According to a report in The New York Times, the top diamond miners in the world, including the two largest, Alrosa and De Beers, are facing a huge inventory problem. So do many of the cutters and polishers who buy the rough stones and sell them to retailers. At every stage of the supply chain there are too many of these precious gemstones, whose marketing has long depended on their rarity.
Challenges are mounting for the $17-billion diamond mining industry. The oversupply of rough stones and the increasingly strained finances of middlemen have hit miners’ balance sheets in recent months as they try to manage the surplus and increase the value of existing stones.
The Argyle mine, in a remote region of Western Australia, was responsible last year for 10 million to 15 million carats of the entire global diamond output (140 million to 145 million carats). Argyle is also the source of some of the rarest, most expensive gems in the world: pink, purple and red diamonds.
Last month, at a showcase of 64 of the most valuable gems recently extracted from the mine, its owner, Rio Tinto, said Argyle would close in 2020, after years of speculation.
In mid-July, De Beers said it would scale back production, after sales of rough diamonds fell 53 per cent from a year earlier. And a few days later, Petra Diamonds, a mining group listed on the London stock exchange, reported full-year revenue below analysts’ estimates, adding that it expected next year’s production to be even lower.
The diamond market is being squeezed from all sides. At one end, as a result of geopolitical tensions, global spending on luxury jewellry has become more volatile.
More significant, a growing glut of rough diamonds, coupled with foreign exchange volatility, trade wars and rocky stock markets, has upended the industry. Prices for rough diamonds have declined about 6 per cent this year, while polished stones are about 1 per cent lower.
In addition, financing problems have affected the miners’ core customer base: the traders, cutters and polishers of rough stones, whose hubs are predominantly in India and Belgium. Banks have moved away from this complex and secretive industry, made up of tens of thousands of small and medium-size businesses, after being stung by frauds and bad loans.
Last month, the Dutch bank ABN Amro was the latest to announce that it would scale back its financing of rough-diamond purchases, citing a lack of profitability.
With the profit margins of its clients — traders, cutters and polishers — rapidly slipping away, De Beers said it had reduced rough diamond production by 11 per cent for the first half of 2019. It also cut prices and offered options like deferring purchases. A weaker rupee has also made gems more expensive for Indian manufacturers, which cut or polish about 90 percent of the world’s stones in the city of Surat.
The blossoming popularity of lab-grown diamonds — and production in China and India — is a potential headwind for miners of natural gems. While lab-grown stones make up only about 2 per cent of the diamond jewellery market, production is growing by 15 to 20 per cent a year. Synthetic diamonds can cost 30 to 75 percent less than natural stones.