Despite increased consumer awareness and demand, lab-grown diamond prices continue to fall due to oversupply and lower production costs, while the natural diamond industry faces its own challenges, including competition from synthetic diamonds and an oversupply of natural diamonds. Where is the lab-grown diamond market headed? Analysts predict that wholesale and retail prices will fall further, profit margins will shrink, and consumers may stop buying lab-grown diamond engagement rings if they are too cheap to make a meaningful commitment. Meanwhile, lab-grown diamonds appear to be dominating the fashion jewelry category, taking market share from moissanite, lab-grown white sapphire, and other diamond alternatives.

According to Allied Market Research, the global lab-grown diamond market was valued at $24 billion in 2022 and is expected to reach $59.2 billion by 2032, a compound annual growth rate (CAGR) of 9.6%. While some analysts have questioned these optimistic forecasts, one fact remains clear: consumer demand is strong, especially in North America, where lab-grown diamonds hold a significant market share.

Continued Growth

Retailers and direct-to-consumer brands report strong sales performance in the category. Ornella Siso, co-founder and CMO of lab-grown diamond jewelry brand Idyl, confirms: “Over the past three years, we have experienced exponential growth, confirming the strong demand for our products. This is also supported by data from jewelry data analysis group Tenoris, which shows that sales of lab-grown diamond jewelry increased by 59% year-on-year in July, and revenue increased by 52%. Diamond analyst Paul Zimnisky points out that synthetic diamonds now account for 20% of the entire diamond jewelry market, and in the US wedding market, this number is even higher, estimated to be close to 50%.

Millennials and Generation Z are the main consumers of lab-grown diamonds in the United States, influenced by sustainability claims, human rights issues in the natural diamond mining industry, and most importantly, affordability. As Amish Shah, founder and CEO of Altr and J'evar, said, "Find me a girl who doesn't want to wear a bigger, more beautiful diamond on her finger or ear.

Oversupply

One challenge is the influx of lab-grown diamonds into the market. China is the largest producer, accounting for 40-50% of global production in 2022, reaching 20 million carats. India follows closely behind at about 3 million carats, or 15% of global production, according to CareEdge Advisory. Other major producers include the United States and Singapore. Similar to other technology-driven industries, increased efficiency and production have significantly reduced costs. Tenoris reports that wholesale prices for lab-grown diamonds have fallen 87% since 2018. Earlier this year, prices were as low as $99 per carat at the JCK Las Vegas jewelry show.

There is often a lag between wholesale and retail price declines, meaning profit margins may remain high for some time. Currently, the average retail price for a lab-grown diamond engagement ring is $2,710, with a record profit margin of 65%, according to Tenoris.

Some retailers, like Olivia Landau, founder of The Clear Cut, warn that stores are taking advantage of these high margins and consumers may not fully understand the actual value of lab-grown diamonds.

Vicious Cycle

Some major retailers, including De Beers, have exited the lab-grown diamond industry to focus on industrial applications, but others are shifting their focus to fashion jewelry. Indicative of a broader trend, Signet Jewelers has shifted its lab-grown diamond offerings away from the bridal space. Meanwhile, smaller U.S. retailers are racing to sell lab-grown diamonds before those tantalizing margins start to erode.

Analysts predict that lab-grown margins will eventually return to normal, especially in the commodity sector. Even if production costs are reduced, other supply chain costs, such as cutting, grading and distribution, will be harder to reduce. Profitability may soon become unfeasible for growers alone, and only companies that combine growing with manufacturing will be able to maintain healthy margins. In India, 90% of natural diamond polishers have already entered the lab-grown market, and many have factored in price declines in their business strategies.

Shifting Focus

In the U.S., some retailers are refocusing on natural diamonds or developing strategies for the next phase of lab-grown diamonds to compete with moissanite and other alternatives. Doug Meadows, owner of David Douglas Jewelers in Georgia, offers a “Diamond Solitaire Challenge” that compares natural diamonds, lab-grown diamonds, moissanite and cubic zirconia side by side. As he continues to educate consumers, Meadows

Some lab-grown diamond sellers are now taking inspiration from the fashion and luxury sectors, focusing on qualities such as cut, design and branding. Retailers such as Brilliant Earth emphasize sustainability in their lab-grown diamond collections, which include lines such as Capture and Renewable, which emphasize carbon capture and renewable energy in production.

Challenges Facing Natural Diamonds

Lab diamonds continue to have a negative impact on the natural diamond industry. In addition to economic challenges and weak demand, strong competition from lab-grown diamonds caused sales of natural diamond jewelry in the U.S. to fall by 1%

Some believe that lab-grown diamonds are reducing the perceived value of natural diamonds, while others believe they are driving interest in larger or more natural diamonds. In fact, Tenoris reported double-digit growth in sales of natural diamond jewelry priced between $20,000 and $50,000 in the first half of this year.