The “Diamond Dream” Is in Peril, Analyst Warns

By Rob Bates | August 13, 2024

The future of the diamond market depends on natural gemstones maintaining their traditional allure, business analyst Pranay Narvekar, head of Pharos Beam Consulting, said in an Aug. 11 presentation on “Diamond Market Fundamentals and Natural Supply,” before India’s Gem & Jewellery Export Promotion Council.

“Ultimately it comes down to the diamond dream,” he said. “It’s whether consumers still believe that diamonds are something to aspire for. The key is the luxury perception of natural diamonds. That is our challenge going forward.”

Lab-grown diamonds could shift consumer ideas of diamond value, said Narvekar. As he was showing a picture of pair of 4 ct. stud earrings, he noted that the current production of 4 ct. lab-growns exceeds the number miners unearth in two years.

“When someone is wearing a 4-carat pear, you know that person has dropped $100,000 or $200,000,” Narvekar explained. “If tomorrow, that stops being a signifier, you will face a challenge.… If every stone is that big, it just becomes a paperweight.”

But the current situation hold perils for the lab-grown industry as well.

“If the natural industry goes down, the LGD industry has to go down,” said Narvekar, who is based in Mumbai. “Because all they are doing is marketing it as a substitute as a natural. They are not marketing it as a lab-grown in its own right. They are not trying to establish a separate industry; they are simply an adjunct.”

Narvekar asserted the created diamond industry should recognize that it’s dealing with a different product.

“It is a legitimate business. It is not a diamond product,” he said. “If you are going to treat lab-grown as a diamond product, the entire lab-grown industry is setting itself up for failure, because it can’t be a luxury business.

“You have all heard about the Hermès bags. You have to give your name, you have to wait on a list. A Rolex product cannot be bought off the shelf. A luxury product has reduced supply as part of its model. Lab-grown diamonds cannot have that. Once I put up a factory, I have to produce year after year whether I like it or not.”

He cited the quote “If man succeeded without much labor in transforming carbon into diamonds, their value might fall below that of bricks,” and revealed it was written by Karl Marx in his 1867 tract Das Kapital.

The larger problem for the industry is that demand for diamonds, including lab-growns, has been stagnant in dollar terms for almost 15 years, said Narvekar.

“We are selling less polished diamonds than what we were selling 15 years ago,” he said. “Unless we start addressing the demand issue in a serious way, we will face a challenge…. Don’t expect [retail consumption] to suddenly go up. To do that, you will need to put in a serious amount of effort and a serious amount of money. The total polished sales in the industry is less than the entire Apple marketing budget.”

After the giddy highs of 2021, the natural diamond market is now experiencing what he called the “bullwhip effect.”

“As you move upstream from retail into jewelry into polished and rough, the degree of variation increases,” Narvekar said. “Like a ripple, if there’s a little change at the retailer end, you will see bigger change on the polished end with jewelry, and still bigger change on the manufacturing end, and still bigger change of the rough supply end.”

While Narvekar considers the diamond trade’s current woes even more severe than the slowdowns caused by the global financial crisis of 2008–09 and the COVID-19 pandemic, he predicted the natural market will stabilize by the end of the year, then enjoy a stable-to-positive 2025—assuming the U.S. economy stays strong and China recovers. Yet prices won’t likely go up, he added, since miners like De Beers and Alrosa will have excess stock to sell.

“Miners have produced more than they have sold,” Narvekar said. “That means there is rough lying on the ground. Even after the markets go positive, you won’t see a huge jump in prices because miners still have not gone through their inventory.”