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De Beers Group has amassed its largest collection of diamonds since the 2008 financial crisis, exposing the group’s challenge in reviving demand for jewelery that has long been seen as the pinnacle of luxury.
Falling Chinese demand, intensifying competition from lab-grown alternatives and the legacy of the pandemic lockdown, which has seen marriages drop, has left the world’s biggest diamond producer with a surplus of assets. about $2bn.
According to the company, the balance of the stock, which has not been reported, has been around the mark of $ 2bn for most of the year.
“It’s been a bad year for bad diamond sales,” said CEO Al Cook.
The long-term decline in demand that started with the Covid epidemic has forced it De Beers taking measures to restrict the supply of precious stones. It cut production at its mines by about 20 percent from last year’s levels and cut prices at its latest auction this month.
Auctions are used to sell to a group of about 50 certified buyers known as sightholders, who are the most powerful sellers in the industry.
With 20,000 employees, De Beers has been a dominant force in the $80bn diamond jewelery market since it was founded in the late 19th century. Group revenues fell to $2.2bn in the first half of this year, from $2.8bn in the same period in 2023.
Its main rival, Alrosa of Russia, was punish with punishments set for Russian diamonds by the G7 countries this year after a full invasion of Ukraine in 2022.
The crisis in the diamond market comes as De Beers is set to be spun off into a separate company by its owner, Anglo American. The FTSE 100 mining group has vowed to offload De Beers after fending off a £39bn takeover bid from rival BHP this year.
Anglo chief executive Duncan Wanblad warned that disposing of De Beers, either through a sale or through an initial public offering, would be difficult given the weak state of the diamond market.
In an effort to increase sales, De Beers started the marketing process in October it focuses on “natural diamonds”, repeating its famous advertising campaigns of the second half of the 20th century.
Cook, who will lead De Beers from January 2023, said that as the group prepares for the takeover, it will boost investment in advertising and retail, including expanding its retail network to 100 worldwide, from 40 today.
“The relaunch of this massive marketing campaign . . . I think this is the first indication of what a standalone De Beers will look like,” added Cook.
“As we become more independent, we have the freedom to focus on marketing as hard as we focus on mining,” he said. “To me, it feels like the right time to move the markets and hold our products and stores, even as we’re reducing revenue and spending on the mining side.”
Strong demand in China has been a major challenge this year. An indication of the weakness of a market that often imports diamondsjewelers in this country have already sold polished stones abroad in order to reduce their stockpiles.
Competition for lab-grown diamonds, which cost one-twentieth of the natural stone, has also grown, especially in America. The country is the world’s largest diamond market and accounts for nearly half of the industry’s sales.
Cook insists next year could bring a “slow recovery” around the world, including the US.
“We’re seeing emerging signs of (US) retail recovery in October and November,” he said this month, pointing to credit card data that showed an uptick in jewelry and watch purchases.
Paul Zimnisky, an independent industry analyst, said De Beers’ rough diamond sales are on track to fall 20 percent this year, after falling 30 percent by 2023.
“Because of the low base, any business recovery should lead to some growth in 2025,” he said, adding that he expects global diamond jewelry sales to rise by 6 percent. to $84bn next year.
