Diamond market is big enough for lab-grown competition

Lab-grown and natural diamonds can coexist, Petra Diamonds chief executive Richard Duffy said, as he took stock of a difficult year for the precious stones.

Speaking to Mining Journal at the Mining Indaba in Cape Town, Duffy said that diamond markets would take some time to stabilise after a tough 2023.

"The expectation is not one of steady recovery in prices, but rather some volatility, with probably ups and downs."

"Post-COVID, when we saw that really sharp recovery, it looked like we would be in a much stronger market for longer," Duffy said.

But weaker-than-expected Chinese demand has been weighing on the recovery.

A pause in stone buying by India, where most gemstones are cut and polished, helped stabilise the market in 2023

"Putting in place that two-month moratorium, I think, helped to rebalance," Duffy said.

"However, if you look forward, there's still some uncertainty as to what the market is going to look like in the short term."

Lab-grown sales rise

Petra took the decision to delay capital spending in 2023, in response to weak markets. Duffy said that rather than an attempt to balance supply, "it was more informed by ensuring that we addressed any liquidity concerns".

But while diamond markets have always been cyclical, a bigger question over the sector is the rapid entry into the market of synthetic stones.

"It certainly has caused some disruption, and my view is that it's really been a bit of a bubble that is moving through the industry," Duffy said.

As Mining Journal has written, selling lab-grown diamonds has had a higher margin for retailers than natural stones, despite the considerably higher prices commanded by the latter.

"You saw very rapid growth in production of lab-growns… so you saw a very significant ramp up in the supply matched by a very significant drop off in in the pricing," Duffy said.

"So there's been a window where retailers were making lots of money."

But margins are now starting to retreat.

"Retailers are struggling because their margins are coming down, but more importantly, the turnover is collapsing," Duffy said.

"There has been a bit of blowback from consumers as well who might have bought an engagement ring, and they walk past the store a year later and see it selling for a quarter of the price."

While that downward trend only added pressure for retailers to push out their inventories of lab-grown stones before their prices dropped further, Duffy said that glut had now worked its way through the market.

 Coexistence

In the long term, Duffy hoped that there was room for both products.

"We've always said we believe that lab-growns and natural diamonds can coexist. I think the lab-grown occupy a particular area of the market, with a lower entry point, and much more around adornment and attractive jewellery."

"Whereas natural diamonds play in in the space which is much more about value preservation, meaningful gifting, and celebrating life. Diamonds are billions of years old. They support employees, communities, education, social projects; there's a whole economic ecosystem around natural diamonds that looks very different lab-grown."

The effect of lab-grown diamonds has been particularly seen at the lower end of the market, as smaller stones are losing out to larger, higher-quality lab-grown diamonds at affordable prices. But coloured stones and larger diamonds have held their value better, Duffy said.

And he sees technology and traceability as a way for the natural diamond industry to differentiate itself.

"We're not too far from landing on a set of technologies that will give us traceability and physical verification of our stones, from mine to finger - which gives you an opportunity to really tell your story in the retail space," Duffy said.

"It's not trying to beat up the lab-growns, but coexisting. The market is large enough to do that."