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Lab-grown gems are driving down prices for a key type of diamond

One of the world’s most popular types of rough diamonds has gone into free fall in price as a growing number of Americans choose engagement rings made from lab-grown stones.

Diamond demand across the board has weakened after the pandemic as consumers splash out again on travel and experiences while economic headwinds eat away at luxury spending. However, the types of stones that go into the cheaper one- or two-carat solitaire engagement rings popular in the US have seen much steeper price drops than the rest of the market.

The reason, according to industry experts, is the increased demand for lab-grown stones. The synthetic diamond industry has paid particular attention to this category, where consumers are particularly price-sensitive, and the efforts are paying off for the world’s largest diamond buyer.

The change doesn’t mean engagement rings are about to be deeply discounted — the impact is limited to the rough diamond market, an opaque world of miners, traders and dealers that’s several steps away from diamond labels. price in a jewelry store.

However, the scale and speed of the price collapse of one of the diamond industry’s most important products has left the market reeling. The question now is whether the drop in demand for natural diamonds in this category represents a permanent shift and, crucially, whether the inroads made by lab-grown gems will eventually extend to the more expensive diamonds that are usually dominated by Asian shopping.

Industry leader De Beers insists the current weakness is a natural decline in demand, after shoppers stuck at home pushed up prices during the pandemic, and cheaper engagement rings had been particularly vulnerable. The company admits that there has been some penetration in the synthetic stone category, but does not see this as a structural change.

“There has been a bit of cannibalization. This has happened, I think we should not deny it”, he said Paul Rowley, who runs De Beers’ diamond trading business. “We see the real problem as a macroeconomic problem.”

Lab-grown diamonds—physically identical stones that can be made in a matter of weeks in a microwave chamber—have long been seen as an existential threat to the natural mining industry, and advocates say they can offer a cheaper alternative without many of the environmental or social factors. disadvantages sometimes associated with mined diamonds.

For much of the past decade, the risk remained largely unnoticed, with synthetics eating into the cheaper gift segments but making limited progress otherwise. Now that’s changing, with lab-grown produce starting to take a much bigger bite out of the crucial US bridal market.

De Beers has responded to weakening demand by aggressively cutting prices for a category known as “manufacturer’s select” – rough diamonds between 2 and 4 carats that can be cut into stones about half that size when polished, resulting in center diamonds for wedding rings that are high. quality, but not flawless.

De Beers has cut prices in the category by more than 40% in the past year, including a cut of more than 15% in July, according to people familiar with the matter.

The former monopoly still wields considerable power in the rough diamond market, selling its gems through ten sales each year in which buyers, known as speculators, must generally accept the price and quantities offered.

De Beers usually reserves aggressive cuts as a last resort, and the scale of recent price falls for a benchmark product is unprecedented outside a speculative bubble burst, traders said.

As of June 2022, De Beers was charging about $1,400 per carat for selected diamonds. By July of this year, it had fallen to about $850 a carat. And perhaps there is more room to fall: diamonds are still 10% more expensive than on the “secondary” market, where traders and manufacturers sell to each other.

De Beers declined to comment on the price of the diamonds.

One of the clearest signs of lab-grown diamonds’ traction is their share of diamond exports from India, where about 90% of the world’s supply is cut and polished. Lab culture accounted for about 9 percent of the country’s diamond exports in June, compared with 1 percent five years ago. Given the steep discount they sell for, that means 25% to 35% of volume is now lab-grown, according to Liberum Capital Markets.

The impact on De Beers was evident in the first half. First-half profits at the Anglo American unit fell more than 60% to just $347 million, and its average selling price fell from $213 a carat to $163 a carat. Its August sale was the smallest of the year so far.

De Beers has responded by giving its buyers additional flexibility. It allows them to postpone contracted purchases for the rest of the year of up to 50% of diamonds over 1 carat, according to people familiar with the situation.

While lab-grown diamonds are currently affecting demand for natural stones, the emerging industry is also suffering. The price of synthetic diamonds has fallen even more than that of natural stones and they are being sold at a greater discount than ever before.

About five years ago, lab-grown gems sold at about a 20% discount to natural diamonds, but that has now shot up to about 80% as retailers push them to ever-lower prices and the cost of manufacturing them goes down. The price of polished stones on the wholesale market has dropped by more than half this year alone.

De Beers began selling its own lab-grown diamonds in 2018 at a steep discount to the current price, in an attempt to differentiate between the two categories. The company expects lab-grown prices to continue to fall, in what it sees as a tsunami of more supply coming to market, Rowley said. That should create an even bigger price delta between natural and lab-grown diamonds, helping to differentiate the two products, he said.

“With the increase in supply we’re going to see prices come down on price and get to a level where, in the long run, it’s not competing with the bride because it’s too cheap,” Rowley said. “Ultimately, they are different products and the finiteness and rarity of natural diamonds is a different proposition.”


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