Recently published Bain–AWDC report – “The Global Diamond Industry 2018” lists three key trends that are shaping the future of global diamond industry – 1) Increasing influence of digital technologies, 2) Growing presence of Lab-grown diamonds and 3) Shifting preference of younger generations of consumers. While these points may seem obvious, there are finer pricing trends and economics of Lab Grown Diamonds that may shape the future of diamond industry. Some even decipher this as Lab Grown Diamonds helping industry overall, which we’d pointed out long back.
“Lab-grown diamonds are clearly here to stay.”
One can’t agree more to this opening statement about Lab Grown Diamonds trend in the Bain-AWDC report. In July this year, US FTC amended its Jewelry guides, taking the term ‘natural’ out of definition of diamond and clarifying – a diamond is a diamond irrespective of its origin. This followed by De Beers making a U-turn from vowing never to sell Lab-grown diamonds to entering into the space through its Lightbox line.
The report estimates that current gem-quality production of polished Lab-grown diamonds is around 2 million carats, though majority of it is melee (less than 0.18 ct) stones. This market is expected to grow to 10 – 17 million carats by 2030, if current growth rate of 15 – 20% is sustained.
However, a different study last year commissioned by India’s GJEPC and conducted by Bonas & Company Diamond Brokers and Consultants had mentioned that global Lab-grown diamond production has reached 2.3 to 4.2 million carats annually – 3% of mined diamonds production then. Possibly, this figure could include non-gem quality and roughs. Besides, a GIA report based on limited samples between Jan-June 2016 has shown more than 50% Lab-grown diamonds weighed 1 carat and above.
Nevertheless, increasing capacity, production and demand points to only thing – Lab Grown Diamonds are clearly here to stay!!
Bain-AWDC report adds “Given the pace of declining production costs and wholesale and retail prices, we expect lab-grown stones to become accessible to a wider consumer audience, potentially increasing demand for diamonds in general.”
Lab Grown Diamonds production cost plummeting
Producing one carat of CVD Lab-grown diamond used to cost around $4,000 in 2008. This has significantly dropped with technology advancements and now it costs only $300 – 500, as per the report.
Lab Grown Diamond prices have also dropped
According to the report, retail prices of gem-quality Lab-grown diamonds have nearly decreased by 50% in last 2 years. Similarly, wholesale prices of Lab Grown Diamonds have plummeted threefold. The report predicts that with production efficiency increase, new competitors and commoditization of the segment, prices are expected to drop even further.
A trigger point in the recent price drops of Lab Grown Diamonds can be attributed to De Beers’ Lightbox pricing strategy that made headwinds by selling Lab-grown diamonds at $800 per carat, when the average pricing of similar Lab-grown diamond was around $3,700 – $4,200 per carat and mined stone for around $6,000. While De Beers claim that it is making profits even at $800 per carat pricing, sustainability of such a pricing is questionable.
Industry analyst Paul Zimnisky calls this move of De Beers’ Lightbox as “predatory pricing strategy to lower the market price of lab-created diamonds.”
Though even momentarily, the pricing gap between Lab-grown diamonds and mined stones have widened to around 42% from 29% at start of the year, tad less than 50% decrease.
Economics of Mined diamond sector also changing
Bain-AWDC report points out that the profitability in the rough diamond segment trended down in 2017, while rough diamond production may slightly decline in 2018, driven largely by depletion of mines despite of some new mine capacity being added, even in optimistic scenario.
While market entry and positioning strategies for Lab Grown Diamonds will evolve, various scenarios being build and other trends including digital tech and consumer preference shifts will affect, what remains irrefutable is the fact the Lab Grown Diamonds are shaping the future of entire diamond industry.