Editor’s Note
This article examines the diverging fortunes of gold and diamonds in the current market. It highlights a significant shift in consumer perception and value, questioning the enduring premium of natural diamonds in the face of technological alternatives and changing tastes.
This year’s jewelry market presents a stark contrast between the fortunes of gold and diamonds. While topics like “domestic gold prices continuously rising, once breaking through 600 yuan per gram” have trended on social media, another topic, “diamond prices plummeting 40%,” has also gained traction.
The era of “A Diamond is Forever” seems to be fading. The mass production and technological breakthroughs in lab-grown diamonds in recent years have created products comparable in quality to natural diamonds but at much more affordable prices, putting pressure on the natural diamond market.
In August, diamond prices fell again. Data from the International Diamond Exchange (IDEX) shows the IDEX price index fell 2.87% for the month, exceeding July’s 2.57% drop and reaching its lowest point since January 2008. The index has been on a downward trend since March 2022. The year-on-year decline in August widened to 20.1%, higher than July’s 19.9% and June’s 18.9%. According to CNBC, a slightly above-average quality 1-carat natural diamond that cost $6,700 a year ago now sells for $5,300.
Prices for lab-grown diamonds are also falling. Filip Van Laere, a board member of the Federation of Belgian Diamond Bourses, stated that two years ago, lab-grown diamonds were 40% cheaper than natural ones; this year, they are 70% to 80%, or even 99%, cheaper. He suggested that in the future, “you might get a diamond when you buy soap in the supermarket.”
The sluggish demand for natural diamonds is reflected in corporate performance. De Beers, the world’s leading natural diamond brand behind the famous slogan, sold only $370 million worth of natural diamonds in its seventh sales cycle this year, a year-on-year decrease of 42% and a sequential drop of 10%, marking the fourth consecutive month of declining sales. Over the past year, De Beers has cut prices for its mainstream 2- to 4-carat natural diamonds by 40%.
Domestically, DR Diamond Ring’s parent company, Di’ao Co., Ltd., reported in its 2023 interim report that revenue for the first half of the year decreased by 40.45% year-on-year, while net profit attributable to shareholders plummeted 90.77% to 53.41 million yuan. Meanwhile, the number of DR Diamond Ring stores decreased by 12 in the first half of the year, compared to a net increase of 227 stores in 2022. Data from the “2022 China Jewelry Industry Development Report” shows the market size for diamond products in China was approximately 82 billion yuan in 2022, down 18% year-on-year.
The weakness in natural diamond prices is closely tied to macroeconomic fluctuations. Data compiled by the Global Gem Exchange’s official Chinese account shows that over the past 52 years, the diamond industry has experienced six major price corrections. Three were due to global economic recessions, including the economic shifts of the 1980s, the 2008 global financial crisis, and the significant slowdown in global economic growth in 2022. The other three were due to industry adjustments. During the 1980s economic changes, diamond price fluctuations reached 60%.
De Beers also stated that the current weakness in natural diamond prices is due to a natural decline in market demand caused by inflation, with lower-priced engagement rings being particularly vulnerable.
Di’ao Co., Ltd. also noted in its interim report that external uncertainties have significantly boosted demand for gold as a safe-haven asset, impacting diamond-set products to some extent, leading to a cyclical adjustment in the diamond setting industry.
The impact extends beyond diamonds. According to the “2022 China Jewelry Industry Development Report,” among seven major product categories, only jade and pearl markets saw year-on-year growth. The diamond product market shrank by 18%, gold products by 2.4%, colored gemstones by about 11%, Chinese platinum jewelry demand fell for the fifth consecutive year, down 31% in 2022, and while silver consumption increased by 3%, the market size for silver jewelry declined compared to the previous year.
The United States, the world’s largest diamond consumer, also saw declines. Data from jewelry industry consultancy Tenoris.BI shows that in the first half of this year, fine jewelry unit sales fell 5.9% and sales value fell 7.3%; diamond jewelry unit sales fell 9.7% and sales value fell 9.6%. Against the backdrop of a slow global economic recovery, the entire luxury sector in the US appears sluggish.
