The Financial Times reported earlier this year (paywalled):
Over 70 per cent of the world’s lab-grown diamonds for jewellery — many destined for the ring fingers of newly engaged couples — originate in a Chinese factory, with Henan at the centre of the synthetic trade...
For the natural diamond industry, Feng’s factories and others like them have been devastating. The explosion of lab-grown diamonds on the international jewellery market has coincided with a slump in demand, sending the price of smaller natural diamonds to their lowest levels in a decade.
Marty Hurwitz, head of the Grown Diamond Trade Organisation, says lab-grown diamonds have “been a massive disruption. People in the industry at first didn’t believe it and, second, couldn’t accept it.
“This has been the first competitive product that mined diamonds have ever faced.”
To see the impact of the growth of the lab-grown diamond market on natural diamonds, let's first consider the market for lab-grown diamonds, shown in the diagram below. The 'explosion of lab-grown diamonds' is demonstrated by the increase in the supply, from SA to SB. The equilibrium price of lab-grown diamonds has decreased from PA to PB, and the equilibrium quantity of lab-grown diamonds traded has increased from QA to QB.
Next, consider the effect on the market for natural diamonds, shown below. Lab-grown diamonds and natural diamonds are close substitutes (so close that no regular consumer can tell them apart!), and lab-grown diamonds are now cheaper. So, as the quote from the Financial Times article notes, the demand for natural diamonds has decreased, from D0 to D1. The equilibrium price of natural diamonds has decreased from P0 to P1, and the equilibrium quantity of lab-grown diamonds traded has decreased from Q0 to Q1.
This is a real problem for the producers of natural diamonds. The product that they are selling is decreasing in price, and they are selling a smaller quantity. That must make those sellers worse off. And, to make matters worse, they should have seen this coming. I wrote this post back in 2019, wondering why De Beers wasn't investing in its own production facilities for lab-grown diamonds. It turns out that they were, as the Financial Times article notes:
In 2018, De Beers established its own lab-grown diamond company, Lightbox, which started churning out cheap synthetic stones. Part of the thinking was to create a bifurcated market that would ensure the luxury appeal of expensive natural stones was maintained while undercutting synthetic rivals.
Instead, it sparked a price war that also dragged down the price of natural diamonds, which were simultaneously hit by a slump in demand due to lower marriage rates during the pandemic. By the end of 2024, De Beers had amassed an inventory of unsold diamonds worth $2bn, the largest stockpile since the 2008 financial crisis.
Again, that outcome could and should have been anticipated. De Beers (and other natural diamond producers) need to find some way of differentiating natural diamonds from lab-grown diamonds (I will return to this point in a future post). Otherwise, the natural diamond sellers are in real trouble.
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