24 Jun 2019
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Price-Gap Between Man-Made Stones & Natural Gems Set To Get Bigger
Lab-grown diamonds only account for about 2 per cent of the overall diamond jewellery market.
By: Diamond World News Service
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Dec 24 2018 12:40PM
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Reference: 16874  

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Since De Beers abandoned its decades-old policy of refusing to sell lab-grown diamonds as jewellery, the price gap between man-made stones and natural gems has widened - and the difference is set to get even bigger.

When De Beers shocked the industry with its U-turn in May, a 1-carat synthetic diamond cost about $4,200 while an equivalent mined gem sold for $6,000. But since September, De Beers has been selling gem-quality man-made stones for just $800 a carat.

The risk for the 130-year-old, which coined the marketing tag "A Diamond is Forever" in 1947, is that its branding of lab-grown gems could undermine natural diamonds.

But so far, De Beers' strategy has been working. According to analyst, the average discount of a 1-carat generic lab-grown diamond to a natural diamond had widened to 42 per cent by mid-November from 29 percent in January.

At the same time, production costs to make high-tech diamonds in a laboratory have plummeted to as little as $300 a carat from about $4,000 over the past decade, according to consultants and two former De Beers' employees, says Reuters report.

That means De Beers has plenty of scope to cut prices further, to reinforce the cachet of natural gems and to undermine synthetic diamond rivals that have been earning substantial margins in recent years, analysts say.

De Beers is also investing $94 million over four years to build a U.S. factory that will churn out 500,000 carats of lab-grown gems a year and Chinese producers are stepping up their output of cheap manufactured diamonds.

Until about five years ago, diamonds produced from carbon using complex technology had largely been shunned by jewellers as a fringe product, even though they have been used in industry for decades.

But man-made gem-quality diamonds have enjoyed growing sales from millennials attracted by the prospect of cheaper stones that are guaranteed to be conflict-free.

The industry has attracted investors from Silicon Valley and Hollywood, including "Blood Diamond" star Leonardo DiCaprio, who helps promote man-made diamonds as ethical and low-carbon - claims that are disputed by the natural diamond sector.

While the nascent lab-grown sector can still be profitable with a wider discount to natural gems, the eye-watering margins at a string of start-ups could be threatened if prices continue to fall, especially for larger gems, analysts and insiders said.

Public data is not available for the privately-held lab-grown diamond firms, but Zimnisky calculates many have core profit margins of about 50 per cent.

Retailers selling both natural and lab-grown diamonds are also less likely to apply the same sales pressure to lab-grown diamonds once the incentive of huge margins has been eroded.

While operating costs of man-made diamonds are falling, initial investments can be steep, handing De Beers an advantage given it is backed by mining company Anglo American.

De Beers declined to comment on its costs. It said it was selling lab-grown diamonds at a profit, refuting suggestions from rivals that it is dumping the man-made gems on the market.

De Beers says it simply saw a demand for lab-grown diamonds and now technology is sophisticated enough to produce gem quality as well as industrial stones, it decided to fill it.

So far, lab-grown diamonds only account for about 2 per cent of the overall diamond jewellery market.

Source: Reuters

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