Lab-Grown Diamonds Shake Up Traditional Market Amid Pandemic’s Impact

The global diamond industry is witnessing a dramatic shift in the demand for rough diamonds, particularly impacting the popularity of one-carat and two-carat solitaire bridal rings in the United States.

This transformation has been attributed to an increasing number of Americans opting for engagement rings adorned with lab-grown diamonds over their natural counterparts.

While diamond demand across various segments has softened in the wake of the pandemic, consumers have redirected their spending towards travel and experiences, while economic challenges have impacted luxury purchases.

The primary driver behind this price drop, according to industry experts, is the surging demand for lab-grown diamonds. The synthetic diamond industry has strategically targeted this price-sensitive consumer segment, reaping the rewards in the world’s largest diamond market.

It’s important to clarify that this shift doesn’t necessarily translate into deep discounts on engagement rings themselves. Instead, the impact is primarily felt in the rough-diamond market—an opaque realm inhabited by miners, merchants, and traders, several steps removed from the jewelry store price tags.

Nevertheless, the rapid and substantial decrease in prices for one of the diamond industry’s pivotal products has left the market in a state of upheaval.

The pressing question now is whether the diminishing demand for natural diamonds in this category represents a lasting change and, crucially, whether lab-grown gems will expand their presence into higher-priced diamonds, typically dominated by Asian buyers.

De Beers, a leader in the industry, attributes the current weakness to a natural downturn in demand following a pandemic-induced surge in prices when consumers were confined to their homes. While acknowledging some market share erosion by synthetic stones, the company views it as a cyclical, rather than structural, shift.

Paul Rowley, head of De Beers’ diamond trading business, stated, “There has been a little bit of cannibalization. That has happened, I don’t think we should deny that. We see the real issue as a macroeconomic issue.”

Lab-grown diamonds, identical in physical properties to their mined counterparts but produced in a matter of weeks in controlled environments, have long been seen as a potential threat to the natural mining industry.

Advocates argue that they offer a more affordable alternative with fewer environmental and social concerns associated with traditional mining.

For much of the past decade, this threat remained hypothetical, with lab-grown diamonds making limited headway outside of lower-priced gift segments. However, this is changing rapidly, as lab-grown products gain significant traction in the vital US bridal market.

To counter weakening demand, De Beers has responded by aggressively slashing prices for “select makeables,” rough diamonds ranging from 2 to 4 carats that can be cut into smaller, high-quality stones for bridal rings. Over the past year, De Beers has reduced prices in this category by more than 40%, including a cut of over 15% in July, according to insiders.

De Beers, historically a monopoly in the rough diamond market, typically resorts to aggressive price cuts as a last resort. The scale of the recent price drops for this benchmark product is unprecedented, according to industry traders.

In June 2022, De Beers was charging approximately $1,400 per carat for select makeable diamonds. By July this year, that price had plummeted to about $850 per carat. There may still be room for further price adjustments, as these diamonds remain 10% more expensive than their counterparts in the secondary market, where traders and manufacturers conduct transactions among themselves.