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The FTSE 100 may be near record highs, but not all stocks have joined the party. Yet one large-cap miner could very well just have received a tonic from none other than Taylor Swift!
The power of Swiftonomics to supercharge economic activity at both a national and local level is now well established. However, it’s not her music that’s in the spotlight this time but her diamond engagement ring.
Diamond market
They say that diamonds are a girl’s best friend, but that hasn’t been the case over the past few years. A surge in popularity of cheaper lab-grown diamonds has decimated the market and has been one of the major contributing factors toward a slump in the Anglo American (LSE: AAL) share price.
The slump has become so bad that the miner is looking at ways of offloading its prestigious diamond business, De Beers. Indeed, it has already exited coal and nickel, and spun off platinum group metals as a separate entity. It very much sees its future in copper and iron ore.
However, selling de Beers is proving extremely challenging, given the present market backdrop.
Uniqueness
The cost-of-living crisis and ethical considerations have been two of the major reasons behind the recent surge in lab-grown diamonds. Retailers have been enticed because of attractive margins. It’s just way easier to sell bigger, cheaper synthetic diamonds over the natural variety.
However, natural diamonds have one magnetic attraction – their uniqueness.
The US is by far the biggest market for natural diamonds. Personally, I have always viewed the lab-grown variety as more akin to a fashion item. Its increasing popularity for those special moments in people’s life’s (like a wedding) has taken me by surprise. And the industry too.
Tariffs
Another major factor that could help provide a boost to the diamond market is tariffs. India cuts and polishes the vast majority of the world’s diamonds. It’s also a major exporter of lab-grown diamonds. Recently, the US administration slapped a huge 50% tariff on goods from India.
Now it’s possible that tariffs could actually provide a boost to the natural variety. Over the last few years, some retailers have marketed both types of products as interchangeable. This is very likely to change now.
Of course, the natural variety cannot compete on price. But tariff-induced scarcity could be an important psychological factor moving forward. Together, of course, with the wedding everyone’s talking about!
De Beers
Anglo American’s preferred option is to sell De Beers as a going concern. However, it has also been undertaking preliminary work to list it as a separate entity.
The quality of De Beers diamonds is second to none, and internationally renowned. But mining for diamonds is extremely costly and complicated. There are simply a limited number of buyers out there with the know-how and financial backing to make it work.
But one interesting fact is that there hasn’t been a major diamond discovery in the last 15 years. This only adds to the narrative around their biggest attraction. I fully expect the market to recover in the future, but Taylor Swift could just very well have helped accelerate that process.
