Recently, natural diamond prices have continued to rise due to a rebound in downstream market demand and a decline in global rough natural diamond production, with IDEX (International Diamond Exchange Platform) data showing that the total global finished diamond price index rose by a cumulative 26.46% between the beginning of 2022 and the beginning of March, with De Beers, Alrosa, Petra Major natural diamond producers, such as De Beers, Alrosa and Petra, increased their rough diamond prices by more than 5%.

As the price of natural diamonds rises, cultivated diamonds, which are "indistinguishable to the naked eye and more affordable", are gaining attention. It is understood that a 1-carat natural diamond sells for around 100,000 yuan, or even more, while a 1-carat cultivated diamond sells for around 15,000-35,000 yuan, a third of the price of a natural diamond, or less.

Publicly available information shows that Chinese manufacturers supply more than 40% of the world's rough cultivated diamonds, and the global penetration of cultivated diamonds is expected to reach 15.8% by 2025. As the penetration of cultivated diamonds gradually increases, can cultivated diamonds replace natural diamonds?

Rising natural diamond prices

Diamond prices have been rising due to the complex international environment and declining natural diamond production.

According to IDEX data, from 1 January 2021 to 2 March 2022, the total finished diamond price index rose by a cumulative 26.46%. Canadian Diamcor Mining sales data show that the average selling price per carat of diamonds has increased by 40% compared to September last year, based on rough sales of US$1 million completed between the beginning of February and mid-February this year.

At the same time, major natural diamond producers such as De Beers, Erosa and Petra have increased their rough diamond prices, all by more than 5%.

"The price of diamonds has gone up recently, and the exact rate of increase is unclear." Diamond Bird staff said to China Newsweek.

Claiming that "only one person in a lifetime" DR diamond ring parent company Diar replied to China Newsweek, "will continue to pay attention to changes in market diamond prices, actively respond and reduce the impact of price fluctuations."

"The rapid rebound in downstream consumption after the marginal impact of the epidemic waned, coupled with the demand for asset allocation under inflation, has fuelled a sustained rise in natural diamond prices." Cai Tong Securities research report said.

It is understood that the supply of natural diamonds is limited by the impact of the epidemic, but demand is rebounding rapidly. global retail diamond jewellery will total about US$84 billion in 2021, up 29% year-on-year and 12% from 2019.

Meanwhile, the world's major diamond companies are also reporting more promising results for 2021. on 2 March 2022, Erosa said that the company's revenues rose 51% to US$2.99 billion in 2021, with net profit of US$834 million, about three times higher than in 2020, as diamonds recovered from last year's slump.

De Beers' financial results, on the other hand, showed that rough diamond production and prices both continued to rise in 2021, with total sales for the year up a whopping 66% year-on-year to US$5.6 billion, underlying earnings turning to a profit of US$345 million from a loss of US$102 million in 2020, and sales volumes up 56% year-on-year to 33.4 million carats, as demand in the midstream and downstream diamond industry recovered across the board.

Specifically for the Chinese market, Shanghai Customs statistics show that the value of diamonds imported through the Shanghai Diamond Exchange in 2021 was a record $33.327 billion, up 76.11% year-on-year. Hong Kong's diamond trade recovered in the same year, with its net imports of finished diamonds increasing by 48% year-on-year to US$1.51 billion.

Speaking to China Newsweek, Yang Fan, Deputy General Manager of Connected Diamonds, said that the downstream rebound in the international diamond market was mainly due to the relaxation of epidemic controls in Europe, the US and Indian markets, the concentrated release of wedding demand in the Indian market, and the continued stimulation of consumption in the US, resulting in a huge increase in downstream diamond consumption in 2021.

Natural diamonds are becoming more expensive and cultivated diamonds are gradually gaining popularity in the market

Compared to the high price of natural diamonds, cultivated diamonds are selling for a third or less of the price of natural diamonds.

China Newsweek notes that a 1-carat natural diamond ring currently sells for around 100,000 yuan on the market. Chow Sang Sang's Tmall flagship shop shows that a 1-carat diamond ring sells for around 90,000 yuan after coupons; De Beers' Tmall flagship shop shows that a 1-carat diamond ring sells for 120,000 yuan; Tiffany & Co.'s Tiffany & Co. small program shows that a 1-carat diamond ring sells for anywhere from 100,000 to 180,000 yuan, with some even exceeding 200,000 yuan.

On the contrary, cultivated diamonds are sold at relatively low prices.

A 1-carat diamond ring from the domestic cultivated diamond brand CARAXY Kailihi is priced between 18,000 and 40,000 yuan, depending on the quality; another domestic cultivated diamond brand LightMark Little White Light, a 1-carat diamond ring is basically priced below 40,000 yuan. Another domestic cultivated diamond brand, LightMark Little White Light, sells a 1-carat diamond ring for less than 40,000 yuan, and most products are out of stock.

