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Edahn Golan: Lab-grown diamond prices to continue declining

25 march 2024

edahn_golan_xx.pngThe prices of lab-grown diamonds have been declining, with wholesale prices for 1 to 1.4-carat and 2 to 2.99-carat stones decreasing by 60% and 65%, respectively, in 2023.

The price of 1-carat pieces is approximately 76% less than that of natural diamonds, whereas 2-carat pieces are priced at about 86% less than that of natural stones.

In an exclusive interview with Rough&Polished's Mathew Nyaungwa, Edahn Golan, proprietor of the eponymous Edahn Golan Diamond Research and Data, predicted that the prices of lab-grown diamonds would continue to decline, especially at the retail and mid-stream levels.

He said that he does not expect the decline to stop until the gross margin of retailers falls to between 35 and 40%. 

Retailers must reconsider their strategies, according to Golan, as the proportion of their total diamond revenue attributable to lab-grown diamonds begins to decline. 

Below are excerpts from the interview:

 

What is causing a decline in the prices of loose lab-grown diamonds (LGDs)? 

There are several reasons. First, LGDs’ selling proposition is that they're the lower-cost alternative, which drives consumers to seek lower prices. Also, margins are very high and that leaves room for retailers to discount. Finally, oversupply plays a role as well. 

What does this drop mean for the natural industry?

Primarily, an opportunity to differentiate. Natural diamond prices are relatively stable, backing the luxury positioning. 

What is the level of demand for lab-grown diamonds in the face of declining prices?

Measured in unit sales, demand is still growing, however, it's decelerating. The challenge is to ensure demand outpaces price declines. Currently, retailers are starting to see their total diamond revenue from LGD declining. This requires retailers to rethink their strategy. 

What is the outlook for lab-grown diamond prices this year?

Continued declines, mainly at retail and in the midstream. I don't expect it to stop before retailers are down to a gross margin of 35%-40%. 

Which sizes of lab-grown diamonds are popular with consumers?

The lower price allows consumers to purchase larger diamonds. We're seeing that the average loose LGD sold in 2023 was about 2 carats. 

Some analysts have argued that the drop in prices marks the beginning of the end of lab-grown diamonds. How accurate is this assessment?

It's hard to predict, but the early adoption phase is over. Now the LGD sector has to reassess its direction and establish a long-term path that's based among others on standing on its own rather than being an alternative. 

What is the global market share by value of lab-grown diamonds?

In the US, it's 10% of diamond sales. Globally, it's a small fraction. 

What is the projected share by value of lab-grown diamonds by the end of the decade?

That's totally in the hands of the LGD industry and its ability to create long-lasting demand without flooding the market. 

How popular are lab-grown diamonds among young consumers?

The largest market today is among 25-year-old Americans. 

Which countries are the biggest manufacturers and consumers of lab-grown diamonds?

LGD are very much an American product. About 85% of global demand is driven by the US. 

Mathew Nyaungwa, Editor in Chief of the African Bureau, Rough&Polished