Lab-Grown Diamonds Gain Popularity as Demand for Natural Diamonds Drops, Leading to Price Decline
The global diamond market is experiencing a significant shift as lab-grown diamonds continue to gain popularity, causing demand for natural diamonds to plummet. This trend has led to a substantial decline in prices, particularly for one- or two-carat solitaire bridal rings, a popular choice among Americans.
The decrease in demand for natural diamonds can be attributed to several factors, including the impact of the pandemic on consumer behavior. As travel and experiences take precedence, luxury purchases, including high-priced engagement rings, have taken a backseat. In addition to these economic challenges, the rise of lab-grown diamonds has played a significant role in reshaping the market.
Lab-grown diamonds are identical to natural diamonds in terms of physical and chemical properties but are produced in a controlled environment within a matter of weeks. These synthetic diamonds offer a more affordable alternative to mined diamonds, addressing price-sensitivity concerns among consumers. Furthermore, lab-grown diamonds are often seen as a more environmentally and socially responsible choice.
While the decline in natural diamond demand does not directly translate to lower prices for engagement rings, it has had a pronounced impact on the rough diamond market. Industry leader De Beers has responded to weakening demand by aggressively reducing prices for rough diamonds between 2 to 4 carats, which can be cut into smaller stones suitable for high-quality bridal rings. Prices in this category have dropped by more than 40% in the past year, with a 15% reduction in July alone.
De Beers, which holds significant influence in the rough diamond market, conducted ten sales events annually, where buyers typically accept offered prices and quantities. The recent price decreases for a benchmark product are unprecedented and reflect the urgent need to adapt to changing market dynamics.
India, which accounts for approximately 90% of global diamond cutting and polishing, has seen lab-grown diamonds constitute around 9% of its diamond exports. This represents a significant increase from the 1% share recorded five years ago. Liberum Capital Markets reports that lab-grown diamonds now make up approximately 25% to 35% of the total volume in the diamond market, thanks to their lower prices.
While lab-grown diamonds are currently impacting the demand for natural stones, the lab-grown industry is not without its challenges. The price of synthetic diamonds has dropped even more steeply than that of natural diamonds, with retailers aggressively lowering prices and production costs continuing to decline. As a result, lab-grown diamonds are now selling at an approximate 80% discount compared to natural diamonds.
De Beers began selling its own lab-grown diamonds in 2018 at a substantial discount to differentiate them from natural diamonds. The company expects lab-grown prices to continue decreasing as more supply enters the market, further shifting the dynamics in the diamond industry.
As the market continues to evolve, it remains to be seen whether this decline in demand for natural diamonds, particularly in the one- or two-carat solitaire bridal rings category, represents a permanent shift. Industry experts believe that the lab-grown diamond segment will continue to encroach on the more expensive diamond market traditionally dominated by Asian buyers.
The changing landscape of the diamond industry presents challenges and opportunities for both natural and lab-grown diamond producers. While lab-grown diamonds offer affordability and sustainability, natural diamonds hold timeless allure and appeal. The industry must adapt and navigate these shifting preferences to ensure its future growth and viability.
