Prices for one of the world’s most popular types of rough diamonds have plummeted as more Americans opt for engagement rings made with lab-grown gemstones.
Diamond demand grows across the board has weakened Post-pandemic, consumers are once again splurging on travel and experiences, while economic headwinds erode luxury spending. However, the types of stones used in the less expensive one- or two-carat solitaire bridal rings popular in the United States have fallen in price far more than other stones on the market.
Industry insiders say the reason is a surge in demand for lab-grown gemstones. The synthetic diamond industry is paying particular attention to this category because consumers are particularly price sensitive, and these efforts are now paying off in the world’s largest buyer of diamonds.
The shift doesn’t mean deep discounts on engagement rings — the impact is limited to the rough diamond market, an opaque world of miners, merchants and merchants just steps away from the price tag in a jewelry store.
However, the scale and speed of the collapse in pricing for one of the diamond industry’s most important products has shocked the market. The question now is whether the sharp drop in demand for this category of natural diamonds represents a permanent change and, most importantly, whether the effects of lab-grown gemstones will eventually spill over into a world often dominated by Asian buyers. more expensive diamonds.
Industry leader De Beers insisted the current weakness was a natural fall in demand as stay-at-home shoppers caused prices to soar during the pandemic, with cheaper engagement rings particularly vulnerable. The company acknowledges that synthetic gemstones have infiltrated the category, but doesn’t see it as a tectonic shift.
“There’s been some cannibalization. It’s happened and I don’t think we should deny it,” said Paul Rowley, head of diamond trading at De Beers. “We think the real problem is a macroeconomic problem.”
Lab-grown diamonds — physically identical gemstones that can be made in a microwave chamber in a matter of weeks — have long been seen as an existential threat to the natural mining industry, and proponents say they could offer a more Inexpensive alternatives without much environmental or social impact. Mined diamonds also sometimes have drawbacks.
The risk has remained unrecognized for most of the past decade, with synthetics encroaching on the cheaper gift-giving space but making limited progress elsewhere. Now that’s changing, with lab-grown products starting to take a larger share of the important U.S. bridal market.
In response to weak demand, De Beers has slashed prices for its “select manufacturable diamonds” category, rough diamonds of 2 to 4 carats that can be polished and cut to roughly half their size to produce diamonds for bridal rings. The main diamond is more expensive. Quality, but not flawless.
De Beers cut prices in the category by more than 40 percent last year, including more than 15 percent in July, according to people familiar with the matter.
The former monopoly still wields considerable sway in the rough diamond market, selling its stones through 10 sales a year, and buyers, known as sightholders, often have to accept the price and quantity on offer.
De Beers typically cuts prices sharply as a last resort, and the magnitude of the recent drop in benchmark prices is unprecedented outside of a speculative bubble burst, traders said.
In June 2022, De Beers charges approximately $1,400 per carat for select manufacturable diamonds. By July this year, prices had dropped to around $850 per carat. And there may be more downside: Diamonds are still 10% more expensive than in the “secondary” market, where traders and manufacturers sell diamonds to each other.
De Beers declined to comment on its diamond pricing.
One of the clearest signs of lab-grown diamonds’ popularity is their share of India’s diamond exports, where about 90 percent of the world’s supply is cut and polished. Lab-grown diamonds accounted for about 9 percent of the country’s diamond exports in June, up from about 1 percent five years ago. Considering the deep discounts they sell for, that means around 25% to 35% of production is now lab-grown, according to Liberum Capital Markets.
The impact on De Beers in the first half was obvious. First-half profits at Anglo American’s subsidiary plunged more than 60 percent to just $347 million, with average selling prices falling from $213 to $163 per carat.it is august promotion It is the smallest so far this year.
De Beers responded by giving buyers extra flexibility. That allowed them to defer contract purchases for up to 50% of diamonds larger than 1 carat for the rest of the year, according to people familiar with the matter.
While lab-grown diamonds are currently hurting demand for natural gemstones, the nascent industry is also being affected. The price of synthetic diamonds has fallen more than that of natural diamonds, and they are selling for more than ever.
About five years ago, lab-grown gemstones sold for about 20 percent less than natural diamonds, but that discount has now shot up to 80 percent as retailers push stones for ever lower prices and manufacturing costs continue to fall about. Prices for polished stones on the wholesale market have more than halved this year alone.
De Beers in 2018 began selling its own lab-grown diamonds at steep discounts from prevailing prices in an attempt to differentiate between the two categories. Rowley said the company expects lab-grown prices to continue falling as a tsunami of more supply hits the market. That should create a bigger price differential between natural and lab-grown diamonds, helping to differentiate the two products, he said.
“As the supply builds up, we’re going to see prices come down to that price point and to a level where, in the long run, it’s not going to compete with wedding dress because it’s so cheap,” Rowley said. “Ultimately they are different products, and the finiteness and rarity of natural diamonds are different propositions.”
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