With global supply of fresh naturally mined diamonds shrinking as existing mines shutdown and the arrival of lab grown diamonds into the market the conventional diamond industry was deemed as being under threat. However, the luxury market’s dynamics is different from other markets and the way the luxury market works is actually the opposite of generic market behaviour.
The arrival of lab grown diamonds which are basically identical to naturally mined diamonds at less than half the cost of naturally mined diamonds did not affect the natural diamond market extensively, what happened was, a new consumer segment was created.
This means that those who could not afford natural diamonds for their engagement rings now could afford to have synthetic diamonds for their engagement rings. Therefore, the consumers of synthetic diamonds are actually a new group of consumers and they were actually not a part of the conventional natural diamond consumers.
Although within the last decade lab-grown diamonds are flooding the gemstone market which did to a degree result in market destabilization within the spectrum of diamond engagement rings and jewellery which took nearly an entire century to establish by companies such as De Beers.
Although, lab grown diamonds offer tempting bargain, they are not able to attract hard-core luxury enthusiasts who see lab grown diamonds as consumer items that are not within the luxury cluster, according to Richard Dempsey, a diamond wholesaler based in Melbourne, Australia, the comparison between a natural diamond and a lab grown diamond is a kin to comparing a Rolls Royce to a Toyota, both are vehicles that function in the same way and are very reliable, but the Rolls costs much more and those who will never be able to afford a Rolls will certainly go for a Toyota.
This means that those who could afford a Rolls Royce are never going to downgrade to a Toyota simply because they are able to afford it and the cheaper options available to them are not going to make them switch. It is all about ‘statuses’ according to Dempsey and due to this the natural diamond market’s conventional customers remain loyal to natural diamonds.
The only element of the market arriving at its current volatile state is due to the shrinking supply of diamonds due to mines being shut down due to very low outputs which has caused the price of natural diamonds to rise. This has resulted in a small fraction of customers to switch to lab grown diamonds, but not all.
For example, the closure of the Argyle mine in Australia that produced 90% or more of the global pink diamond supply has had a natural impact on the value of pink diamonds. The current volatility is associated with the concept of supply and demand more than any other reason and the impact of lab grown diamonds could be perceived as being ‘minimal’ at the most.
It is expected that the natural diamond market will stabilise when new mines are established and the disposable income levels of the current younger generation increases over the next few years.
