Industry giant De Beers sold 12% fewer stones at its most recent sale compared to a year before, says Alexandra Wexler in The Wall Street Journal. Operating earnings at the Anglo American subsidiary fell to $518m in the first half, down 27% compared with the previous year.
A slowing global economy and US-China trade tensions have weighed on luxury demand. Tighter lending conditions in India, “where most diamonds are cut and polished”, has also disrupted the supply chain.
The “diamond midstream”, the middlemen linking those who dig the stones out of the ground to those who sell them in the world’s global cities, “is being squeezed like rarely before”, agrees Thomas Biesheuvel on Bloomberg. The industry is so oversupplied that De Beers cut its prices for the stones by 5% across the board last month.
Mid-cap diamond-miner misery
However, it is not De Beers that is suffering most. Shares in the seven medium-sized miners have slumped by as much as 88% in the past year, says Alex Hamer in Investors Chronicle. London-listed Petra Diamonds is down more than 78% so far this year. A heavily concentrated market compounds the problems for smaller players. The duopoly between De Beers and Russian operator Alrosa leaves the other “seven listed miners” to fight over the remaining eighth of what is already a relatively small market.
The industry also faces a longer-term threat from the rise of lab-grown diamonds, which are chemically identical to mined stones and about 40% cheaper. They are also perceived as more ethical by some consumers because of concerns about “blood diamonds” and the environmental impact of mining. Although manufactured stones still only account for about 3% of the rough diamond market, it is a growing sector and “synthetic diamond exports from India are exploding”, says Ben Davis of Liberum Capital Markets.
Mid-cap diamond miners are at a low point, but value investors should tread carefully, says Hamer. Given the inauspicious outlook further pain could be on the way. Make sure the miners “are actually recovering before buying in”.
It’s not all bad, notes Edward Thicknesse in City AM. While overall diamond prices are weak, a single big find can still mean a tasty, albeit unpredictable, profit. Just take Petra Diamonds, which last month “sold a 20.08 carat blue diamond” found in South Africa for $14.9m (£11.4m). It’s always good to stumble upon a “diamond in a rough year”.