The 2024 Diamond Crisis: An Industry at Its Breaking Point 

The global diamond industry is experiencing its deepest crisis in history. The sharp decline in demand and polished-diamond prices, which began in late 2022 and intensified throughout 2023 and 2024, reflects a multidimensional dilemma: unprecedented competition from synthetic diamonds, deep structural weaknesses in the industry, and substantial losses throughout the supply chain, particularly among manufacturers who have failed to adapt their business models to the changing reality. 

Unlike previous industry crises — which stemmed primarily from external economic factors such as interest-rate hikes or global recession, and were resolved once economic conditions improved — the current crisis is more complex. The competitive challenge of synthetic diamonds poses a direct threat, but it also exposes, highlights and amplifies the industry’s deep structural flaws. While the 2008-2009 crisis passed with global economic recovery, the current crisis demands both addressing the synthetics issue and implementing comprehensive reforms to tackle the trade’s structural problems. 

The impact of synthetics 

Synthetic diamonds have offered an alternative product to natural ones while also creating a crisis of confidence in the natural-diamond market. While synthetic-diamond producers invest in aggressive campaigns that not only emphasize their advantages but also delegitimize natural diamonds — portraying them as “conflict diamonds” and environmentally harmful — the natural-diamond industry has remained without an effective response. The lack of investment in generic marketing weakens the perception of natural diamonds as a unique luxury product. 

With their significantly lower prices, strong marketing messages, and continuous quality improvement, synthetics have rapidly penetrated the market. They now account for 50% of the US engagement-ring market by volume. This shift in consumer preferences has led to a significant drop in demand for natural diamonds, which in turn has caused inventory to pile up. The high inventory levels have created pressure on prices, and the price declines undermine the perception of natural diamonds as a store of value. 

The drop in demand 

It’s not just synthetics that have led to the decline in demand. Economic challenges in China — which have manifested in a growth slowdown, a real-estate crisis, and a drop in consumer confidence — have caused a sharp contraction in a market that was considered a key growth engine for the diamond industry over the past decade. Meanwhile, leading brands, which purchased aggressively during 2022 due to concerns about shortages following Russian sanctions, found themselves with exceptionally high inventory levels.  

Both of these factors led to a drastic reduction in wholesale purchases. Indian polished exports fell along with demand (see graph), which meant significant inventories accumulated in the country’s manufacturing centers, creating unprecedented pressure on polished prices. Indian manufacturers, facing high fixed costs, commitments to workers, and rough-purchase obligations, were forced to continue production despite the low demand, further exacerbating the excess-inventory problem. 

Selective buying 

Buyers have shifted to focused, selective purchasing for two main reasons. 

The first is the excess supply. High inventory levels in the market allow buyers to be more selective than ever. With a wide range of options available, buyers can choose exactly what they need, rejecting goods that don’t precisely match their requirements. 

The second is the fear that prices will decline further. This risk pushes buyers to focus on either niche categories they can sell quickly, or categories that tend to have more stable pricing. 

The selective-buying phenomenon has created a new and complex market reality. One of its most notable consequences is the development of large price gaps between gemologically identical diamonds. Despite having the same technical characteristics — shape, size, color, clarity — they can differ heavily in commercial value. Amplifying this issue is that end customers often view diamonds on large video screens, adding a subjective consumer dimension to professional gemological grading. A buyer might show interest in a specific diamond while rejecting its gemological “twin,” creating wide price dispersion within the same category. 

Price dynamics and sales structure 

The pressure on polished-diamond prices has reached unprecedented levels, as reflected in the widening gap between rough and polished prices (see graph). While De Beers’ rough prices remained relatively stable until mid-2023, polished prices began declining sharply as early as mid-2022. 

Manufacturers face a dual challenge: On one hand, the industry’s traditionally thin margins have been completely eroded, and in many cases have turned negative; on the other hand, they must deal with a structural gap between purchasing and sales patterns. Rough diamonds are sold in parcels with a wide range of sizes, colors and clarities — a direct result of the mining process, which doesn’t allow for selecting specific diamond types. However, on the sales side, polished demand has become focused and narrow. The manufacturer is obligated to purchase complete rough parcels even when lacking marketing channels or economic viability for a significant portion of the purchase. 

This situation undermines the industry’s traditional business model. Not only are manufacturers losing their ability to price their inventory consistently, they are also forced to hold and finance inventory that has no current market demand, further deepening their cash-flow problems.

Adapting to a changing reality 

The differences in behavior among various players in the supply chain reveal a deep structural dilemma in the industry. American wholesalers have undergone a fundamental change in business conduct. Unlike in the past, when they would base their purchases on a “price opportunity” mind-set — buying a dollar for 90 cents, as the maxim goes — today they manage small, efficient, focused inventory, buying only what they need and can utilize. 

This conduct, however rational from the US wholesaler’s perspective, serves as a catalyst for inventory buildup among Indian manufacturers. But it’s not that Indian manufacturers are too conservative or unable to adapt; it’s that they are bound to a rough-trading structure that requires them to purchase diverse rough packages due to the nature of mining itself. 

This poses a complex challenge for the industry: It must either invest in creating markets for the categories that are currently hard to sell, or price its selective goods significantly higher to compensate for unwanted inventory. The second option is particularly problematic, as American wholesalers would have trouble commercially justifying the high premium of those selective goods. 

