The threat of lab-grown diamonds to the natural diamond industry
Lab-created diamonds are gaining increasing acceptance, slowly but surely disrupting the natural diamond market and, along with it, creating risks that could impact the economics, reputation, and even the long-term viability of mined diamonds.
The most immediate risk, to begin with, is pricing pressure. Advancements in chemical vapor deposition (CVD) and high-pressure, high-temperature (HPHT) methods have significantly reduced the cost of producing diamonds of the same purity and quality as those mined.
While the gold price remains dictated by the uniqueness of the global market, the price of synthetic diamonds can be up to 20% of that of the natural stones. This significant difference has already begun to affect the perceived quality and value of natural diamonds.
The price disruption is also impacting demand. McKinsey claims that the lower price, together with the perceived “ethical” attractiveness of lab-created gems, has led many consumers — particularly younger ones — to opt for synthetic diamonds over mined ones, thereby reducing demand for the latter and potentially bringing lab-grown diamond companies to the list of top stock gainers. As investor attention grows, analysts increasingly track these companies’ performance in quarterly earnings calendars, using upcoming reports as signals for how quickly the lab-grown sector is scaling relative to traditional miners.
Some market analysis supports this phenomenon: synthetic diamonds are gaining ground in the mid-market engagement ring sector, which has been traditionally occupied by natural stones. The economic impact does not only reach the jewelers; the diamond-producing countries are under threat of a real macroeconomic risk.
Countries that rely heavily on mining exports, such as Botswana, might see their revenue significantly slashed. The lab-created diamonds, typically produced in China and India, are increasingly capturing a larger share of the market, thereby displacing the economic model that supports many countries that rely on diamond mining.
Despite these factors, the Natural Diamond Council maintains that the geological rarity of mined diamonds is the primary factor behind their high price, one that lab-created diamonds cannot boast of.
Although, as lab-created stones get popular, the story that made natural diamonds “timeless” at one point might gradually lose its significance, impacting one of the major marketing strategies of the diamond industry.
Another thing that can jeopardize the diamond market is saturation. While natural diamonds have a limited supply due to geological and mining constraints, lab-grown diamonds can be produced in response to demand, resulting in practically an unlimited supply.
Then, the nonexistence of rarity may lead to diamonds being treated as common goods eventually — changing from a luxury with inherent value to a more interchangeable product. On the other hand, artificial diamonds are often promoted as environmentally friendly, although this assertion has its detractors.
Mining has an impact on the environment, particularly when land degradation is considered, but the artificial production process is highly energy-consuming. Most manufacturing sites are located in areas that consume coal-based electricity to a large extent. This makes it less straightforward to highlight the environmental advantage, and other hidden costs may also be involved.
The long-term value proposition of lab-created diamonds remains uncertain. Natural diamonds have a well-established resale and secondary markets, while synthetic ones suffer from fast depreciation due to overproduction and their lack of geological scarcity.
It remains to be seen how the producers of artificial diamonds will go about keeping the legendary stone’s glamorous image and, at the same time, not allowing the natural diamond market to completely collapse — along with their own.