Diamond prices have fallen 18% from their peak, and analysts predict more pain

“Diamonds are a woman’s greatest pal,” because the previous track goes.

However they don’t seem to be an investor’s favourite at present, with the dear gems shedding some important worth over the previous few months.

Diamond costs are down 18% from their all-time highs in February 2022, and are decrease 6.5% year-to-date, in accordance with one Global Rough Diamond Price Index. And their worth is about to dive additional, market watchers predict.

“A barely better-than-average-quality 1-carat pure diamond was $6,700 a 12 months in the past, right this moment this identical diamond is promoting for $5,300,” Paul Zimnisky, the CEO of Paul Zimnisky Diamond Analytics, instructed CNBC.

Diamonds, alongside different jewellery, noticed elevated costs in the course of the Covid-19 pandemic which culminated in a peak early final 12 months.

“Shoppers had been able to spend,” administration consulting agency Bain & Company said in a report dated February last 12 months. “They had been flush with money from buoyant capital markets and financial stimulus applications, and wanting to spend it on significant items for his or her family members,” they mentioned.

When individuals couldn’t journey or eat out, all of that extra cash went into luxurious items and jewellery, mentioned CEO of on-line jeweler Angara, Ankur Daga.

And when the financial system began opening up once more, diamond costs began moderating, and slid right into a “steep decline,” he added.

Continued competitors from man-made diamonds, a slower Chinese language financial restoration and an unsure macroeconomic backdrop are additionally drivers of a lackluster market, in accordance with trade consultants.

An rising quantity of customers are turning to lab-grown diamonds, mentioned Edahn Golan, the CEO of Edahn Golan Diamond Analysis & Information, with costs sinking 59% within the final three years.

“The share of lab grown diamond gross sales versus pure diamonds is rising. In 2020, they had been simply 2.4%. In 2023 thus far they’re already as much as 9.3%,” he mentioned.

Lab-grown diamonds are made in a managed atmosphere utilizing excessive strain and warmth that recreates how pure diamonds are cast lots of of kilometers within the Earth’s mantle.

They’re chemically, bodily and optically similar to pure diamonds, and are deemed to be a “excellent substitute,” Daga mentioned. However extra importantly for many — they’re rather a lot cheaper.

And extra individuals are turning to them for his or her selection of engagement rings.

“Lab is indistinguishable over mined diamond, and if I can get an even bigger diamond for a similar value, why not?” mentioned 29-year-old Singaporean Jonathan Lok, who proposed to his fiancée with a 0.76 carat lab-grown diamond ring late final 12 months.

He added that his fiancée had specified for a smaller diamond, and didn’t need him to spend an exorbitant quantity on the ring.

Costs of lab-grown diamonds have been “nosediving,” mentioned Edahn.

“Three years in the past, you’ll be capable to purchase a lab grown equal 20% to 30% off of the pure value. Now it is wherever between 75% and 90% off pure costs,” Daga mentioned, attributing the cheaper costs to machines changing into extra environment friendly in producing extra man-made diamonds.

The lab-grown diamond trade, which is energy-intensive, have additionally been seeing hovering power prices taper off from its peak.

Within the bear case state of affairs, he expects pure diamond costs to file a drop of between 20% to 25% from present costs within the subsequent 12 months, which might mark a 40% drop off the February peak. And Daga will not be alone.

“There’s room for continued value declines, and that may be a very seemingly state of affairs, particularly since retailer margins for lab grown diamonds are particularly excessive, round 60% in contrast with 34% for pure diamonds,” mentioned Golan.

Nevertheless, even so, the plunge may finally hit a “pure ground” on account of labor prices.

“Labor prices have been going up nonetheless, and labor continues to be a really vital a part of producing the diamond. So there’s a pure ground someplace,” Daga mentioned, including {that a} flatline will observe after a 25% drop.

The center-market stage of diamond manufacturing entails the slicing and sharpening of the diamond earlier than fashioning it into jewellery, which is the “most complicated” and intensive portion of the worth chain, in accordance with Bain & Company.

Moreover, diamond market watchers usually are not anticipating sanctions on the world’s leading producer, Russia, to result in extreme value spikes.

Earlier in Might, the G7 economies convened a discussion on imposing sanctions on Russian diamonds, with the United Kingdom taking the lead in sanctioning Russia’s state-owned firm Alrosa.

“The Russians have ramped up diamond gross sales in current months in an try and claw again market share misplaced final 12 months following the disruption in buying and selling,” Zimnisky said.

Russia is the world’s largest producers of diamond, adopted by Botswana and the Democratic Republic of Congo, in accordance with the Diamond Registry.

In line with Edahn, Russia will face no points promoting its diamonds regardless of the sanctions, particularly if the bigger consumers proceed to take a shine to Moscow’s prized stones.

“International locations like India, UAE, and even the EU, did not place sanctions on tough diamond imports. So once more, no actual shortages,” he mentioned.

India is the world’s high diamond importer, with the U.S. coming in second, adopted by Hong Kong, Belgium and the UAE.