Small Cap Idea: Will diamond prices bounce back this year?

Are diamonds yesterday’s status symbol, or can we expect a bullish rebound after the painful price shock we witnessed in 2023?

This is a difficult question to answer, but according to the upper echelons of the diamond mining industry, there is reason for optimism.

Take De Beers, the world’s largest miner of these precious – and often controversial – carbon skeletons.

With natural diamond prices holding steady against lab-grown alternatives, De Beers has raised hope for 2024 after a disappointing 2023.

“We see 2024 as a year of recovery, although we expect the rise in demand for diamonds to be gradual rather than sudden,” De Beers CEO Al Cook said in an interview with Bloomberg TV.

Recovery: Are diamonds yesterday's status symbol, or can we expect a bullish rebound after the painful price shock we witnessed in 2023?

Recovery: Are diamonds yesterday’s status symbol, or can we expect a bullish rebound after the painful price shock we witnessed in 2023?

He agreed that 2023 “has been a challenging year for the diamond industry.”

The decline in demand was driven by a combination of lower economic growth, lagging “participation rates” in the US and China, and encroachment on the sector by lab-grown diamonds.

However, Cook sees less competition from lab-grown diamonds as a status symbol in 2024, given their prices have fallen more than 90 per cent in just two years.

“Customers now clearly see that natural diamonds and lab-grown diamonds are two completely different things,” he commented.

As John Tilling, head of AIM-listed diamond exploration company Botswana Diamonds plc, said: “The Ferrari and the Ford Mondeo are both good cars but that’s the only thing they have in common.”

According to StoneAlgo’s lab-grown diamond price tracker, the average price of a one-carat lab-grown diamond has dropped more than 37 percent in the past 12 months alone, from more than $1,200 in February 2023 to about $750 today.

By comparison, the price of natural diamonds has fallen less than 19 percent, from more than $5,000 for a one-carat diamond in February 2023 to about $4,100 today.

“The lab-grown diamond market is subject to the same supply and demand imbalances that affect all markets,” StoneAlgo said.

“Lab-grown diamond prices are mainly affected by lower costs of growing and manufacturing lab-grown diamonds, increased competition from suppliers, and increased competition from jewelers resulting in lower profit margins at the retail level.”

StoneAlgo said it’s unclear whether lab-grown diamond prices will stop falling as diamond-growing technology continues to become cheaper and more available, leading to increased competition and lower prices for lab-grown diamonds.

Furthermore, lab-grown diamonds offer little in terms of value retention and resale value compared to their natural alternatives.

However, it is clear that De Beers, as the world’s largest diamond miner, is under price pressure for one reason or another.

In its first sales of 2024, the group reduced prices by 10 percent in an attempt to stimulate demand.

In essence, the natural diamond industry is suffering the same fate as other discretionary items, with prices sharply overcorrecting in the wake of record-breaking luxury demand in the era of coronavirus lockdowns.

However, signs of diamond recovery are beginning to appear.

De Beers’ rough diamond sales of $370 million for the first cycle (representing sales between December 19, 2023 and January 30, 2024) rose 170 percent sequentially as a result of holiday demand in the US and the resumption of sales in India.

You won’t be surprised to hear that market valuations in the small cap space are low right now.

Botswana diamonds It is down 60 percent year-on-year at 0.45 pence, while players are in production Petra diamond And Diamond gem They fell by 40 per cent to 46.2 pence and 70 per cent to 9.98 pence respectively.

Speaking on the state of the diamond industry, Petra CEO Richard Duffy said: “While we are seeing encouraging signs of a price recovery and some stabilization in the rough diamond market, following actions taken by both producers and intermediates, we continue to adopt a cautious approach to the market.” In the near term.

In similar words, Gem Diamonds noted: “The global rough diamond market continued to experience downward pressure in the fourth quarter of 2023.”

“There is cautious optimism for 2024 (and) any recovery will change sentiment,” Tilling told investors in December.

Recovery won’t be easy. The funding crunch means explorers are finding it difficult to explore, while producers continue to battle price pressure.

But if you share the optimism that “diamond revenues have bottomed out,” as Jefferies analysts recently stated, then buying a stake in the industry has not been this cheap for a very long time.

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(Signs for translation) Daily Mail

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