2023 is possibly shaping up as a watershed year for the diamond industry, on a scale possibly not experienced for the past several decades. The catalyst this time is the growth of the laboratory-grown diamond sector, which most likely does not represent an existential threat to the natural diamond market, but still could change it irreversibly.
The irony is that, as time progresses, the separation between natural and lab-grown grows – more a result of economic forces rather than due to a shift in consumer sentiment, although undoubtedly the former greatly influences the latter. This, however, is mainly the case in non-melee goods, of 30 points and down and possibly lower.
The reason is relatively straight-forward. As the price of lab-grown per-carat falls to a mere fraction of the equivalent price of naturals, the illusion that the lab-grown manufacturers used promote – that their goods are ultimately the same as stones that are mined, while being more ethical socially and more environmentally sustainable – is being dispelled not by experts, but rather at the checkout counter.
While inflation and higher interest rates have suppressed prices in general this year, natural goods are essentially retaining their value, while the price of laboratory-grown diamonds continue to fall precipitously. Consumers are coming to realize that two product categories are involved. Indeed, those consumer of lab-grown who do not understand that the times have changed will be rudely reminded of the fact when they eventually get their jewelry evaluated, and become aware it’s now worth considerably less than what they originally had paid.
The fact that a manufactured product fall in price as time progresses is not new – just think of flat screen television sets and laptop computers – but it’s undoubtedly an eye opener when you had been led to believe that the factory-made diamonds are just like those extracted from the earth.
The open-pit of the Argyle mine in Western Australia, as it appeared in 2007. The massive volume of mainly low-quality output from the facility changed the way that diamonds were sorted and sold.
MELEE MARKET UNDER PRESSURE
The one section of the market where natural and lab-grown goods are more difficult to distinguish from one another is melee, where the difference in price per carat is less substantial. Indeed, it’s the part of the natural diamond market that is most under pressure.
But the melee market, as we know it today, was to a degree born in sin – more than 30 years ago. Industry old-timers will tell you that, up until the late 1980s and early 1990s, what is today regarded as viable polished diamonds, 30 points and down and much of the time considerably smaller, was more often than not sold as industrial.
What changed everything was the coming on stream of the now depleted Argyle mine in Western Australia. While it was a prolific producer of rare pink, purple, blue an even red fancy-colored diamonds, more than 99 percent of its output was small, lower-quality goods, predominantly in yellow and brown hues.
What Rio Tinto, the owner of the Argyle mine, and also De Beers, which then was its primary distributor, did was move the goal posts. This was initially achieved by creating a new product category known as near-gem quality – meaning that goods that may have once been ground down and forged into cutting tools were now being cut, polished and set in jewelry. The ingenious idea worked because of the exponential growth of the Indian industry, which was increasingly able to process goods that it would have been restrictively expensive to cut in centers like Israel and Belgium.
The formula was eventually undermined by the growth in lab-grown production and the delayed but inevitable fall in lab-grown prices. The low-end of the jewelry market, where melee was once dominant, was overtaken by man-made diamonds, where despite the falling value margins still remain attractive.
MORE EXPENSIVE AND EXCLUSIVE
What is becoming increasingly evident today is that natural and lab-grown diamond markets are substantially different, with each working according to its own rules.
Natural diamonds are first and foremost a high-end luxury product – indeed almost a luxury brand in and of themselves – buoyed by decades of advertising and centuries of storytelling. Their reputation is supported by an underlying understanding that there are a finite number of such goods in the market – and they thus are inherently rare.
Laboratory-grown diamonds are mass-produced, but may also appeal to luxury consumers, in the same way that Swarovski crystal glass does. Let’s certainly not underestimate the consumer appeal of well-marketed manufactured products, like Air Jordans and Lululemon gym leotards.
As a result of recent developments, the future of the melee market is up in the air. Maybe it will blend in with lab-grown goods, but it could be squeezed out of existence.
But to maintain and grow its market value, the lab-grown diamond industry will need to fashion its own identity, which must be different to that of natural diamonds. It can be done, but it will be expensive. A question that should be asked is whether the lab-grown sector can do it collectively, or whether the real winners will be a handful of well-financed concerns.
However, the natural diamond market is being changed as well. It’s likely to be more exclusive and more aspirational, and, increasingly, mainly within reach of a smaller proportion of consumers with greater personal wealth.
A likely consequence of the process will be loss of the melee market. Maybe it will blend in with lab-grown goods, but it quite possibly could be squeezed out of existence. What was once industrial will return from whence it came.