The prices of diamonds are set to undergo a drastic cut by the largest diamond producer De Beers. While this information is not freely accessible to the public some insider experts claim that the company lowered the prices of diamonds by 5%.
The prices of diamonds in the open market has fallen by 9% in recent years as noted by BMO Capital Markets Analyst Edward Sterck and still De Beers hasn’t made a move to cut down on the prices up until recently.
This is something that has sent shock waves across the industry.
The move is intended to increase profit margins for middlemen who include diamond cutters, polishers and traders that purchase the stones from De Beers. According to some sources, the middlemen have been receiving very small profit margins as a consequence of the oversupply of polished diamonds.
A factor that many buyers are not aware of is that there is actually a diamond glut. Coupled with the rise in the number of rough diamonds taken from the ground, volatility in the forex market as well as trade wars, the prices of diamonds have gone down 6%.
However, analysts and diamond experts are quick to point out that the price cuts will only benefit the middle men and the customers and shoppers should not expect any reduction in the diamond prices.
Diamonds pass through many exchanges from miners to cutters to polishers and jewelry designers. All these people command a price. While you might expect the global diamond glut to cause a significant cut in the prices, the fact that the stones pass through different exchanges before reaching the final buyer means that the prices have remained relatively constant over the years.
The main customer base of the miners which include the cutters, polishers and traders are having a hard time securing financing from banks. This is another factor affecting diamond prices. The reason behind the banks’ decision on limited financing to small businesses and traders is due to a surge in bad loans and fraud.
De beers said back in July that it would bring down production after experiencing a huge drop in sales compared to the previous year. This was as low as 53% and there are speculations that sales from 2020 could be even lower.
The profitability of banks from such financing went gone down drastically, because of this, there is speculation that many mining companies will slow down operations in the coming years. Some may even shut down entirely.
Even with such conditions, recent data from De Beers shows that the global demand for diamonds increased by 2.5% in 2018 and by 4.5% in the US alone. The US is the biggest market for diamonds accounting for up to 50% of all diamonds sold.