Remember your 10th-grade science classes on how carbon deposits buried deep within the earth turn into diamonds when subjected to high pressure? Or if you are someone who listens to those 2 am YouTube motivational speeches, you might have come across the metaphor of how ‘dirty little carbon particles’ transform into priceless, shiny diamonds under extreme pressure deep down in the earth’s crust.
However, all that may be due for an update – thanks to the phenomenon called artificial diamonds, also known as lab-grown diamonds (LGD). Yes, you heard it right: Diamonds can now be made in the lab too!
Don’t go by the name, they are not that different from their naturally occurring cousins.
For starters, it is still the dirty little carbon that is subjected to the metamorphosis. Second, very high levels of pressure are involved here too.
Unfortunately for motivational speakers, carbon molecules have no say whatsoever in the whole process (not that we humans take anyone’s opinions seriously anyways).
How are they made?
As long as diamonds have existed, so have attempts to come up with cheaper, more affordable clones, sometimes with materials such as glass.
However, lab-grown diamonds or LGDs differ from these ‘fake’ diamonds in one crucial respect: They are exactly the same as natural diamonds in their chemical composition. LGDs are manufactured by taking carbon from a widely available source (graphite, methane, etc.) and subjecting it to extreme conditions.
Unlike fake diamonds, LGDs have the exact chemical composition as natural diamonds as well as similar properties on cut, colour and quality.
In fact, you’d be surprised to know that they are not even that new. The first synthetic diamonds can be traced back to the 1950s but were mostly restricted for industrial usage given their high cost and low quality.
"While lab-grown diamonds are not in the same league [as naturally occurring ones], at least for purists, the last few years have seen a rapid rise in sales, as they mimic natural stones, at least to the naked eye," noted Jefferies Equity Research in a recent report on LGDs.
So does this mark the end of the career for the natural stone?
It is undeniable that the LGDs have taken the whole concept of making luxury affordable to a whole another level by creating a new category of affordable jewellery, making diamonds more accessible.
But whether or not they eventually replace natural diamonds depends on how consumer value perception of LGD evolves. This is because LGDs have so far been largely used for industrial purposes, and have only started making inroads into the jewellery business. If consumers accept these stones as they would the real thing, then there is a strong chance that LGDs will meet much of the demand for diamonds used in jewellery.
Consumer acceptance will partly depend on how well LGDs can mimic natural diamonds. For now, we know that it is possible for professionals to distinguish between natural stones and LGDs and some industry participants believe that both can co-exist.
As price divergence expanded, LGD use in jewellery has grown strongly, from 2 million carats in 2018 to around 8-9 million in 2022.
LGDs now account for around 8% of the average annual production of rough diamonds.
“LGDs can democratise access to diamond jewellery, even as natural diamonds remain a luxury product with the ability to store value,” said Jefferies Equity Research.
While LGDs can hope to replace or supplement natural diamonds in jewellery use cases, they do not come anywhere close to the real thing when it comes to investment use cases.
This is also reflected in the fact that unllike natural diamonds, LGDs do not offer a comparable resale value.
"....a theoretically unlimited supply means that, unlike natural diamonds, LGDs do not offer a comparable re-sale value—a key consideration for many buyers," noted Jefferies Equity Research.
Making diamonds accessible
Global rough diamond production peaked at 170-180 million carats in 2005 and has declined over the years, due to depletion and closure of several large mines.
In 2022, the rough diamond supply was further impacted by the Russia-Ukraine conflict, given Russia is the largest producer of rough diamonds globally.
With a constrained supply, rough diamond prices jumped sharply in 2021-22, leading the way to greater adoption of LGDs.
This pick-up in adoption, and popularity, has been driven by two key factors—improving the quality of LGD and reducing the cost of production.
As per Bain and Natural Diamond Council (NDC), the price of a typical lab-grown diamond has declined by >70% since 2016, making them more affordable for a wider cohort of consumers.
As a result, in 2016, a lab-grown diamond was only 15% cheaper than a natural diamond of similar characteristics, but the discount increased to nearly 75% in 2022.
Indian market
India, the world’s diamond cutting capital, is emerging as a major producer of LGD, building on its leadership in cutting and polishing of natural diamonds.
LGD exports from India have grown 8x over the last 4 years, reaching USD 1.7 billion in FY23.
While the B2C market is in its infancy in India, it is gaining traction, with several new start-ups coming up.
“Large Indian jewellers are taking baby steps in some cases, at least for now, albeit interest in the theme is growing for sure,” said the analysts.
Fun fact- The Prime Minister of India Modi gifted a made-in-India 7.5-carat lab-grown diamond to the first lady of the US Jill Biden during his visit to the country.
Nine out of 10 natural diamonds globally are cut and polished in India, with the city of Surat in western India playing a key role.
India has also emerged as the second player in LGDs, with 20-25% share of global production. LGD exports have jumped eight times in 4 years to USD 1.7 billion in FY23, with the government supporting the industry through various initiatives.
However, The B2C market in India is quite nascent, as leading branded players continue to focus exclusively on natural diamonds. Several start-ups however have ventured into LGDs and some larger players (eg. Senco Gold) are also showing interest.