which carried over to the financial markets and coincided well with the holiday spending season.
How did lab-grown diamonds (LGDs) fare compared to natural diamonds during this period?
Based on my analysis, lab-grown diamond sales volumes continued to grow year-over-year but prices have come down quite substantially, which offset the volume increase. We are now at a point in time where a medium-quality 3-carat LGD is wholesaling for well under $1,000 –which compares to upwards of $20,000 just five years ago. So, I think we are approaching an inflection point in the market which could change the way the industry perceives and sells the product.
You said prices of LGDs had been on a downward spiral. Do you expect this trend to continue this year and beyond?
The fall in wholesale LGD prices has led the fall in retail LGD prices, by quite a large margin I would add. This has ballooned retail profit margins, which has incentivised many retailers to push the product. That said, based on my analysis, retail margins of LGDs moderately retreated during 2024 which could be indicative that margins have begun a trend of retreating to levels more historically seen in the diamond industry, for example, 30-40%, down from 80-90%. So, to answer the question, I do think LGD prices could fall further but I think the magnitude of the decline will be greatest downstream.
How did China's effort to convalesce its struggling economy last year help boost the natural diamond industry?
The market in China is still concerningly slow. It's encouraging that the government is acknowledging the situation with stimulus measures to improve sentiment and consumption. It seems like it could take some time for China to recover, but I wouldn't give up on the market –it's too big, and it's too important. At this point, even a small recovery in China in 2025 will be felt by the diamond market given how much demand was down last year.
What is your projection for the year as far as demand for natural diamonds is concerned?
I think we will see a modest recovery in natural diamond demand and prices in 2025. Given the difficult conditions in the last two years, the comparative base has come down quite a bit. All it would take is a stable U.S. and a slightly better China to yield a moderate recovery –and I think there is an upside from there.
How is the sanctioning of Russian diamonds affecting the prices of natural diamonds?
The sanctions conversation seems to have taken a backseat to other industry happenings. I think this is mostly due to the market being oversupplied over the last few years, and the sanctions are a supply constraint.
De Beers is said to have last year built an inventory last seen during the 2008 financial crisis. What does this say about the state of natural diamonds in the past year?
Last year, a lot of excess inventory moved from the midstream and downstream to the upstream. This is because miners were especially proactive in curtailing supply to market last year. Historically, the upstream has had a strong hand when managing supply, but this also means upside price appreciation could be limited as long as the trade is sitting on abnormally high levels of stock.
How best can De Beers and other producers move forward with an inventory of that magnitude?
De Beers materially cut production last year and ALROSA has hinted that they will be cutting production in 2025. I think this is the appropriate path. The industry should lean into the price-over-volume strategy –as the industry needs higher prices which will help improve sentiment which could become self-fulfilling. Diamonds are a luxury product after all and thus should never be discounted. This should be the mindset.
Mathew Nyaungwa, Editor-In-Chief, Rough & Polished