During our recent 5-day exhibition in Vicenza, a pressing question arose: why are the prices of lab-grown diamonds steadily declining despite their increasing demand, seemingly defying economic logic? The answer lies in the challenges faced by the natural diamond industry, which has experienced a significant decline in prices, averaging a 35% decrease since the beginning of this year. This slump has impacted Indian manufacturers who are struggling due to reduced demand and high stock levels. In response, many Indian manufacturers have chosen to halt their purchases of natural rough diamonds.
Simultaneously, these major Indian manufacturers are confronted with the task of maintaining their workforce. The Indian manufacturing industry lost approximately 30% of its manpower during the COVID-19 pandemic, as some workers opted to stay in their villages to support their families in agricultural endeavours. The Indian diamond industry cannot afford further reductions in their skilled cutter workforce. To address this economic challenge, these manufacturers have turned to purchasing large quantities of inexpensive lab-grown diamond rough, resulting in overproduction.
These prominent manufacturers have annual turnovers exceeding $300 million, making it possible for them to absorb even a $1 million loss (which is nearly inconceivable in the lab-grown diamond sector) without significant repercussions due to their large volume of sales. Importantly, these companies are not interested in transitioning into the lab-grown diamond business; instead, they aim to resolve their economic difficulties by ensuring job retention and recouping their investments as quickly as possible. To achieve this, they are willing to sell lab-grown diamonds at prices below cost, incurring losses.
This practice has been a key driver behind the declining prices of lab-grown diamonds. In reality, there was no inherent reason for a price drop in this market. Initially, both retailers and consumers were satisfied with a price differential of 50-60% between mined and lab-created diamonds. However, the decreasing prices have not been damaging. In fact, they have widened the price gap between lab-grown and mined diamonds, making diamonds more accessible to a broader audience.
Retailers have demonstrated adaptability by not proportionately reducing their selling prices but instead making slight reductions while significantly boosting their profit margins. This dynamic results in a win-win situation for both retailers and consumers, ultimately contributing to a continued surge in demand for lab-grown diamonds. The future of lab-grown diamonds appears exceptionally promising, characterized by increasing accessibility and consumer satisfaction.
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