Morgan Stanley’s publication of a research note ‘Game of Stones’ focuses on the potential impact of lab-grown diamonds
The executive summary of the report reads, ‘Conditions are maturing for lab grown diamonds to pose a heightened threat to the diamond mining industry. Improved technology produces high quality lab grown diamonds. Producers claim this can be done economically even when rough lab grown diamonds are sold at 40% discounts to mined diamonds. The market may also be ready for an alternative offering. Younger consumers have not been exposed to marketing by the diamond mining industry. Furthermore, surveys suggest that current 18-30 year olds are more open to products with social and environmental benefits relative to existing products.’
While concluding, the report highlights the highest probability scenario as: the lab grown diamond market finding its own niche, takes limited market share away from mined diamonds and increases the diamond jewellery market size. Melee lab-grown diamonds are predicted to expand rapidly due to the existing large capacity of Chinese producers. Smaller lab grown diamonds are likely to trade at a bigger discount to mined diamonds and therefore put relatively more pricing pressure on the mined counterparts.
We summarize, the positive forces shaping the future ahead for lab-grown diamonds:
Improved technology in the past few years
Recent few years have seen drastic improvements in production technology of lab-grown diamonds. It is now possible to produce profitably, much larger and higher quality of stones than in the previous years.
Increasing awareness of lab-grown diamonds
The consumers have more availability of information and are rapidly getting aware of the new distinction in diamonds, which are of comparable quality and lower prices. With the reach over internet, social media and the media attention due to breakthroughs with renown brands and celebrities taking the lead.
The rising consumer ‘Millenials’ and the concern for the environment
As the Report states, ‘Millennials – a new generation still deciding their attitude towards diamonds. Millennials offer both a threat and an opportunity for the diamond mining industry. A threat because millennials have not been exposed to the same amount of advertising for mined diamonds as previous generations, and therefore have a relatively lower predisposition to purchase diamonds. At the same time, the millennial category has other priorities – and that is why the lab grown diamond’s low environmental footprint has resonated well with the millennial consumer. Several studies, including a Nielsen one from May 2015, have highlighted that millennials continue to be most willing to pay extra for sustainable offerings.’
Alternative business opportunity
Willingness to invest is seen. The recent famed example of investment in the lab-grown diamonds is of ‘Diamond Foundry’, the California based lab-grown diamond producer backed by Silicon Valley engineers and actor Leonardo DiCaprio. In another case generating news, Swarovski, the renowned Austrian company launched a new exclusive brand for lab-grown diamonds.
Morgan Stanley’s report brings out an important point reinforcing a brighter future ahead for the lab-grown diamond industry, ‘……. the industry is starting to obtain more of a track record (production profiles, costs, prices, etc), which could help attract bank financing in an Industry that has so far been dominated by equity financing.’
With the advancements in technology, lower price advantages and a rising consumer base, we see more and more investment opportunities and positive returns for the lab-grown diamond industry in the coming times.