With the crisis in Ukraine causing significant issues to the international supply of natural diamonds, the door has been opened for lab-grown diamonds to capture a larger share of the market. This article investigates the circumstances leading to this opportunity and speaks with retailers about consumer preferences.
When you drop a pebble into a pond the ripples spread out, changing the organization of the water as they bump together and break apart. In a way, the pond is never the same again.
In a similar way, following the Russian invasion of Ukraine, the jewellery industry may never be the same again. As the war in eastern Europe continues and with no end in sight to the violence, the jewellery industry is increasingly feeling the impact.
At the start of this year, no one could have predicted that the lab-grown diamond industry was about to be handed a free kick!
The war began on 24 February and it wasn’t long before economic sanctions were levied against not just the Russian government, but also diamond mining juggernaut Alrosa. Not only did sanctions come from the EU, US, UK and European political forces, but also corporate powers too.
Alrosa is responsible for approximately one-third of the world’s supply of diamonds. With Russia now shut out of the market, according to the experts at Bank of America, the world’s supply of diamonds is now at its lowest since 2008.
Bank of America’s Jason Fairclough, head of metals and mining research, recently predicted a 15 per cent rise in diamond prices in 2022.
“We see the fundamentals remaining price-supportive short term. We expect global supply to peak at 114m carats in 2023,” he told the financial news website MarketWatch. That figure was 142m carats in 2019, before the pandemic began.
Alrosa’s major international rival, De Beers Group, has increased diamond production in the first quarter of 2022 however according to CEO Bruce Cleaver, any further rise is unlikely. He told Bloomberg, “It’s very difficult to see us bringing on any new production, 30 per cent of supply being removed isn’t sustainable.”
De Beers also rarely produces the same type of smaller and lower-quality diamonds as those mined by Alrosa. De Beers mines in Botswana, Namibia, South Africa, and Canada.
“As we head into the seasonally slower second quarter of the year, diamond businesses are adopting a more cautious and watchful approach in light of the war in Ukraine and associated sanctions, as well as COVID-19 lockdowns in China,” Cleaver added.
India is hurting more than most. India plays host to the world’s largest supply of diamond cutting and polishing services, with approximately 90 per cent of the world’s rough supply passing through the diamond manufacturers in Surat.
More than 250,000 workers were recently forced to take unpaid leave as a result of the supply shortage. Cutting and polishing factories have already closed and as long as Russia is forced from the market, the greater the chances that more will follow suit.
With India feeling the pinch more than most, it should come as no surprise that the industry’s movers and shakers have been quick to get on the front foot in search of a solution.
And that solution may just be lab-grown diamonds; and if so, will be it be a short-term bandaid or a long-term trend?
Paul Zimnisky, one of the world’s foremost global diamond industry analysts, believes that while lab-grown diamonds will almost certainly benefit from the exclusion of Alrosa from the global marketplace, analysis of change to international trade is rarely so straightforward.
“I certainly think lab-grown diamonds will benefit from the sanctions on Russian diamonds, which is limiting the supply of natural diamonds,” Zimnisky says.
“However, supply chain disruptions, related to lockdowns in China, could result in limited lab-diamond supply as well.”
“I think eventually Russian natural diamond supply will find a home, whether it be in China or the Middle East for example, but I think lab-diamond supply will continue to increase as new players keep entering the space and as existing producers ramp up production capacity and relative yields.”
Lab-grown diamonds were already on the rise prior to the war in Ukraine, with Zimnisky estimating that global sales increased by 40 per cent in 2021 alone. The supply of lab-grown diamonds is now believed to be around three million carats per year.
If correct, that would mean lab-grown diamonds now account for more than 10 per cent of total diamond jewellery sales.
Zimnisky has revised his predictions for the decade ahead, forecasting a 20 per cent annual increase in lab-diamond jewellery sales through to 2027.
“I estimate that lab-grown diamond jewellery sales grew by as much as 25 per cent this past year and I am forecasting that sales will grow by at least that much this year.”
