South Africa’s small diamond producers are in a fight for survival. The diamond industry, once a thriving sector in the country, is now under severe pressure due to falling prices, competition from lab-grown diamonds, and other economic challenges. The situation has become so dire that the South African Diamond Producers Organisation (Sadpo) is warning of potential closures and job losses in the sector.
According to Sadpo chairperson Gert van Niekerk and vice-chairperson Lyndon de Meillon, the problems facing the industry today are unprecedented. The global diamond market has been hit by a perfect storm of factors that have driven prices down to levels not seen since the Great Depression of the 1930s.
One of the main issues is the rise of lab-grown diamonds. Technological advances have made it possible to produce high-quality, large diamonds in laboratories, which are often marketed as more environmentally friendly alternatives to natural diamonds. Major brands like Pandora have switched to selling only lab-grown diamonds, and even traditional diamond companies like De Beers have ventured into this market. This shift has given lab-grown diamonds more credibility and made them increasingly popular, particularly among younger consumers.
At the same time, the global diamond market has been affected by external factors like the COVID-19 pandemic, which caused a significant downturn in diamond prices. Although there was a brief spike in demand after the pandemic, the supply quickly outpaced it, leading to a surplus of diamonds on the market. Additionally, high inflation, rising interest rates, and political instability have further dampened consumer demand for luxury items like diamonds.
For South Africa’s small and junior diamond producers, these challenges have been especially harsh. Unlike large companies, these smaller producers cannot afford to stockpile diamonds waiting for prices to improve. They rely on selling their diamonds as soon as they are extracted to maintain cash flow. However, with prices for smaller diamonds falling by as much as 50% since the peak after COVID, many of these producers are now operating at a loss.
Historically, South Africa’s small diamond producers were somewhat protected from large price fluctuations because they mined high-quality alluvial diamonds, which were scarce and in high demand. But with the introduction of lab-grown diamonds, even these high-quality stones are no longer as valuable as they once were.
The outlook for the industry remains bleak. According to Van Niekerk and De Meillon, unless diamond prices recover soon, many small producers will be forced to shut down. This would be a devastating blow, not only for the producers themselves but also for the local communities that rely on the diamond industry for jobs.
There is some hope that the market will eventually recover. As economies around the world stabilize and the middle class in countries like India and China continue to grow, demand for natural diamonds could increase. Additionally, as the price of lab-grown diamonds continues to fall, they may become less attractive for consumers looking for luxury items, leading to a resurgence in demand for natural diamonds.
However, even if the market does recover, it may take time, and the damage to the industry could be long-lasting. Sadpo is calling on the South African government to support the industry by lowering royalties and levies on diamond exports and reconsidering the current value-added tax (VAT) and export levies. These measures could provide some much-needed relief for struggling producers.
Despite the challenges, Sadpo remains cautiously optimistic. The organization has been working to address the issues facing the industry through lobbying efforts and regular meetings with government officials. However, the situation is critical, and without immediate action, the future of South Africa’s small diamond producers remains uncertain.
“We need to stay in survival mode and do whatever we can to keep on producing,” said Van Niekerk. “The diamond market has always recovered in the past, and we hope it will again, but we need to be prepared for a long and difficult road ahead.
Source: Mining Weekly
