The prevailing panic surrounding the rise of lab-grown diamonds is overshadowing the bigger challenge facing the diamond market: There is no profit in the trade. This long-term challenge is reaching crisis levels, as manufacturers lack liquidity and are reducing prices to raise cash. Banks are applying pressure on them to repay their loans and are hesitant to extend additional credit.
The mood was not great among diamond suppliers in June following the JCK Las Vegas and Hong Kong shows. Neither event inspired confidence, instead highlighting the tough environment in which the trade is operating.
The market is working in some areas, but not in others. Typical “American” goods — 0.60- to 1.50-carat, G to J, SI to I1 — are moving, and US jewelry retail appears to be in a relatively healthy state. The problem is in the bookends of the market — the smaller and larger categories.
Economic uncertainty has influenced caution among buyers of large stones, while — for better or for worse — increased compliance requirements have reduced activity in the grey market for these goods, as Rapaport’s Joshua Freedman has reported on Diamonds.net (see ‘Why the Market for Large Diamonds Is in Free Fall’). This suggests that investor level consumers don’t see the potential they once did in high-value stones.
However, the bigger issue is in the smaller goods. There is more supply than demand for 0.25- to 0.50-carat polished. Buyers of these diamonds are offering low prices because they’re afraid to lose money if prices continue to fall. Some manufacturers can ward off those offers. But others, including some large and significant players, are willing to sell at lower prices because they need to raise liquidity.