“For clarity, I forecast that supply volume will increase faster than supply value. I am forecasting that their market share in value will increase to 11-12 per cent in the coming years. I am forecasting that supply will increase, however, I am also forecasting that prices will continue to fall, which is offsetting some of the market share take.”
While these issues in the international wholesale channels disrupt the supply, it doesn’t mean it impacts consumer preference.
That is, at the domestic consumer level, the general sentiment towards lab-grown diamonds remains very much divided. Jeweller (an online magazine about diamonds and jewelry in Australia and New Zealand) contacted a number of Australian retailers to verify claims that more people are buying lab-grown diamonds in preference to natural stones.
While it was commonly reported that customers are increasingly eager to learn more about lab-grown diamonds, many retailers remain staunchly wary of the product itself.
Shiels Jewellers was founded in Adelaide in the 1940s and today, has 40 stores across Australia. Managing director Toby Bensimon says that from his perspective, lab-grown product is more popluar with younger people.
“We have seen an increasing demand for lab-grown diamonds recently,” he says.
“It is split demographically with some millennials preferring them over natural stones. As this demographic grows we expect demand to grow further.”
He adds: “Lab-grown diamonds are certainly not for everyone though, and many of our customers are firmly natural diamond lovers.”
Kerryn Hasler, managing director Ecali Fine Jewellery in Perth, echoes the sentiment that younger customers are increasingly interested.
“I’ve definitely seen an increase in purchases and interest in lab-grown diamonds,” he explains.
“I believe we were one of the first jewelers in Perth to have a lab-grown diamond range available. To test the market we introduced tennis bracelets, tennis necklaces, stud earrings, and solitaire pendants.”
“I would say that approximately 30 per cent of our engagement rings which we now sell, have a lab-grown diamond as the centre stone.”
Hasler continues: “The market seems to be the younger generation who are open to the idea of the diamonds being created in a laboratory. The older generation can’t get their heads around the fact that diamonds can be grown in a lab.”
“I think the younger generation is probably also more environmentally aware, and few shy away from the idea of mined diamonds, and the impact this has on the environment.”
With more than 30 years of experience in the world of fine jewellery, Victoria Buckley is an eager supporter of the future of lab-grown diamonds.
Buckley, who is based in Sydney, says that from a design perspective, they’ve become clearly favorable to natural diamonds.
“I love lab diamonds as an alternative to traditional diamonds, and my clients are usually very open to them when I educate them on the advantages,” she says.
“As a designer, I lost interest in holding large traditional diamonds years ago. Everyone has been working with tightening diamond margins, so around 2017, it got to the point where I couldn’t see the value in working with larger traditional diamonds anymore. Most jewelers have been working with shrinking profit margins, and diamond dealers have to be very competitive with their pricing as well.”
Buckley continues: “I can make beautiful pieces with good-sized lab-grown diamonds, that really showcase our engraving and craftsmanship. I believe that if the material looks and performs identically to the same material at a fraction of the price, then it has my full attention.”
This enthusiasm isn’t universal, however. Darren Daley has a background in jewellery manufacturing, as well as gemmology, and is the co-owner of 5th Avenue Jewellers in Brisbane.
Daley says his business still only sells natural diamonds, and based on interactions with customers, he sees no reason for that to change any time soon.
“Our business only sells natural gemstones, all of our marketing and advertising informs people of that, and I must state that I have genuinely not had a single enquiry in the past two to three years that synthetic diamonds have been pushed,” Daley tells Jeweller.
“I fully understand the marketing of synthetic diamonds as being green and conflict-free. However, all-natural diamonds from reputable diamond merchants sold in Australia, are conflict-free.”
“I often look at the synthetic diamond market and wonder how many actually understand that the feed source of the carbon for CVD-grown synthetic diamonds, is methane, which is one of the largest pollutants on the planet.”
He adds: “That’s not to mention they use microwave energy in production and HPHT requires enormous amounts of energy to produce. I’m sure these companies may use solar panels, how much energy is coming from the grid? How green are they actually?”
