Synthetic diamond sales sparkle but oversupply delivers ice burn
Synthetic diamond sales sparkle but oversupply delivers ice burn

When Jenny King-Modlin got engaged two years ago, her partner showed his love for her by putting a 1.3-carat diamond ring on her finger.

But unlike the wedding rings that have dominated the global market for decades, hers are made in a factory rather than dug out of the ground — and are a third cheaper.

“To me, it looked like a diamond, it shone like a diamond, and it made me feel like I was wearing a diamond,” said the 36-year-old author and actor, who lives in New York. “It wasn’t just a moral decision, it was a financial decision and we fell in love with the ring.”

She is not alone. Millions of people choose to buy jewelry set with synthetic diamonds, which not only have a similar composition to natural diamonds, but also often have fewer defects, making them appear more radiant.

The boom in demand for synthetic diamonds is starting to fundamentally reshape the $89 billion global diamond jewelry market.

Paul Zimnisky, an independent analyst who collates diamond trade data from retail market prices, said the market share of these created stones has soared from 3.5 percent in 2018 to a forecast 16.5 percent (or $14.6 billion) by 2023. In contrast, natural diamond sales in dollar terms have been flat since 2015.

“The role of mined diamonds will be a niche product. Why pay more for what is atomically identical?” said Martin Roscheisen, chief executive of Diamond Foundry, which produces synthetic diamonds equivalent to the world’s top five One of the largest diamond mines.

Prices for polished 1-carat natural gemstones have fallen by more than a quarter since their peak in 2022 to $5,185, the lowest level in eight years, as they face new sources of competition, Ziminsky said.

But Ziminsky found that the price of synthetic diamonds fell further, from more than $5,000 per carat of polished stone in 2016 to $1,425. This is due to suppliers rushing into the booming market, outpacing demand from jewelry buyers, and economies of scale driving down costs.

Line chart for 1-carat diamonds shows sharp price drop for lab-grown diamonds as mined drops to 8-year low

The discrepancy in the popularity of natural and so-called “lab-grown” gemstones has been laid bare this month.

Pandora, the world’s largest jewelery retailer by sales, raised its full-year guidance and said it would further expand its fastest-growing segment – lab-grown diamonds.

“In 2010, I was hesitant to enter the market because of the lack of consumer awareness,” Pandora CEO Alexander Lacik told the Financial Times. “Fast forward more than a decade, and 60 to 70 percent of consumers know that there are lab-grown diamonds.”

Meanwhile, Canadian miner Lucara Diamonds said it would replace chief executive Ella Thomas. Previously, the company said it had “questions about its ability to deliver on its commitments” amid cost overruns at the underground expansion of the Karowe mine in Botswana amid a sluggish macro economy and the growing popularity of synthetic gemstones.

The first non-natural diamonds were produced by General Electric in 1954 for commercial uses such as scalpels, but in recent years technology has made mass production cheaper. At the same time, consumers are increasingly aware of the financial and moral costs of mining natural gemstones.

Some in the industry hope that growing demand for lab-grown diamonds will spur a desire for pristine diamonds that were forged billions of years ago under high pressure and heat.

“The positive thing about the natural diamond business is that there are more entry-level products that more people can afford,” said Edahn Golan, managing partner at diamond analytics firm Tenoris, adding that consumers are expected to “graduate” to natural diamonds.

But consumers like Kim Modlin worry about working conditions in the mines and tout lab-grown diamonds for lower carbon emissions. Miners dispute both points, saying they employ thousands of people in impoverished areas, while synthetic stone production in India and China is powered by coal.

Sales of lab-grown diamonds don’t appear to be slowing down. India, the world’s largest diamond cutting and polishing country, saw exports of polished synthetics soar to $1.7 billion between April 2022 and March 2023, up from a year earlier, according to data from India’s Gem and Jewelry Export Promotion Council (GJEPC). Fiscal year growth of 28%.

Diamond Foundry plans to double production over the next three years. Even De Beers, the leader in the diamond mining industry, released its own synthetic-stone engagement ring in June.

In contrast, India’s much larger exports of cut and polished natural diamonds fell 8% over the same period to $22 billion.

“The bad news for the diamond industry is that there is some level of cannibalization. It’s happening with engagement rings,” Golan said.

Billion-dollar bar chart shows lab-grown diamonds eroding natural gemstone growth

But fears are growing that plunging prices for synthetics will put synthetics manufacturers and jewelry retailers out of business.

“The fundamental concern is that we are heading towards a massacre of lab-grown diamonds,” said Richard Chetwode, managing director of RCC Diamond Consulting.

Al Cook, chief executive of De Beers, the world’s largest diamond producer by value, said there would be short-term pain from falling profit margins due to its enthusiasm for synthetic diamonds, but the threat of competition would subside.

“The more a forest fire burns, the faster it burns. It feels very hot,” he said.

Some in the diamond industry believe a tipping point has come as retailers no longer view lab-grown gemstones as a high-margin business, but instead as a loss-making business, as inventories depreciate too quickly to pay off.

David Kellie, chief executive of the Natural Diamond Council, a lobby group, said consumers viewed mined diamonds in a similar way to Swiss watches in the face of threats from the Apple Watch and Fitbit.

“People don’t buy Swiss watches to tell the time,” he said. “The Apple Watch probably sold more watches than the entire Swiss watch industry, but does it matter if Apple has grown during this time?”

As the supply of synthetic diamonds seems unstoppable, there will be a “wind-out” of lab-grown producers, Zimniski said.

“Overall, I think the market went from being new and new and exciting to being seriously oversupplied,” he said.

GJEPC Chairman Vipul Shah believes the two gem types can co-exist, but says the competition is strongest among lab-grown diamond manufacturers.

“Anyone who can’t be competitive on price (…), they’re going to be knocked out. That’s what’s happening now.”

Some lab-grown players are optimistic about the shuffle. Vishal Mehta, founder and chief executive of Lumex, a Dubai-based trader of lab-grown diamonds, agreed that gemstone inventories were severely oversupplied and that low prices were hurting debt-financed producers. But he predicts the market will correct.

“You’re going to find effective prices that are good for consumers, retailers and growers,” Mehta said. “I think we’re going a little too far, and that’s what’s happening with new technology.”

Meanwhile, the luxury market is struggling to stay positive.

One of Mehta’s jeweler clients recently used $8 million worth of mined diamonds to create a necklace for a Gulf royal, but set the rare stones in $100,000 lab-grown fireworks. “I look at lab-grown diamonds like Andy Warhol frames,” the jeweler told him.

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