Prices for natural diamonds are expected to continue to fall amid economic uncertainty in the two big markets – the U.S. and China and growing acceptance of cheaper synthetic stones.
According to the Bank of Botswana (BoB) Monetary Policy Report, diamond prices are expected to trend downwards due to decreased demand for the commodity, amid uncertainty in major consuming markets underpinned by tight monetary policy, which has squeezed consumer budgets.
Econsult, an independent economic consulting firm, has highlighted the industry’s concerns, emphasising the challenges facing the global diamond market in 2023. These include increased competition from synthetic (lab-grown) diamonds, a sluggish economic recovery in China, and the potential disruptive impact of proposed measures by G7 countries to enforce sanctions against Russian diamond sales.
Fortunately, Econsult, led by Dr. Keith Jefferis, states that there has been some recovery from the dire position that the industry was in during the last quarter of 2023, albeit somewhat limited.
“Certainly, the downward trend in sales that was seen during the final sales cycles of 2023 has not continued; however, diamond sales through De Beers in the first three sales cycles of 2024 remain well down on the equivalent period in 2023,” Econsult said in its quarterly report.
“Overall, sentiment seems to be that the diamond market is stabilising and is on the cusp of a rebound, although sales in 2024 are still likely to be lower than in 2023.”
However, the firm has noted that factors highlighted above continue to weigh down on the market, with the main concern relating to the G7 sanctions regime.
“This has now been partially implemented and remains a point of serious contention between the G7 countries, along with Belgium, and developing country diamond producers, which are mainly in Africa,” the report says.
The G7 regime requires the details of all rough diamonds over a certain size to be individually entered into a blockchain so that their origin can be recorded and traced through the entire value chain.
However, Econsult says the problem is that the G7 proposals require that the initial recording must be physically done in Antwerp, Belgium so that all rough diamonds have to be physically transported there.
This, economists say, will add to costs and undermine Botswana’s model of aggregating diamonds from Canada, South Africa, and Namibia along with Botswana diamonds, before being sold to manufacturers and wholesalers through sights held in Gaborone.
Furthermore, Econsult asserts that Botswana has the capacity and technology to do the initial blockchain entries without the diamonds being shipped to Antwerp and back.
“The government of Botswana has been taking the lead in engaging with the G7 on behalf of other producing countries, and has had positive feedback from some, but not all, G7 countries,” Econsult said.
“As it stands, the G7 regime poses a significant threat to the Botswana economy.”
According to BoB, the global rough diamond price index decreased by 2.5 percent from 153.3 points in the fourth quarter of 2023 to 149.5 points in the first quarter of 2024, mainly due to a decline in demand, amid high inflation, rising interest rates and a shift towards spending on travel.
Moreover, the central bank says the decrease in demand for diamonds was due to increased competition from lab-grown diamonds as a substitute product.
Similarly, polished diamond prices decreased in the fourth quarter of 2023.
The global polished diamond price index also decreased by 10.3 percent from 121.6 points in the third quarter of 2023 to 109 points in the fourth quarter of 2023, amid a rise in inventory levels due to weaker demand and global economic outlook.
The global polished diamond price index averaged 110 points in January 2024.
De Beers has also recently revised its production guidance for 2024, lowering it to 26–29 million carats (previously 29–32 million carats) in what it said is a response to the higher-than-average levels of inventory in the market and the expected gradual recovery in rough diamonds through the rest of the year.