Daley also questioned the cost behind cutting and polishing lab-grown diamonds, particularly in comparison with the cutting and polishing process for natural diamonds.
This was an issue also raised by the founder of Holloway Diamonds, Garry Holloway, who outlined the potentially dramatic change in the market in the years to come.
“Two years ago we added ‘only natural’ to our logo. I think at present, people are being ripped off,” Holloway says.
“Jewelers should only take lab-grown consignment goods as prices will tip upside down in a year or two to almost nothing.”
“Larger lab-grown diamonds cost less per carat to grow and polish than smaller lab-grown diamonds. A natural diamond of twice the weight costs four times more.”
“The GIA charges $399 to grade a four-carat diamond and $5,700 to grade 75 half-carat diamonds! It does my head
in working out how much different weights should cost, but clearly, the four-carat should cost a lot less per carat than half-carats. Competition in the market will sort this out over time,” Holloway explains.
He says that the word around the diamond trade is that smaller than half carat lab-grown diamonds are in short supply.
Holloway adds, “Trusted brands will guarantee minimum quality standards, as De Beers has largely done with Lightbox LGDs.”
“That will cut out lab grading or a third of costs. Over time giving a lab-grown diamond as a special gift will cost less
than Moissanite did while they were under patent.”
Not all retailers are as sharply divided. With a workshop and showroom located in Brisbane, Paula Walden, of Paula Walden
“Fine Jewellery, says she has observed an intriguing rise in interest from customers, however, she also says time will tell as to the staying power of lab-grown products.”
“There has definitely been an increase in interest, I would say three out of every five engagement ring sales would account for a lab-grown diamond,” Walden shares.
“Considered ’smart value’ and the sustainable option of being not ‘mined’, I believe customers prioritize the benefit of receiving a better quality – in terms of colour and clarity – stone that is also larger.”
“On a personal level, I don’t know if lab-grown diamonds are that sustainable. The energy to produce lab-growns is significant, however, these are just my assumptions.”
“When it comes to manufacturing, from a trade perspective, the margin is still greater from a natural.”
Regardless of where one stands on the topic of lab-grown diamonds, there’s one fact on which most people agree – the manufacturing capabilities are improving and the results are beginning to show.
Indian company Ethereal Green Diamond has, within the past month, created a record-breaking 30.18-carat emerald-cut lab-grown diamond, surpassing a world record set by Greenlab, another Indian synthetic diamond producer.
Dubbed the Pride of India, the lab-grown diamond was graded H colour, VS2 quality, and certified by the International Gemmological Institute. The diamond was produced in four weeks using the chemical vapor deposition process.
Greenlab’s 27.27-carat diamond was a marquise step-cut diamond, named Om. The IGI graded two additional lab-grown submissions by Greenlab, including Shivaya, an emerald-cut diamond weighing 20.24 carats, and Namah, a pear rose-cut, 15.16-carat polished.
Previously, the largest known polished CVD diamond was a princess-cut, 16.41-carat, G-color, VVS2-clarity stone created by Shanghai Zhengshi Technology. The Gemological Institute of America (GIA) graded that diamond in January of this year.
With a handful of factors in mind, 2022 may well have handed a free pass to the lab-grown diamond suppliers to capture a larger slice of the jewellery market; however, it will be some time before we know whether it transpired into a longer-term trend.
Alrosa is excluded from the international marketplace for an indeterminate period of time, and De Beers has made it clear that it will be unable to significantly improve supply but these are industry issues that will eventually be resolved. Further, problems in the natural diamond supply chain doesn’t mean that consumers automatically purchase the man-made product.
In addition, it’s clear that for some retailers, these problems do not mean they will stock lab-grown diamonds in preference to natural stones.
That said, with manufacturing capabilities continuing to improve, along with an increasing number of customers indicating that they will embrace lab-grown diamonds – albeit off a low base – a portion of the supply shortfall will be filled by lab-grown diamonds, but the market at the retail and consumer levels will remain divided.