The traditional diamond industry could be in for a real upheaval.
According to Bloomberg News, in response to weak demand, De Beers, the world's largest diamond supplier, has voluntarily lowered the price of low-quality diamonds, which weigh between 2 and 4 carats and can be cut into approx. Half-size diamonds, mainly used in the manufacture of mainstream wedding ring products.
In the past year, De Beers has taken the initiative to reduce the price of such diamonds by more than 40%, including a price reduction of more than 15% in July, which has aroused close attention in the industry.
In June 2022, the price of De Beers low-quality diamonds is about $1,400 per carat. By July of this year, prices had dropped to about $850 per carat. And there may be more room to fall, as prices for these diamonds are still 10% higher than on the secondary market.
In addition to adjusting prices, De Beers, which used to have an absolute voice in transactions, even began to "take care" of buyers, leaving them more room for maneuver. De Beers has allowed them to defer contract purchases for as much as 50% of diamonds over 1 carat for the rest of the year, according to people familiar with the situation.
De Beers is a monopoly in the rough diamond market and enjoys a very high voice in the industry so far. In the past, according to the usual practice, at the 10 annual ordering meetings held by De Beers, after buyers specified the quantity and type of diamonds they wanted, they had to buy them all at the price set by De Beers, regardless of the quality of the diamonds. Buyers must accept.
As early as the end of 2018, De Beers began to allow buyers to hold off on the purchase of small diamonds. But buyers say De Beers typically slashes prices as a last resort and the recent price drops are unprecedented.
According to the data of Fashion Business Express, in the first half of this year, De Beers’ profit dropped by more than 60% to 347 million US dollars, and the average price of its diamonds fell from 213 US dollars per carat to 163 US dollars per carat. In August, it set the lowest sales record of the year. .
Lab-grown diamonds have long been seen as a threat to the natural diamond industry, offering a cheaper alternative without the environmental or social concerns faced by diamond mining.
The focus of market controversy is whether the decline in natural diamond prices is due to laboratory-grown diamonds or the decline in market demand caused by the macro economy. In addition, whether the drop in diamond prices is temporary or permanent.
De Beers insists that the current price weakness is due to a natural decline in market demand, as consumers forced to stay at home during the epidemic have driven diamond prices soaring, and lower-priced engagement rings are already vulnerable to market changes. . Paul Rowley, director of diamond trading at De Beers, said that it is undeniable that lab-grown diamonds did bring some cannibalization, but the real problem should be macroeconomics.
Some analysts believe that after the epidemic, as American consumers started to spend money on travel and experiences again, inflationary pressures increased the cost of living, resulting in an overall weakening of consumer demand for diamonds, especially the one-carat or two-carat single diamond rings, which are particularly popular. In the U.S. market, more and more U.S. consumers are choosing to use lab-grown diamonds as an alternative to engagement rings.
What the market is most worried about at present is that the sharp drop in demand for natural diamonds may represent a permanent change. The currently affected market segment is relatively low-priced 2-4 carat rough stones. In the future, laboratory-grown diamonds may eventually It would erode the market for more expensive, larger-carat, more lucrative diamonds, which are typically purchased by Asian consumers.
According to a research report released by the International Diamond Development Association IGDA three years ago, 66% of millennials said they would consider laboratory-grown diamonds when buying wedding rings. This number is undoubtedly continuing to rise.
Another piece of evidence is the soaring share of lab-grown diamonds in India's diamond exports. Lab-grown diamonds accounted for about 9 percent of India's diamond exports in June, up from about 1 percent five years ago. About 90% of the world's diamonds are cut and polished in India, so this figure pretty much sums up the current state of the global diamond market.
According to Liberum Capital Markets, given the low cost of lab-grown diamonds and high selling price multiples, this means that approximately 25% to 35% of diamonds currently in circulation in the market are lab-grown diamonds.
About five years ago, lab-grown diamonds sold for 80 percent of the price of natural diamonds, but as retailers sell them for ever lower prices and manufacturing costs fall, they now sell for a fifth. Prices for lab-grown diamonds on the wholesale market have more than halved this year alone.
This is partly a conspiracy of the diamond monopoly. De Beers has in recent years attempted to differentiate the value of natural and lab-grown diamonds, despite the fact that the physical structure of the two is identical.
The first thing De Beers did was to "beat" the price of lab-grown diamonds down.
To this end, De Beers unexpectedly entered the laboratory-grown diamond market personally, officially launched the costume jewelry brand Lightbox in 2018, and announced plans for the Gresham factory. The Gresham, Ore., U.S. facility produces about 200,000 carats of lab-grown diamonds a year, increasing its man-made diamond production capacity by about 10 times.
