What's behind the diamond downturn?

The legendary diamond mining company De Beers announced earlier this month that it's suspending production at South Africa's biggest diamond mine for two years, and making cuts to its official prices.

Paul Zimnisky is a diamond industry analyst, and he runs a widely followed price index for the commodity.

That Zimnisky diamond index had global rough diamond prices down 20% year over year and 40% from a decade ago. That's just for natural diamonds — not the increasingly popular lab-grown diamond category.

Zimnisky spoke with “Marketplace Morning Report” host Kimberly Adams for more on this. The following is an edited transcript of their conversation.

Kimberly Adams: Let's start with De Beers. Tell me more about why they made the decision to halt production at this mine.

Paul Zimnisky: So we had record demand for diamonds just five years ago, and that was driven, I would say, primarily by pandemic policies. People were locked in. They couldn't go out and travel, they couldn't go dining, and then we had all that consumer stimulus. So it actually drove diamond prices and diamond demand to all-time highs.

Since, diamond prices have been essentially cut in half from that that all-time high that was in early 2022. And if you think about it, we've had this generational phase of inflation. The price of everything's up. But diamonds are one of the very few products where prices are actually down. And all of these mining-related costs are up. Based on my data, I think this is going to be the lowest diamond production we've had since 1987.

Adams: So, what is driving down the prices of diamonds?

Zimnisky: The popular narrative is definitely lab-grown diamonds. Man-made, they're machine-made diamonds, and they price at retail significantly less. You can find them for 90%, 95% less than say an equivalent natural diamond. So that's definitely, I would say, diluted the supply side of the market.

But there are multiple factors happening. China has been the second largest consumer of diamonds the last two decades. Demand in China is down 50%. The tariffs have been a disruption to the industry. We've had the war in Ukraine, which is impacting Russia. Russia is one of the largest producers of diamonds, and there are sanctions on Russian diamonds. So all of these factors kind of came together.

Adams: What is this doing to the resale market? I'm thinking about all the folks who might have like family heirlooms or who bought diamond jewelry imagining it would always hold its value.

Zimnisky: You could maybe expect to get half of what you paid for if you were to just kind of sell it right back to the market. For most people, I wouldn't look at it as an investment. Maybe to an extent, it could be considered a store of value. But I wouldn't look at it as a speculative investment unless you're dealing in these really high-end, fancy diamonds.

Adams: The fact that the prices are falling and the industry is in so much flux with the lab-created diamonds versus the natural diamonds — are you seeing it shift consumer behavior and the way that people are viewing diamonds more broadly?

Zimnisky: Yes, I do think there's confusion in the market. I think there are a lot of consumers that think you can't physically distinguish between the man-made and the natural diamond. And I think if you don't understand that, I think it's going to be hard to get that consumer to spend, say, 10 times more for a natural diamond than a man-made diamond. Natural diamonds have always been, and remain, quite rare and and quite valuable. And we've been producing synthetic man-made diamonds for 50, 60 years now. And I guess that what I'm trying to say is the fact that the man-made diamonds haven't completely taken over the jewelry market tells us something. And I think it tells us that consumers still clearly want want natural diamonds.

But at the same time, a consumer that just wants, say, maybe a more fun and expensive piece of jewelry that they don't have to panic if they lose — the man-made diamond could certainly provide a good option. So I think, at the end of the day, it's up to the industry to collectively communicate accurately what the differences are, and then the consumer can make an informed decision.