Customers flocked to lab-grown diamond halls at the June Vegas event, putting the natural diamond industry to the test.
PME Consulting’s managing director and special advisor to Sodiam E.P. and Angola’s ministry of mineral resources, Peter Meeus, told Rough & Polished's Mathew Nyaungwa that pricing is the main reason consumers prefer lab-grown diamonds.
He said lab-grown diamonds’ average price has decreased by 74% since their 2016 market entry.
Meeus, who is also the former director of the Antwerp Diamond Bourse and chief executive of Antwerp World Diamond Centre (AWDC), said demand for natural diamond engagement rings had been declining in the US.
He said it is worrying that the US natural and loose lab grown reached a 50/50 share of unit sales in July.
Meeus expressed concern that lab-grown diamonds could pose a threat to the economies of African countries that produce over two-thirds of the world's natural diamonds.
Excerpts from the interview follow.
What are the main reasons and barriers for consumers to prefer lab-grown diamonds over natural diamonds?
The main driver behind the preference of consumers for lab-growns (LGs) is the price. About seven years ago when LGs entered the market in large volumes the average discount for a 1.5-carat diamond was Rap -48%; today it is almost -90%. The average price has decreased by 74%. Russell Mehta, the MD of Rosy Blue, one of the largest diamond trading companies, [recently] posted on LinkedIn a video digging into the heart of the price matter. It’s worth watching.
What are the environmental and social advantages of lab-grown diamonds over natural diamonds?
Often, it is claimed that consumers will prefer LGs over naturals because of their sustainability record and because they would be environmentally more friendly. That claim is, however, not based on proven science. It is also not true, as 60% of LGs are mass-produced in China and India, and respectively 74% of great electricity results from coal.
In the early days when lab-grown diamonds entered the market often reference was made to the fact that natural diamonds were linked with conflict. Since the Kimberley Process was established that is a thing of the past. Everybody agrees that conflict diamonds today represent less than 0,1% of the global rough production. Also, brands, retailers and jewellers are increasingly implementing ethical sourcing protocols and policies bringing transparency to the supply chains.
How do lab-grown diamonds affect the supply and demand dynamics of the global diamond industry?
There is an unfortunate correlation between the evolution in the sales of natural and lab-grown diamonds. This is not true for small diamonds below 0.20 points. There the cost of production is equal between natural and lab-grown diamonds. Therefore, the market for lab-growns is in the larger goods. In the market of today, one can no longer ignore certain cannibalization in retail with the substitution of rare and unique high-value, natural diamonds from middle [of the] earth for cheap lab-grown equivalents.
In the US there is an ongoing declining demand for natural diamond engagement rings (DER). In a report published by Tenoris/Edahn Golan, it was announced that in July 2023 in the US natural and loose lab grown reached a 50/50 share of unit sales. That is worrying.
How do you anticipate the demand for lab-grown diamonds will develop in the future?
That is, indeed the million-dollar question. The price of LG production is dropping fast. A 4-carat costs not even $2000 wholesale. In a couple of years - maybe sooner even - there will be equal to more LGs than natural diamonds per year of production. And then the question is: are we in a stepping-stone scenario; how long before LGs reach 65%, 80%, 95%, or 99%? And what will happen after that? Will LGs take over the diamond market entirely or is there a risk of going to “junk status” and being considered “fake” or “worthless” and people return to the “real thing”? Nobody knows; I am just speculating but the latter is what Russell Mehta’s posted video suggests.
Anyway, the June Vegas show seems to have attracted herds of buyers to the LG halls confronting the industry with an inevitable moment of truth. In June De Beers’ synthetic brand Lightbox launched a trial of diamond engagement rings. That created some concern in the market as the company always said it would not enter the bridal market.
In a reaction, the chief financial officer of the mining giant [Sarah Kuijlaars] said two weeks ago it was a way for them to understand consumers' preferences and response to retailers pushing consumers towards man-made stones with misleading information. Lightbox is instrumental to push down LG prices. Will be interesting to see how that folds out. Their support for the natural market is and will continue to be a matter of the highest priority. Many people are looking to them for guidance.
What is the potential impact of lab-grown diamonds on the economies of African diamond-producing countries?
That is a very sensitive question as African diamond-producing countries today stand for more than two-thirds of the world's production. We cannot but conclude that is potentially a threat. There are however things we do not know yet. For example: is this trend only going to be limited to the US and will it not affect Asia? We don't know that yet; we do know the US has always had a liking for larger stones of lower quality (SI-goods), and we also know that Asia - and China in particular- had a liking for goods of a higher quality and purity. The bottom-line question here is: will the LG machine turn diamonds into a truly generic product category, and then affect the luxury allure of natural diamonds? Will the demand for natural diamonds in the short and medium term shrink?
