If baseball’s three strikes and you’re out rule was applied to diamonds the industry would be walking back to the dugout and plans to sell De Beers, the diamond industry leader, quietly shelved.
Tariffs on diamonds imported into the U.S. are the third strike for an industry already reeling from sales lost during the Covid pandemic, followed by market share sacrificed to cheap laboratory-grown gems.
That cocktail of trouble has crashed prices for natural, or mined diamonds, which are estimated to have fallen by 50% over the past two years.
Lab-grown diamonds, a novelty 10-years ago, are being produced at a fraction of the cost of mined material at around $10 per carat versus more than $90/carat for material mined in countries such as Russia and Botswana.
The squeeze on the traditional diamond industry has forced the London-listed miner, Anglo American, which owns 85% of De Beers, to progressively write down the value of the business which has dominated diamonds for more than 100 years.
Valued at $12.75 billion in 2012 when Anglo American paid $5.1 billion for a 40% stake in De Beers owned by the Oppenheimer family a series of asset value write downs ($1.6 billion last year and $2.9 billion earlier this year) has substantially reduced the book value of De Beers which is 15% owned by the government of Botswana to around $2.5 billion.
Falling Profits
The combination of competition from lab-grown diamonds and rising costs saw De Beers annual profit fall from $72 million in 2023 to a loss of $25 million last year.
The earnings decline was matched by a fall in the production of diamonds from 31.8 million carats in 2023 to 24.7 million carats last year.
Now comes the tariff hit in the U.S., the world’s biggest diamond market, complete with a warning in London’s Financial Times newspaper that business in the $82 billion a year global diamond trade has “ground to a halt” with an initial 10% U.S. tariff in place but with the threat of higher rates to come.
Diamond shipments from major gem processing centers such as Antwerp and Dubai are reported to be running at less than 15% of normal levels with traders uncertain about tariff rules and rates.
Richard Chetwode, chairman of Namibian Trustco Resources, told the Financial Times that the diamond industry was not in a good place. Putting tariffs on it would not bring manufacturing to the U.S., he said.
The impact of U.S. tariffs on diamonds is a significant challenge for Botswana which relies on diamond mining as a major employer and source of government tax revenue.
But the immediate pain is being felt by Anglo American which has been trying to sell its 85% stake in De Beers as part of a defensive move against an unwanted $49 million takeover offer from the world’s biggest mining company, BHP.
If tariffs on diamonds shipped into the U.S. remain in place De Beers will be forced to make a number of tough decisions, such as whether to proceed with a $1 billion investment to extend the life of the big and rich Jwaneng mine in Botswana, and whether it should push ahead with attempts to sell its De Beers stake into a falling market.