Gresham stones sold under the Lightbox brand sell for as little as $800 per carat. A similar natural diamond might command between $3,000 and $6,000 per carat. Related technological advances have made lab-grown diamonds virtually indistinguishable from natural diamonds. The laboratory can use advanced equipment to distinguish, but the naked eye cannot distinguish at all. Lightbox's lab-grown diamonds are distinguished by a tiny logo visible only with a magnifying glass.
Steve Coe, CEO of Lightbox, said bluntly, "Only laboratory-grown diamonds can really create a large growth opportunity because it allows consumers to buy diamonds more frequently."
It now appears that De Beers made a risky move. It may think that if marketed properly, the brand can still separate the two in the minds of consumers and enjoy the rewards of both markets at the same time. Human beings have always longed for rare, valuable, and beautiful things, so people's demand for natural diamonds will continue to exist, but the share has been adjusted.
The giant wants people to continue buying natural diamonds for special occasions, such as engagements or important anniversaries, while using man-made diamonds for everyday life. Synthetic diamonds may be something consumers can have for every birthday, not just for the big ones.
Some diamond industry analysts said that laboratory-grown rubies, emeralds and sapphires have existed for decades, and the price gap is still wide, but it still has no impact on the market. For example, the price of an artificial emerald may be US$100, while natural emeralds may be sold for US$4,000 to US$6,000. The price alone is enough to differentiate the product in the minds of consumers.
But convincing today's increasingly savvy consumers that they are different even though they look the same is looking increasingly like an impossible task.
The reasons why consumers buy diamonds have been changing in recent years. With the changes in the concept of marriage, people may still yearn for true love and marriage, but they are more inclined to believe in themselves than relying on external things. Diamonds have lost the eternal magic of true love in the eyes of many people. Consumers' demand for diamonds has also gradually upgraded from wedding diamond rings to overall image matching, and the connotation of diamonds has gradually evolved from love to fashion and self-reward.
But the core of self-reward lies precisely in the personalized choices of young consumers. The indoctrination of their antipathy concepts means that diamond consumption has gradually lost the necessity of rigid demand. In the past, diamonds were the only necessities of marriage and love culture, but now consumers' needs for self-reward will be shunted by diversified jewelry products.
Ruby, diamond, sapphire and emerald are known as the four major gems in the world. Even if the price of rubies has risen more than that of diamonds, diamonds are still the most well-known among most people, thanks to De Beers' in-depth excavation of the emotional value of diamonds. Diamonds represent true love and eternity is not born, but the most appropriate marketing strategy chosen by De Beers for diamonds at the beginning of the last century.
That is to say, among many rare gemstones, diamonds are more dependent on sentimental value. The emergence of laboratory-grown diamonds coincides with changes in the concept of the consumer market, making the high premium system of natural diamonds previously supported by emotional value facing the possibility of being gradually eliminated.
Moreover, with the gradual development of social media information dissemination, young consumers gradually realize that the diamond industry is an opaque world composed of miners, merchants and traders. This kind of information is not worth buying.
Paul Rowley said that the company expects the price of laboratory-grown diamonds to continue to fall, and as the supply increases, the price of laboratory-grown diamonds will bottom out and remain at a level. This should result in a wider price gap between natural and lab-grown diamonds, helping to differentiate the two products.
In the long run, he believes, it won't compete with natural diamonds for wedding demand because it's so cheap. At the end of the day, they are different products and there is no substitute for the rarity of natural diamonds.
However, De Beers still cannot stand up to scrutiny for the distinction between natural diamonds and laboratory-grown diamonds. In addition to scarcity, natural diamonds lack emotional value that can resonate with consumers. It is difficult to build a sufficiently attractive brand story based on the scarcity of raw materials to stimulate consumers to buy. The scarcity of diamonds also fails to support the prices in the secondary market most of the time. Most of the diamonds on the market are of ordinary quality and small carats are often difficult to preserve their value.
According to Jiemian News, in the United States, the largest consumer of diamonds, sales of diamond jewelry in the first half of 2023 fell by 9.7% compared with the same period last year, far exceeding the 5.9% decline in all categories of jewelry. In 2022, the market share of diamond jewelry in the Chinese market in all jewelry categories will also drop from 14% a year ago to 11%.
Compared with controlling supply, this traditional industry has obviously not invested enough energy in the modernization and upgrading of emotional value, and it still has not grasped the mentality of today's consumers. Even before taking the step toward mass-producing lab-grown diamonds, diamond giant De Beers failed to clearly stratify the sentimental value of the two. Relying solely on price distinctions underestimates the rationality of consumers.
This move is very dangerous. The end result may be self-destruction, damage to the overall value of diamonds, and bring about a collective plunge in industry prices. Today, the simultaneous decline in the prices of natural diamonds and laboratory-grown diamonds may be a prelude.
This kind of value return may also be inevitable, even the monopoly giants are doing their best. No matter how hard-wearing and shining diamond is, it is just a consumer product in the jewelry market.
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