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Lab-grown diamond jewellery sales to breach the 10% mark for the first time this year – Zimnisky

28 november 2022
paul_zimnisky_2022_xx.pngThe supply and demand for man-made diamonds had been on an increase in recent years, much to the discomfort of the natural diamonds industry.

Some companies in the mid-stream segment of the natural diamond industry are now involved in the lab-grown business as well.

Diamond analyst Paul Zimnisky told Rough&Polished’s Mathew Nyaungwa in an exclusive interview that he is expecting lab-grown diamond jewellery sales to go beyond the 10% mark of total global diamond jewellery sales for the first time this year.

He, however, said while the demand growth for lab-grown diamonds remains firm, the supply growth is exceeding demand, which is putting pressure on prices.

NB: Zimnisky publishes a professional monthly subscription-based industry report called “State of the Diamond Market” that includes all of his data, forecasts and analysis.

Below are excerpts from the interview.

You once noted that man-made stones represented 5% of total global diamond jewellery sales. What is your latest projection?

I am forecasting that lab-grown diamond jewellery sales will breach the 10% mark of total global diamond jewellery sales (natural plus lab-grown) for the first time this year.

That said, I think it is important to remember that lab diamonds are creating incremental demand for diamond jewellery that would otherwise not exist. Looking longer-term into the future, I believe that this incremental demand will continue to grow while the share of lab-grown directly cannibalizing natural diamonds will stabilize and level off.

So, looking at lab-grown diamond demand as a percentage of natural diamond demand will become less relevant in the longer term.

Eventually, I think lab diamonds will develop their own identity and demand will be driven more by independent product positioning rather than "this is a lower-priced alternative to a natural diamond" messaging.

What is causing the prices of lab-grown diamonds to decline despite the strong demand for man-made diamond jewellery?

Based on my analysis, the global production capacity of lab-grown has been exploding and I expect this to continue for at least the next few years. The amount of capacity opening up in India in particular is astounding. In addition, China already has a huge production capacity and once China's economy reopens to more regular post-pandemic trade, I think the lab-grown market has the potential to become oversupplied rather quickly.

So, while the demand growth for lab-grown diamonds remains exciting, I believe the supply growth is exceeding demand, which is pressuring prices.

How is the natural diamond sector responding to the strong demand for synthetic diamonds?

The wider availability of higher-quality lab-grown diamonds has certainly kept the natural diamond industry on its toes. Initiatives focused on supply chain transparency and the provenance of natural diamonds have accelerated in recent years. This should help to differentiate natural and lab-grown products and their relative value proposition.

I think as the transparency of both the natural and lab-diamond industries improves, some of the more tenuous and general ESG narratives around lab diamonds will come to light in favour of natural.

That said, it is worth noting that many of the legacy natural diamond companies, especially in the mid-stream segment of the industry, are now engaged in the lab-grown business as well. So, there are certainly some companies that have an incentive for both products to succeed.

Which age groups are buying the majority of man-made diamond jewellery?

They seem to be doing best with the 25 to 40-year-old demographic. This seems to skew even a little bit younger in markets such as the U.S. I think this is in part because younger generations have less discretionary spending ability but also because they are more open to new products.

Also, remember, the natural diamond category marketing campaign was not active from around 2005 to 2015, so the demographic coming of age during that time probably views natural diamonds less favourably than their parents.

Who is the leading producer of man-made diamonds and which country is the leading consumer?

It’s hard to say as almost all of the producers are private and do not publicly disclose production metrics. That said, I can confidently say that China is currently the largest producing nation. And, I think India can catch up to China in the coming years.

The U.S. remains the defacto largest consumer market for lab-diamond jewellery.

Which major factors do you think will shape the lab-grown diamond industry?

I think it will all end up coming down to pricing, marketing and product positioning.

What is the quality of synthetic diamonds being produced at the moment compared to yesteryears?

The quality and carat size are continually improving as production technologies improve as a result of R&D spending and investment.

Why is it difficult to make branding and proprietary design of lab-diamond jewellery essential for those that want to market it as a luxury product?

Successful branding and marketing are extremely expensive and can take years or even decades to develop. However, if a brand can achieve that level, it can gain significant customer loyalty and pricing power.

You previously noted that a man-made diamond as a material is unique as it can be fabricated into jewellery in ways not possible or economic with natural diamonds. Can you shed more light on this?

A lot of this has to do with the economics of working with the material. For instance, natural diamond is way too valuable to cut into low-yielding “exotic” shapes, whereas this is not nearly as much of a problem with lab-diamond.

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