The prices of rough diamonds, the report says, had soared by 23% in CY2021 because of limited supply from mining companies and robust revival in demand after the pandemic. Rough diamond prices continue to remain elevated in FY23 due to limited availability of roughs from Russia following US sanctions.
Diamond major De Beers is facing the impact of such global headwinds, with rough diamond sales falling in H1 2023. Paul Rowley, Executive Vice-President-Global Sightholder Sales, De Beers, is of the view that diamond is resilient enough to see a strong revival in the times ahead. He tells ET Digital when he expects a turnaround to happen and why India is such a key market for them. Edited excerpts:
The Economic Times (ET): De Beers has partnered with the government in Botswana — one of the largest producers of diamonds — on exceptional diamonds under the parties’ new sales deal. How will this enable the country to derive more benefit?
Paul Rowley (PR): We are very pleased to have an in-principle deal with the Government of the Republic of Botswana as it represents a win-win outcome. For Botswana, the agreement will expand its leadership position across the diamond value chain, drive economic diversification, and create jobs. For De Beers, as natural diamond supply becomes more rare, and tier-1 mining assets even rarer, the agreement secures an equal share in two of the world’s greatest diamond mines and De Beers’ supply past the midpoint of this century.
Our partnership with Botswana has been a bedrock for the diamond industry for over 50 years. Several industry leaders have already reached out to say that this agreement provides long-term confidence about the source of supply, routes to market and the sustainability of investments in beneficiation. For end-clients, our ability to connect them more closely to Botswana’s remarkable story will deepen their relationship with their diamond. More than anything, this agreement represents our confidence in the future of Botswana and the future of natural diamonds — and our commitment to continue to play a leading role in both.
ET: De Beers’ rough diamond sales have fallen in H1 2023. When do you expect to see a turnaround?
PR: Demand for diamonds is a function of desirability and affordability. As was seen very clearly by the strong and rapid rebound in demand for diamond jewellery following the Covid-19 pandemic, desirability for diamonds among consumers globally remains very high. However, the challenges in the macroeconomic landscape have impacted affordability in some key consumer markets and this has led to a reduced demand for rough diamonds.We expect to see the demand improve as the macroeconomic environment improves, as has been the case historically. While there have certainly been challenges with consumer demand for diamond jewellery in some major markets in 2023, it has been encouraging to see the positive demand performance in the India market — which is one of the key markets for diamond jewellery sales worldwide.
ET: De Beers has set a goal to provide the origin and impact of every diamond it discovers and sells by 2030. The technology, Tracr, uses blockchain and other technologies, such as AI, to reach that goal. Tell us more about this technology and what it intends to do.
PR: Tracr is a fully distributed diamond blockchain platform that starts at the source, and it underpins trust for stakeholders throughout the diamond value chain by enabling users to provide assurance of a diamond’s provenance, traceability, and authenticity. It brings together a range of leading technologies — including blockchain, artificial intelligence, the Internet of Things and advanced security and privacy technologies — to track a diamond’s journey through the value chain. The Tracr platform enables users to provide tamper-proof source assurance at scale, meaning our Sightholder rough diamond customers can provide an immutable record of a diamond’s provenance, and jewellery retailers can be empowered to have confidence in the origin of the diamonds they purchase.
The immutable (or unchangeable) nature of each transaction on the platform ensures the data cannot be tampered with even when the diamond moves further down the value chain. The platform’s decentralised nature supports speed and scalability, with the ability to register one million diamonds per week. As end-clients increasingly want to know more about their purchases and the journey they have been on as they travel through to retail, Tracr offers the potential for diamond companies to connect individuals much more closely to their diamond’s unique story and journey, and to provide them with confidence that it has had a positive impact on the people and places where it was found.
ET: There has been a steep fall in demand for polished diamonds from the US and China. You had postponed auctions as leading Indian diamond companies were reluctant to participate amid the fall. What is the situation now?
PR: The challenges we have seen in the macroeconomic landscape in 2023 have led to US consumers having less disposable income and this affected the demand for diamond jewellery. In addition, the post-pandemic recovery in China has also been slower than expected. Underlining the ongoing desirability of diamonds, the most affluent consumers in these key consumer countries are still expressing significant demand for diamond jewellery, but other segments have indeed been slower recently. However, consumer demand for diamond jewellery in India has been performing well, with an expectation of continued opportunities around Diwali and the wedding season, and we expect global consumer demand for diamond jewellery to improve as we see the broader macroeconomic environment improve.
ET: What is De Beers’ outlook in terms of production and demand?
PR: Our production guidance for the year is unchanged at 30-33 million carats. Regarding demand, macroeconomic conditions are expected to remain challenging over the near term, impacting global consumer spending on diamond jewellery. However, our research confirms consumers’ desire for natural diamonds remains strong, with robust demand expected in key consumer markets in the long term. The global supply of rough diamonds is expected to decline owing to limited new discoveries, which is expected to support value growth potential for natural diamonds.
ET: Why is demand for lab-grown diamonds (LGDs) staying strong despite times of volatility in the diamond industry?
PR: Lab-grown diamonds are a different product category from natural diamonds — they have a different value proposition and tend to appeal to people for different reasons. Natural diamonds are inherently rare, unique, and billions of years old. It is attributes such as these that make them so well suited to celebrate our most rare, unique and timeless moments and emotions, and what gives them such enduring value. While LGDs offer a great look, they can be mass-produced in potentially limitless quantities in a short space of time, and they don’t have the same emotionally significant attributes as natural diamonds. The global market for LGDs is also substantially smaller than that for natural diamonds. It isn’t all that instructive to make direct comparisons between the two product categories.
However, as LGDs are less valuable than natural diamonds, there has likely been a reduced impact on the LGD category from the economic slowdown. Prices for LGDs have continued to show substantial year-on-year declines, and with the expectation for this process to continue (with rapidly increasing supply of LGDs), we would expect to see greater differentiation over time between natural diamonds and LGDs, with LGDs increasingly used in fashion jewellery. Overall, we believe that there is a very interesting commercial opportunity for LGDs, with India set to play a major role in capturing that opportunity.
ET: Macroeconomic conditions are expected to remain challenging over the near term. What is the impact you foresee on consumer spends for diamond jewellery at this time and how do you plan to tide over this?
PR: The macroeconomic challenges we have been experiencing mean that many consumers have less disposable income, but we know that desirability for diamonds remains high. This provides us with great confidence in the opportunities in the sector. Diamonds have proven many times that they are a very resilient product category — with strong bounce backs being seen after numerous challenging periods in history — and the De Beers business has likewise proven its resilience many times over the more-than-135 years that we have been leading the industry. In the short term, like many businesses, we will have a sharp focus on managing costs and preserving cash flow. But we will continue to invest in demand generating activities — such as consumer marketing campaigns and provenance initiatives such as Tracr and our Institute of Diamonds Origin suite of services — so that we are best placed to capture opportunities during the upturn.
