Wholesale prices for lab-grown diamonds have fallen by up to 60 percent since De Beers began selling synthetic stones for jewellery in September, CEO Bruce Cleaver said to Reuters last week, adding margins for the sector would continue to fall.
De Beers, part of mining group Anglo American, shocked the diamond industry last year when it announced it was reversing a decades-old policy of selling only natural diamonds for jewellery and synthetic stones for industrial uses.
Already, the impact on synthetic pricing had been huge, Cleaver said, citing De Beers’ analysis that showed an up to 60 per cent fall in wholesale prices. He said the slide would continue as improved technology increases the quality and volume of lab-grown diamonds.
“The margins that were out there are not sustainable,” Cleaver told Reuters in an interview. “I like to compare it to a flat screen TV. The first ones were very expensive and the quality was poor.”
Cleaver however denied synthetic diamonds were cutting into the price of natural stones, which he says are a different product. “It’s a perfectly legitimate business. It’s just a different business,” he says of lab-grown diamonds.
In contrast to the commodities that form the bulk of Anglo American’s portfolio, demand for diamonds, which is listed in its results statement as among the company’s “principal risks and uncertainties,” is reliant on marketing.
Without giving numbers, Cleaver said De Beers would boost its marketing budget for natural stones this year, which already in 2018 was the highest in a decade at $166 million.
While Anglo American’s overall core earnings for 2018 rose by 4 per cent, De Beers’ underlying EBITDA (earnings before interest, tax, depreciation and amortisation) fell by 13 per cent.
Cleaver attributed the fall to expenditure as well as volatile market conditions, although he said the biggest markets for diamonds, the United States and China, were robust.