ODC points to the challenge of getting optimal prices for the category
Optimises diamonds that are sellable
Price differential working in favor of synthetics – Rapaport
“There will be unprecedented change as the real-diamond business repositions itself”
Okavango Diamond Company (ODC) says lab-grown diamonds are affecting some of Botswana’s colored stones, especially from the Jwaneng mine, one of the world’s largest diamond mines. “They seem to be affected more,” says the company’s Managing Director (MD) Mmetla Masire in an interview. “We know that there will still be a challenge to get optimal prices in the short term for that category of diamonds.”
A report by Rapaport’s Avi Krawitz showed that the price differential between natural diamonds and fake diamonds is currently working in favor of synthetics. Krawitz cited Rapaport Group Chairman Martin Rapaport comparing the cost and selling price of a 2-carat, F-color, VVS2-clarity natural diamond with the equivalent synthetic stone at various stages of the distribution chain. “The profit margin earned by jewelers was 24% for the natural diamond versus 83% for the synthetic stone,” Rapaport reports with its chair’s research showing the difference in retail price represented a saving to the consumer of $31,104.
Optimising sellable diamonds
Against this background, Masire says ODC is optimising diamonds that are sellable and are not under a lot of threat from synthetics. “We are managing the inventory as much as possible, we believe that the lab-grown diamonds will reach a point where they will possibly slow down.”
Synthetics suffer setback
He expects they will slow down for two reasons. Firstly, there is generally an oversupply of fabricated diamonds hence Masire forecasts that natural diamonds will pick up. Financial Times reported that Paul Zimnisky, an independent analyst who collates diamond transaction data from retail market prices, found that prices for synthetics have fallen from more than $5,000 per 1-carat polished stone in 2016 to $1,425. Rapaport has reported that M7D Corporation, which trades as WD Lab Grown Diamonds, has filed for Chapter 7 bankruptcy, according to court documents, signaling a major setback for the fake diamonds industry.
This is why Masire believes the industry is managing to go through the window of disruption. Rapaport’s chair says “There will be unprecedented change as the real-diamond business repositions itself in the face of stiff competition from synthetics”.
US, China impact
But the pressure he says the industry is facing is not just from synthetics but multifaceted. He cited the US economy and China not rebounding after COVID-19. For the US, the Bank of Botswana’s (BoB) Monetary Policy Report shows that output is forecast to grow by 1.8% in 2023, a decline from an estimated expansion of 2.1% in 2022, and moderate further to an expansion of 1% in 2024. In China, growth was expected to be robust following the lifting of movement restrictions. First National Bank Botswana (FNBB) says it is anticipated to be tepid, weighing on commodity prices as well as emerging and developing markets’ growth.
Oversupply in the value chain
In the mix of these, Masire points to “an oversupply in our value chain at various stages”. It’s a multiple of factors but Masire says once the industry addresses other areas “we’ll be able to rebound”. At the end of the day, industry players view that synthetics will remain a niche market and they will take a percentage of the diamond market.
Focus on marketing natural diamonds
Masire says the natural diamonds will then focus on the balance. What is important for them is to reach out to customers. “It’s important for us to understand our customers’ needs and it’s important to increase the advertising in terms of marketing natural diamonds,” Masire says. While he could not get into details of how much they are willing to spend in marketing, De Beers recently revealed that it is investing an additional $20 million in natural diamond marketing to help drive consumer demand during the holiday season. De Beers is the world’s largest seller by value.
Customer needs
Masire observed that synthetics have also been putting a lot on marketing budgets, marketing the product. Hence, he advises natural diamond producers to start increasing the budget and the money they put into advertising and making sure they meet the customer’s needs. Some of the customer needs, he notes, are issues of sustainability and traceability. “So all those marketing requirements and communication with customers and making sure that the customers know how we are looking after sustainability issues,” Masire says adding that “we now need to start putting more energy into them because the current customers are making demands”.
Generic advertising
But is quick to explain that not one company can solve the problem. Hence, the industry is starting to engage, to see how players can collaborate and work together. There are two aspects of advertising. The broader one is generic advertising that covers natural diamonds. Masire says there is specific marketing that ODC will be undertaking that will be talking about ODC diamonds. But he says “We need to first see how the bigger one works so that they complement each other”. “So once we’ve agreed with our other stakeholders on how we can better position and advertise the natural diamonds so that it then opens the way where each of us can then market our own products.” This is where he says the focus of the marketing will then go where ODC does its own marketing and increases its customer base.
Prices still falling
Masire has no idea when diamond prices will bottom out. However, he believes that the measures that the industry has taken should improve them. Alrosa, the world’s largest producer by value suspended its sales. De Beers also followed suit with ODC canceling its November sale to address issues of oversupply. Rapaport reported that trade in India announced a voluntary ban on rough imports for the next two months.
But predicting, Masire hopes that before the middle of next year, prices should have stabilised at the bottom. “We don’t expect rapid improvement. But once they can stabilise, we’ll have a reference point. So we need to get to the reference point so we know exactly where we are. The prices are still falling.”
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