How do consumers in various markets and segments perceive and react to laboratory-grown diamonds?
As a percentage of unit sales loose lab-growns reached 50% in the US in July. The number of total diamond sales, they are now above 25%. The problem is that we do not know how this will evolve. It could well be that in Asia LGs do not appeal to the consumers' desires. As for now only Chow Tai Fook and Chow Sang Sang have dipped their toes in the water but not much more than that. One thing is however sure: we should ask women because they are the ones who by and large wear diamonds and we should ask the big brands.
As for now only Tag Heuer - an LVMH brand - and Breitling have engaged in the lab-grown segment. Will LVMH - Europe’s number one company by market cap - in its “exploration of the possibilities” of LG experiment what it considers more “environmentally sustainable”? Could they be confronted with a Bud Light dilemma, hereby risking alienating trusted natural diamond luxury buyers?
Will there still be enough consumers wanting to buy or wear a pair of 2x2-ct earrings costing $100,000 when an identical pair is there all around you in shops and online for $2,000, if you neither optically nor physically can distinguish them? Will you still be asking your female friend: "Have you seen my diamond ring?" Or instead ask: "Have you seen my Tiffany, my Cartier, my Bvlgari, my Graff, my Chopard, my Harry Winston, my De Beers?" What will happen to the 75% of diamonds that go into non-branded jewellery?
How do synthetic diamonds differ from natural diamonds in composition and physical properties?
Lab-grown and natural diamonds have the same physical and morphological properties. LGs are in no way different from natural diamonds. They have the same hardness, which is 10 [by Mohs scale], and they can have the same ability to sparkle and shine.
There is only one - crucial - difference, and that is that natural diamonds come from the middle of Mother Earth, are millions of years old, and are rare. The formation of natural diamonds takes place across the span of millions sometimes billions of years and occurs in limited zones of the earth's mantle at extreme temperatures and pressures. They are a unique substance.
Whereas lab-grown diamonds are made in a machine; they are not rare and they can be produced by the millions, which is also what eventually will happen and likely will be the reason for a price collapse.
Have there been any new advancements in enhancing the colour, purity, and size of laboratory-grown diamonds?
As LGs are made in a machine, they are man-made. To an extent they generally can have higher purity and higher colour, whereas natural diamonds just come out of Mother Earth and are polished according to the way they are morphologically grown with or without inclusions millions of years ago. They are a product of nature.
Recently we have seen on the market LGs of very large sizes. IGI in June 2023 certified a 50.25-carat specimen measuring 22.95 x 18.45 x 11.57 millimetres - the first lab-grown diamond to surpass the significant "half-century" mark in carat weight.
What are the market growth projections for lab-grown diamonds over the next decade?
Unlike natural diamonds the potential is unlimited. Once however the price has reached rock bottom it could well be that the “real thing” becomes prime again.
What can be done to protect the natural diamond industry from losing its market share to lab-grown diamonds?
The work of the Natural Diamond Council (NDC) in this field is very important. Their campaigns reach consumers through social media and are followed exponentially by partnering with major retailers. Their budget is however limited and should in my opinion be at least 10 times larger than what it is now. I somehow am afraid that their actions risk coming too late, especially since the world’s largest mining company is not a part of the NDC anymore following the conflict in Ukraine.
There is a common belief that traceability and blockchain-based diamond provenance would also help to assure the luxury allure of natural diamonds. Although I wholeheartedly applaud De Beers’ Tracr initiative, I have some doubts that this would do the trick.
Diamonds are not only bought because they represent a unique emotion of love. They also represent lasting value and are also bought because for the receiver they demonstrate distinction. If you can afford to wear 4-carat earrings, then you distinguish yourself, if you were a man, you drive a Ferrari; 2 carats then are like an expensive Tesla or a Porsche.
The onus likely will be on the big brands to reinvent their products and make them very recognisable and at the same time come with truly unique designs with larger diamonds so that the buyer would get the “distinction” he/she always used to get when buying natural stones.
Traceability will not solve the aspect of demonstrating distinction. That will all in all depend on how the brands will or will not maintain the supremacy of natural diamonds and hopefully a fully-fledged NDC will throw marketing money around like De Beers has done for years when they were the monopolist. Worldwide trade should unite under this banner. And take a clear decision. Can both categories live together or is one eating up the other and becoming a cuckoo in the diamond bird’s nest?
Mathew Nyaungwa, Editor in Chief of the African Bureau, Rough&Polished
