Lab-created Diamond Jewelry Market Forecasted to Grow to $15B by 2035

In the of five short years since the jewelry industry saw the first +1-carat gem-quality lab-created diamond, +10-carat varieties are now being produced in even better qualities, and in colors such as pink and blue. Gem-quality lab-created diamond production for use in jewelry now exceeds 1.5 million carats of polished annually.

On a relative basis, gem-quality lab-created diamonds sold as jewelry have dropped in price 30-40% over the last 2 ½ years. Further, in late-May, De Beers announced that they would be entering the lab-created diamond jewelry space and would be offering their product to consumers at an estimated 65-80% discount to current generic lab-diamond market prices in sizes up to 1-carat starting in September 2018.

At an estimated $1.9 billion dollars today, the lab-grown diamond jewelry market is forecasted to grow at 22% annually to $5.2 billion by 2023 and to $14.9 billion by 2035, equating to a longer-term growth rate of about 9%. The growth is estimated to be driven by the continued advancement in lab-diamond production technologies which should improve production economics and thus further push down prices, in turn taking market share from both the natural diamond industry and the fashion jewelry industry.

Excluding watches, the estimated $270 billion global jewelry industry (on an annual sales figure basis) can be segmented into diamond jewelry, fashion jewelry and non-diamond fine jewelry.

For purposes of this analysis, “diamond jewelry” can be described as diamond jewelry selling for >$250, typically gem-quality stones set in gold or platinum. Lab-created diamonds currently represent an estimated 2.0% of this $87 billion market. Natural diamonds are expected to continue to represent the large-majority of this market well into the future, however, the share of the market represented by lab-created diamonds is forecasted to grow to 3.4% by 2023 to 4.5% by 2035. It is expected that longer-term most lab-created diamond jewelry will fall in the $250-1,000 price point range.

The “fashion jewelry” market can be described as jewelry typically set in sterling silver or a lower-quality metal including non-precious gems, lab-created gemstones such as ruby, emerald and sapphire, generic cultured pearls and very low-quality diamond jewelry (whether natural or lab-created) selling for <$250. The current size of this market is estimated to be almost $40 billion, of which lab-created diamonds are currently estimated to represent <1%. However, lab-created diamond jewelry is forecasted to represent 3.0% of the fashion jewelry market by 2023 and almost 7% by 2035. In the case of this analysis, all lab-created diamond jewelry falling into the fashion jewelry category will be selling at a price point of <$250.

The “non-diamond fine jewelry” market includes gold and platinum jewelry, natural precious gem-stones and other high-end jewelry. This market is not represented by lab-created diamonds.

While natural diamonds currently represent an estimated >95% of the diamond jewelry market, the annual supply of natural diamonds is forecast to decline over the next 4 years and there is reason to believe that the trend will not significantly reverse course longer-term. Global diamond deposits continue to deplete and few undiscovered highly-economic deposits are likely to exist. Longer-term, the lab-created industry is positioned to fill the pending supply gap of natural diamonds.

While higher natural diamond prices could make currently uneconomic diamond deposits production worthy, thus filling the supply gap in terms of carat volume, most remaining undeveloped resources host smaller, lower-quality diamonds relative to historical standards --the category of diamonds most-likely to directly compete with lab-created diamonds given the lower price-point. On the other hand, higher-quality natural diamonds, which arguably fall into a completely different product category than lab-created diamonds, could perform well as new supply becomes ever rarer and China and India, the industry’s fastest growing end-consumer markets, do not perceive lab-created diamonds as a substitute to natural.

However, ultimately the longer-term overall health of the natural diamond industry, especially with regard to U.S. consumers, the industry’s largest market, will depend on the success of marketing efforts to instill the intangible value and tradition associated with natural diamonds, while also reminding consumers of the value inherent in the rarity of its non-renewable resource, a characteristic that differentiates its product from the lab-created counterpart. Efforts are currently being led by the Diamond Producers Association, an organization financed by the industry’s largest miners aimed at returning generic marketing to diamonds in the post “A Diamond is Forever” era.

While higher-quality lab-created diamond production is still in its early stages, significant investment is being made in improving the quality of output and the economics of production. As new producers emerge, most are focused on improving production capabilities using the chemical vapor deposition, or CVD, method of synthetic diamond production with a longer-term goal of supplying consistent, high-quality diamond in great enough volumes for use in high-tech industrial application, for example, semiconductors, quantum-computing components, lasers and optic equipment, an industry that can eventually be worth in the hundreds-of-billions-of-dollars. Others are prioritizing scaling production today to take advantage of the current high operating margins the lab-created diamond jewelry market has to offer; as an anecdote, the world’s largest supplier of off-the-shelf CVD reactors currently has an order back-log approaching 1-year.

Synthetic producers using the original method of production, high-pressure, high-temperature, or HPHT, are also improving production capabilities. In China alone, HPHT presses produce an estimated 10 billion carats of industrial grade diamond annually, however some producers are upgrading their equipment to produce larger diamonds in near-gem quality grades and better. HPHT presses are also being used to enhance the quality of lab-created diamonds produced using CVD, a practice that is typically considered unacceptable with natural diamonds.

Given the scale of production capability, it is reasonable to assume that longer-term, the supply of lab-created diamonds is boundless and the price of generic goods will be set by the lowest-cost producer, ideally fit for the fashion jewelry market. The higher-price-point lab-created diamonds most likely to compete with the natural diamond jewelry industry will be those built around successful brands or unique jewelry designs.

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De Beers is 85% owned by Anglo American plc (LSE: AAL) and 15% owned by the Government of the Republic of Botswana.

This was referenced by The Wall Street Journal, Reuters, The Financial Times, The Globe and Mail, Forbes, The Times of India, The Mumbai Mirror, China's Xinhua, South Africa's Mining Weekly and the London Mining Journal, and was published in print in Australia's Jeweller Magazine.

For more detailed analysis of the lab-created diamond industry please inquire for information on consultation rates, custom research capabilities, or subscription information for Paul Zimnisky’s State of the Diamond Market, a monthly diamond industry report.

Paul Zimnisky is an independent diamond industry analyst and consultant covering the natural diamond industry and the lab-created diamond industry. He will be speaking about lab-created diamonds at HSBC’s Finance for Global Change Forum in New York on September 24, 2018, and will be serving as the keynote speaker at the Brazilian Diamond Geology Symposium in Salvador, Brazil on November 5, 2018. Paul can be reached at paul@paulzimnisky.com and followed on Twitter @paulzimnisky.

Disclaimer: Discretion, anecdotal observations and opinions are used in the above analysis. The accuracy of the above content cannot be guaranteed. The above content is strictly to be used for informational purposes and is not investment advice. Paul Zimnisky holds zero accountability for any and all financial losses or otherwise from the use of this content.

Disclosure: At the time of writing Paul Zimnisky held a long position in Lucara Diamond Corp, Stornoway Diamond Corp, Mountain Province Diamonds Inc, Diamcor Mining Inc, North Arrow Minerals Inc and Signet Jewelers Ltd.