Laboratory Creation Low Prices

Natural diamonds are not a renewable resource at all, but were created about 1,000 million years ago under intense pressure and heat in the Earth’s interior. And with the current rate of extraction, it is expected that the known deposits will run out within a few decades. This naturally limited supply was an important prerequisite for the high price of diamonds, and thus human intervention was required to truly change the balance in this market.

competitors from the lab

One of the main reasons for the low prices is competition from lab-grown synthetic diamonds. More and more customers now see these man-made variants as complete replacements for the originals of nature. From a market share of 2.4 percent in 2020, lab diamonds are close to 10 percent of the market in 2023. While three years ago they were 20-30 percent cheaper than natural diamonds, today they are 75-90 percent cheaper than The production process has become more efficient, according to Ankur Dhaga, CEO of online jeweler Angara.

Analysts believe that the price of natural diamonds may continue to decline over the next 12 months

Lab-created diamonds are produced in a controlled environment that recreates the conditions in the Earth’s interior where natural diamonds were created in their time. Admittedly, the production process is energy-intensive, so lower energy prices have contributed to more wind in the sails. Synthetic diamonds must be identical to the original diamonds by naked eye, and even experts need advanced equipment to tell the difference.

Lab-Created Diamonds: Here are diamonds that were created in a lab at Diam Concept in Paris. Image: Bloomberg

Then it is perhaps not surprising that lab-cut diamonds have entered the engagement ring market, which are suddenly available to a much wider cross-section of the population than ever before.

Dealers also have strong incentives to prefer lab-grown diamonds: They’re left with margins of up to 60 percent, compared to just 34 percent for natural diamonds, estimates Edahn Golan Diamond Research & Data.

This recognition could be the catalyst for an eventual breakthrough for lab-grown diamonds

Analysts who follow the global diamond market do not expect that sanctions against Russia, one of the world’s leading producers along with Botswana and Congo, will give any significant positive boost to the price of diamonds.

Therefore, analysts believe that the price of natural diamonds may continue to decline over the next 12 months, to a level that is about 40 percent lower than the peak since the beginning of last year. The price floor is likely to form due to higher labor costs which are still an important factor in diamond production.

Luxury group at the crossroads

The fall in the price of natural diamonds has naturally had consequences for companies in the sector, which are involved in everything from mining to selling gemstones.

LUXURY STOP: Bernard Arnault, Chairman and CEO of LVMH. Image: Bloomberg

Anglo American, which is listed on the London Stock Exchange, has seen its share price nearly halve from its peak in April 2022. The company is exposed to a number of raw materials, and owns 85 percent of the world’s most famous diamond supplier, De Beers, which is behind much of the diamond’s marketing As an “eternal” luxury product.

For European luxury group Louis Vuitton Moët Hennessy (LVMH), diamonds are just one of many areas of business, but the giant recently opened its eyes to the potential of synthetic diamonds. Earlier this year, LVMH bought the Israeli manufacturer Lusix for $90 million.

This recognition from the world’s most important luxury goods company could be the catalyst for an eventual breakthrough for lab-grown diamonds. But for LVMH, it also carries the risk of cannibalizing existing products.

Naturalness: Synthetic materials are not a luxury, according to LVMH Tiffany & Co. Here’s a Tiffany ad in Seoul. Image: Bloomberg

For example, Tiffany & Co, one of the most popular luxury brands in its portfolio, took the opposite side and publicly stated that synthetic diamonds are not luxury goods. Other LVMH brands, such as Bulgari and Chaumet, also prefer natural diamonds.

But the task of LVMH management is to ensure that the group has one eye on future trends, while at the same time preserving the value of its more traditional and unique products. A balancing act that demands a lot, but also perhaps a luxury issue.