As if the diamond industry wasn't facing enough problems from the lab grown diamond (LGD) sector in a highly competitive market, a new phenomenon appears to have come to the forefront. Natural diamonds weighing less than two carats are facing extreme pressure from LGDs, leaving the mined diamond market mostly dealing in larger stones which appears to be particularly the case in the critical American market diamond jewelry market.
The trend was already identified some months ago, and industry observers both exhibiting and visiting the JCK Las Vegas show, which this year ran from May 29 to June 1, reported that it is strengthening.
Exhibitors reported that many visiting jewelers were looking for sources for two-carat and larger diamonds.
What is the cause of this split in the diamond market? There is a clear preference among bridal jewelry consumers globally, but particularly in the United States, for synthetic stones for engagement rings due to financial reasons. Where, in times past, these buyers would have opted for natural diamonds, LGDs are increasingly becoming the stones of choice.
What Does The Rise Of LGDs Means For Smaller Natural Diamonds
These developments illustrate how the diamond industry is undergoing one of its most significant structural changes in decades. While much attention has focused on falling prices, reduced demand, and the challenges facing traditional diamond producers, a deeper transformation is taking place: the market is splitting into two very different segments.
On one side are larger natural diamonds, where rarity, emotional value, luxury positioning, and investment appeal continue to provide a degree of differentiation. On the other side are smaller diamonds — particularly those of 1 carat and below, and increasingly those up to 2 carats — where lab-grown diamonds (LGDs) are rapidly gaining consumer acceptance because of their affordability, visual appeal, and perceived value proposition.
This split raises a fundamental question: if the majority of diamond consumption is concentrated in the smaller-size categories, what does the future hold for the natural diamond market overall?
The Changing Consumer Equation
Historically, the appeal of natural diamonds rested on their combination of rarity, beauty, emotional symbolism, and social status. For decades, consumers accepted high prices because diamonds were viewed as unique, scarce, and enduring.
LGDs have been disrupting this equation for the past several years. Technologically, lab-grown diamonds are chemically and physically identical to natural diamonds. To the average consumer, especially in smaller sizes where rarity is less visible, the difference between a natural and laboratory-grown diamond is difficult to appreciate.
This has created a new and attractive consumer calculation:
- A 1-carat LGD can cost a fraction of the price of a comparable natural diamond
- It can offer similar brilliance and appearance
- Consumers can often purchase a larger stone for the same budget
- Younger consumers are increasingly comfortable with alternatives to traditional luxury products
For many buyers purchasing engagement rings or fashion jewelry, especially under budget constraints, the attraction is clear.
The Problem for the Natural Diamond Market
The challenge is that the under-2-carat segment represents the foundation of the global diamond jewelry market.
The vast majority of diamonds sold worldwide by volume are below 1 carat. As a result, this is the foundation of the broader diamond ecosystem: mining companies, manufacturers, wholesalers, retailers, jewelry brands, grading laboratories, and service providers.
If consumers increasingly migrate toward LGDs in these categories, the consequences extend far beyond individual diamond prices.
The industry faces a potential structural issue: natural diamonds may retain strength at the top end of the market while losing relevance in the volume segment that sustains the industry.
Natural Diamonds’ Remaining Advantage: Rarity
The strongest argument for natural diamonds increasingly rests on their one attribute that LGDs cannot replicate: natural scarcity.
Natural diamonds also carry characteristics that are difficult, if not impossible, to reproduce: geological rarity, the millions or billions of years it has taken to create them, provenance, uniqueness, and luxury status.
The issue here is that today’s consumers, particularly younger buyers, are increasingly not swayed by these arguments.
And, although the luxury sector can support premium prices for exceptional goods, the global diamond industry has always depended on a much broader consumer base.
The natural diamond market, particularly among smaller stones, has largely failed to successfully reposition its products as a luxury product rather than a mass-market jewelry commodity.
To achieve this, the mined diamond market needs to promote stronger branding, better consumer education, a greater emphasis on provenance, a clear differentiation from LGDs, and possibly reduced production levels to buoy up prices.
The Implications for Producers
The changing market environment presents major challenges for producers such as De Beers and Alrosa.
Historically, producers carefully managed their supply of diamonds to the market in order to support prices. However, LGDs introduced a fundamentally different competitor: an alternative product whose production capacity can expand rapidly and on demand and whose costs continue to decline.
For natural diamond producers, simply reducing supply may not be enough. The industry must answer a larger question: What unique consumer value does a natural diamond provide that a lab-grown diamond cannot?
Retailers have always sold diamond jewelry was sold through emotional storytelling: love, commitment, celebration, and status.
Now, however, retailers must explain why a consumer should spend significantly more on a natural diamond when a visually identical and more brilliant LGD alternative exists.
The industry will need to strengthen the narrative around: authenticity, rarity, heritage, responsible sourcing, and long-term emotional value.
A Smaller but More Premium Natural Diamond Industry?
The rise of LGDs does not mean the end of natural diamonds. However, it may mean the end of the natural diamond industry as it has traditionally existed.
The future may be defined by a clear divide:
- LGDs dominate the affordable and everyday diamond market, particularly those below 2 carats.
- Natural diamonds increasingly become a premium luxury product focused on rarity and larger stones.
The critical question is whether the natural diamond industry can successfully make this transition.
For an industry built for over a century around selling diamonds to the broadest possible consumer base, the challenge is profound:
Can natural diamonds remain valuable if they no longer dominate the majority of the market?
The K-Shaped Recovery: De Beers’ View of a Divided Diamond Market
Executives at De Beers have described the current diamond market as experiencing a "K-shaped recovery" — a situation in which different segments of the industry move in opposite directions rather than recovering together.
The concept of a K-shaped recovery suggests that while one part of the market improves, another continues to struggle. In the diamond industry, this divide has become increasingly visible:
- The upper end of the natural diamond market, particularly larger, higher-quality stones, shows greater resilience because consumers continue to value rarity, exclusivity, and luxury.
- The lower and middle segments, particularly smaller natural diamonds, face significant pressure from lab-grown diamonds, declining prices, and changing consumer perceptions.
According to De Beers executives, the recovery in diamond demand is unlikely to be uniform because consumers are increasingly separating diamonds into different categories based on size, value proposition, and emotional positioning.
The strongest performance is expected from diamonds that are perceived as truly rare and unique. Larger natural diamonds benefit from their geological scarcity and their association with luxury, while smaller stones increasingly compete directly with LGDs, where price differences are much more visible to consumers.
This creates a fundamental challenge for the traditional diamond business model.
For much of the past century, the industry operated on the assumption that natural diamonds across all sizes represented a single category: a universal symbol of love and commitment. The emergence of LGDs has disrupted that assumption by creating a clear distinction.
The K-shaped recovery reflects a broader strategic shift: natural diamonds may continue to maintain value at the high end, but the industry must rethink its role in the mass-market segment where LGDs are becoming increasingly competitive.
De Beers' own strategy reflects this changing environment. The company has increasingly emphasized the distinction between natural diamonds and LGDs, arguing that natural diamonds represent rarity, authenticity, and a unique connection to nature that laboratory-grown stones cannot replicate.
The challenge is that the industry must convince consumers that this distinction matters — particularly among younger buyers who may prioritize size, design, and affordability over traditional ideas of rarity.
Final words…
The diamond industry is not facing the dilemma of two separate markets moving in opposite directions: a premium natural diamond market built on rarity, and a mass-market diamond market increasingly dominated by lab-grown alternatives.
The K-shaped recovery may determine whether natural diamonds successfully transition from a commodity product into a luxury category.
Philip Carter for Rough&Polished from London