The influence of Indian production 

The tight correlation between Indian production volumes and polished-diamond prices is evident in recent market data (see graph). When Indian manufacturers shut down their facilities in October 2023, the immediate effect was clear: Market quantities decreased significantly, and polished prices, which had been in continuous decline, stabilized. However, when production resumed after several months and market quantities rose again, prices returned to their downward trend. A similar pattern repeated itself in October 2024. 

This dynamic illustrates another deep structural dilemma in the industry: While stopping production has proven effective for stabilizing prices in the short term, manufacturers cannot maintain this strategy long-term. The logistical commitments — maintaining a skilled workforce, fixed equipment costs, and rough-purchase obligations — force them to resume production even when the market is saturated. 

The effect on polished values 

The Indian manufacturer’s commitment to purchase rough diamonds 10 times a year creates inherent pressure on polished prices. To meet future rough payments, manufacturers must sell existing inventory within a short, fixed time frame. This pressure weakens their negotiating power and often forces them to compromise on price, sometimes even selling at auction. 

The case of De Beers’ sight cancellation at the end of 2023 demonstrates that when manufacturers are temporarily released from rough-purchase commitments, they get a broader window for selling polished. This time frame strengthens their negotiating power and allows them to manage sales in a more calculated way, wait for suitable customers, and achieve better prices. 

Broader implications 

The combination of challenges and structural problems in the industry has far-reaching implications. The tight connections among different markets mean that price effects spread rapidly.  

When American wholesalers buy at lower prices from Indian manufacturers, they will often sell at lower prices in the US to be more competitive, thereby lowering the average price in the American market. The consignment model prevalent in the US adds another layer of complexity: Besides slowing sales velocity, having goods out on memo exposes the dealers to risk if retail prices decline in the interim — particularly during periods of high volatility. This, along with the other structural issues, creates a negative feedback loop where price declines lead to sales pressure, which in turn brings prices down further. 

The process accelerates when Indian manufacturers that have failed to meet sales targets at home open branches in the US. Though their aim is to achieve better margins by selling straight to retailers, their prices can still be competitively low for the American market when they’re under pressure to make sales, and this further brings down prices overall. Low industry margins in turn prevent manufacturers and suppliers from developing effective marketing and advertising mechanisms, weakening their ability to cope with the price declines. Ultimately the impact reaches even the mines, which — despite attempts to maintain high rough prices — find themselves facing losses. 

The risks to continuity 

The current crisis undermines the diamond industry on a fundamental level. The sharp price declines and competition from synthetic diamonds damage the perception of natural diamonds as a store of value — a cornerstone principle of the industry. While price fluctuations were once seen as temporary, this crisis is deeper and more persistent. Despite previous profits, the heavy losses of the past two years have damaged companies’ financial resilience and complicated future financing. The lack of investment in marketing and advertising — a direct result of low profit margins — makes it difficult for the trade to rebuild the value of natural diamonds and justify price premiums over synthetic alternatives. 

The continuity of the trade itself poses additional challenges. In India, the older generation, whose strength lies in deep diamond expertise, is giving way to a younger generation with less diamond experience but more advanced business-management capabilities, such as budgetary planning, forecasting, and marketing understanding. While there are advantages to the latter — especially when combined with the former — the change in approach means the industry must learn to adapt. In the US, meanwhile, the challenge is of a different magnitude, as low profitability and an uncertain future are deterring the younger generation from entering the industry at all. 

Expected changes in doing business 

The industry’s current model — comprising rough traders, polished manufacturers, polished traders, and jewelers, with large inventories at each stage — is becoming less relevant in an era of extreme price volatility and fluctuating demands. American wholesalers have already adapted to the new reality by managing small, focused inventory and purchasing only what they are certain they can sell.  

As Indian manufacturers struggle to escape the current rough-buying structures, we will likely see new business models that focus on more efficient inventory management and quicker acclimation to changing market demands. We may also see changes in the relationship between the manufacturers and rough producers once the industry recognizes the need for greater flexibility in purchasing and supply terms. 

Solutions: Possible, required and essential 

Some of the changes necessary for pulling the industry out of crisis will require sacrifice from players that currently enjoy higher margins. However, avoiding the changes, especially those concerning polished manufacturers, would be akin to cutting off the branch on which the entire industry sits: manufacturing itself. 

The first and most immediate solution is massive investment in marketing. A dual approach is necessary: broad generic marketing to strengthen the position of natural diamonds, alongside focused marketing efforts to promote hard-to-sell polished categories. This investment is vital for securing the industry’s future in an era of increasing competition from synthetic diamonds. 

The more complex challenge is resolving the trap in which polished manufacturers find themselves. A comprehensive reform is necessary, including increasing manufacturers’ profit margins, changing rough-purchasing terms, and making the supply model more flexible. These changes will require redistributing profits along the supply chain — a step that might hurt some players’ margins, but is essential for ensuring the industry’s long-term survival. 

The third solution involves increased market transparency. There must be a system to provide reliable three-month forecasts of market needs by size, shape, color and clarity. This transparency must extend to information about the volume and type of rough already in production, and the volume and type of rough being sold. Only complete transparency throughout the supply chain will make it possible to plan production properly  and align it with actual market demand. 

Without these changes, the trade risks entering a negative spiral of continuous price decline, damaging its ability to renew itself and cope with its challenges. 

Main image: Diamonds of various shapes. (Shutterstock)