Paul Zimnisky: Lab-Grown Diamond Jewelry to Reach $15B by 2035

Market Analysis
28/08/2018 12:45

Independent analyst Paul Zimnisky estimates by 2035, lab-grown diamond jewelry will achieve total sales $15 billion, as it grows from its current estimated level of estimated $1.9 billion. He bases his estimate on growth of 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% rate annually. In terms of market share, his research leads him to conclude that lab-grown jewelry will have gained 5% of the market for diamond jewelry (>$250) and 7% for fashion jewelry (<$250) in the same timeframe. Gem-quality lab-created diamond production for use in jewelry now exceeds 1.5 million carats of polished annually.

On a relative basis, he writes, gem-quality lab-created diamonds sold as jewelry have dropped in price 30-40% over the last 2½ 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. The decline in prices already underway, as well as the continued advancement in lab-diamond production technologies which should improve production economics and thus push down prices even further, will faciliate the efforts of lab-grown producers to take market share from the natural diamond industry as well as the fashion jewelry industry.

He breaks down the market down into diamond jewelry (selling for >$250, typically gem-quality stones set in gold or platinum) and fashion jewelry (selling for selling for <$250, typically set in sterling silver or a lower-quality metal including non-precious gems, lab-created gemstones). Lab-created diamonds currently represent an estimated 2.0% of the $87 billion diamond jewelry market. Natural diamonds are expected to continue to represent the large-majority of this market well into the future, he says, but the share of the market represented by lab-created diamonds is forecasted to grow to 3.4% by 2023 and to 4.5% by 2035. It is expected in the longer-term that most lab-created diamond jewelry will fall in the $250-1,000 price point range. The current size of the fashion jewelry 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. 

While natural diamonds currently represent an estimated >95% of the diamond jewelry market, he writes, the annual supply of natural diamonds is forecast to decline over the next 4 years and there is reason to believe 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.

High-quality natural diamonds should continue success

Addressing the current situation of diamond miners, Zimnisky points out that rising prices for natural diamonds could make currently uneconomic diamond deposits production worthy, filling the supply gap in terms of carat volume. The issue they will face, however is that most remaining undeveloped resources host smaller, lower-quality diamonds relative to historical standards, and this is 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.

While higher-quality lab-created diamond production is still in its early stages, he says, significant investment is being made in improving the quality of output and the economics of production. New producers are focusing on the CVD method of synthetic diamond production with a longer-term goal of supplying consistent, high-quality diamond in great enough volumes for use inhighly  lucrative high-tech industrial applications. 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, he adds, the world’s largest supplier of off-the-shelf CVD reactors currently has an order back-log approaching 1-year. HPHT growers are also improving production capabilities. In China alone, HPHT presses produce an estimated 10 billion carats of industrial grade diamond annually.

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. Ultimately, he writes, 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.