Furthermore, declining marriage rates are affecting diamond demand. Data from China’s Ministry of Civil Affairs shows 3.928 million marriage registrations in the first half of 2023, with 1.781 million in Q2. Since peaking at 13.469 million in 2013, the number of marriages has declined for nine consecutive years, falling below 7 million in 2022.
Beyond macroeconomic factors and shrinking demand for wedding rings, the rise of lab-grown diamonds is impacting the natural diamond market share. Tenoris.BI data shows that in the US market in July, diamond jewelry unit sales fell 7.7% and sales value fell 7.3%. Within this, natural diamond jewelry unit sales fell 9.9% and sales value fell 9.1%, while the sales value share of lab-grown diamond jewelry rose from 3.8% in July 2022 to 6.2% in July 2023.
Compared to July 2022, lab-grown diamond jewelry unit sales in July 2023 increased by 51.9%, and sales value increased by 31.6%. The market share of lab-grown diamonds has been rising since 2021. By July this year, lab-grown loose diamonds accounted for 49.9% of unit sales, while natural diamonds shrank to 50.1%.
In 2019, the Chinese Academy of Sciences successfully broke through “man-made diamond” cultivation technology, piloting and promoting it in Zhecheng County, Shangqiu City, Henan Province. From a commercial perspective, lab-grown diamonds show no difference from natural diamonds in key indicators like chemical structure, crystal structure, refractive index, dispersion, and hardness. High production volumes have broken the scarcity of natural diamonds.
Reports indicate that in 2020, nearly half of the world’s 7 million carats of lab-grown diamonds came from China, with 80% from Henan. By 2021, Zhecheng County alone in Henan produced 4 million carats, accounting for half of global production. According to Bain & Company data, lab-grown diamonds from Zhecheng have key indicators like refractive index and dispersion far higher than natural diamonds, but their price is only about 20% of natural diamonds.
As natural diamonds get a “budget alternative,” the penetration rate of lab-grown diamonds continues to rise. A research report released three years ago by the International Grown Diamond Association (IGDA) showed that 66% of millennials would consider lab-grown diamonds when purchasing an engagement ring. Data shows China’s current penetration rate for lab-grown diamonds is 7%. According to CICC forecasts, the penetration rate will reach 19.1% by 2025 and 29.1% by 2030.
Although lab-grown diamonds have been highly sought after in recent years, under the overall cooling of the diamond industry, larger companies in this sector are also affected.
Power Diamond’s recently released 2023 interim report shows revenue of 3.6 billion yuan for the first half of 2023, a year-on-year decrease of 19.44%; net profit attributable to shareholders was 172 million yuan, down 27.95% year-on-year. Power Diamond explained that the revenue decline was due to falling sales prices of its main product, lab-grown diamonds. While Power Diamond was once known for high gross margins above industry peers, its gross margin has gradually declined over the past six quarters.
In the first half of 2023, Huanghe Whirlwind reported revenue of 10.06 billion yuan, down 21.09% year-on-year; a net loss of 219 million yuan, down 413.32% year-on-year. The company stated in its announcement that its key segmented product, lab-grown diamonds, saw prices drop significantly in the first half of 2023 compared to the same period last year due to changes in market supply and demand, leading to a sharp decline in main business profit. Its gross margin fell from 29.09% in Q1 to 17.95% in Q2.
However, some companies report being less affected by falling lab-grown diamond prices and remain optimistic about related business development. Huifeng Diamond’s disclosed 2023 interim report shows operating revenue of 268 million yuan for the first half, a year-on-year increase of 42.65%; net profit attributable to shareholders was 39.82 million yuan, up 3.05% year-on-year. In its performance explanation, Huifeng Diamond stated that its profit mainly comes from diamond micro-powder, and the current drop in lab-grown diamond prices has little impact on its performance. The company remains optimistic about the lab-grown diamond industry, gradually increasing production capacity, and has begun mass production.