"Cultivated diamonds do not need to find a mine, no mining, no screening, technology cultivation to speed up the growth of diamonds, better cost control, and higher cost performance than diamond mines." Diamond Foundry staff said to China Newsweek.

Kailash staff told China Newsweek, "Cultivated diamonds are cultivated from a tiny diamond seed, placed in an environment that simulates the growth of natural diamonds, with the same chemical, physical, atomic, optical and hardness characteristics as natural diamonds, and are certified by three major international testing agencies, in accordance with the 4Cs of natural diamonds. "

"I have to say the difference is that the outdoor moved to indoor, cultivation of diamonds to save the formation of crustal movement time, and does not cause ecological damage." Kellish staff said.

LightMark Little White Light staff pointed out to China Newsweek that there is no difference between cultivated diamonds and natural diamonds except the growing environment, "it is almost impossible to distinguish with the naked eye, and even a more professional jewellery appraiser cannot make the difference with the naked eye." At the same time, she said, "Many customers say that natural diamonds are just spending a lot of money to pay the IQ tax, are real diamonds, why spend twice as much, the money saved to buy cosmetics, travel does not smell good?"

"Natural diamonds and cultivated diamonds have the same physical and chemical properties, both are three-dimensional crystalline minerals formed by the element carbon, the main difference between the two is the way they are formed." The Deppon Securities research report shows that cultivated diamonds are diamond crystals that are synthesised through scientific means by artificially simulating the natural diamond growth environment and crystallisation process.

The Gemological Institute of America (GIA) reports that "to the naked eye, lab-created diamonds (cultivated diamonds) look exactly the same as natural diamonds. Normally, they can only be identified at a gemological laboratory using special instruments. These instruments can detect minute differences in trace elements and crystal growth to determine whether a diamond is synthetic or natural."

Diamond Foundry staff also say that more people are buying cultivated diamonds now, "from customers who are getting married and those who are placing orders after their wedding."

Will natural diamonds be replaced by cultivated diamonds?

Under the Russia-Ukraine conflict, global food supplies and commodities have been affected, and natural diamonds are no exception.

It is understood that Russia is an important global exporter of rough natural diamonds, and in 2020, Russia exported rough diamonds amounting to about US$3 billion.

Cai Tong Securities research report shows that in 2021, the global 116 million carats of natural diamond rough production, Russia accounted for 32%, is the world's largest producer and exporter. Among them, Erosa's rough diamond mining accounts for 95% of Russia's production and is almost in a monopoly position.

With the US listing Erosa as a target for economic sanctions, what is the impact on the global diamond market? Will the price of natural diamonds still rise?

Yang Fan believes that despite the international situation, natural diamond prices will not continue to rise in the short term. "Affected by the epidemic, the domestic jewellery market has always been at a low level of demand this year, and retailers have been more affected by the epidemic. If the epidemic is brought under control in April, the jewellery industry is expected to resume demand in May, which could potentially drive up prices in the international market by then."

Bain data shows that the global supply of rough natural diamonds will decrease by 1%-2% per year in 2023-2030, with demand growing at 1%-2% per year, and the gap between supply and demand will continue to widen, which also gives the opportunity to cultivate diamond development.

Minsheng Securities research report pointed out that the global cultivated diamond retail end market size is expected to reach 190 billion in 2025, China cultivated diamond rough market size will be expected to grow to 11 billion yuan, more than four times the current market size of the market space.

Several leading fashion jewellery companies have started to offer cultivated diamonds, and traditional jewellers such as De Beers, Swarovski and Pandora, as well as emerging jewellers such as DiomondFoundry and LightMark, have launched cultivated diamond brands to proactively guide consumer habits.

According to Bain data, global cultivated diamond penetration grows from 5.9% to 8% from 2020 to 2021 and is expected to reach 15.8% by 2025. China's cultivated diamond penetration increases from 4% in 2020 to 6.7% in 2021 and is expected to reach a further 13.8% by 2025.

With the gradual development of cultivated diamonds, can they in turn replace natural diamonds?

"Natural diamonds have a natural scarcity and have the value of witnessing eternal love and emotional expression." Diar shares that there is a price difference between cultivated diamonds and natural diamonds, with natural diamonds better able to meet the emotional expression needs of the wedding consumer market, while cultivated diamonds are more suitable for the pleasing category of jewellery.

"Cultivated diamonds are affected by production capacity in the short term and will not have any impact on natural diamonds." Yang Fan pointed out that the foreseeable future, the cultivation of diamond production capacity will expand exponentially, more products will enter the field of accessories, and for natural diamonds, because the upstream supply capacity is stable, will maintain a moderate upward trend, will not rise or fall because of the impact of cultivation of diamonds, more by changes in market demand and fluctuations.

Deppon Securities research report shows that as the long-term supply of natural diamonds slows down, the diamond price index will move upwards, the same price under the cultivated diamond cost-performance advantage to highlight, and thus transform a part of the original purchase of low-priced small carat diamond consumers, natural diamond supply and demand gap for the cultivated diamond demand for the release of the window.

Total global rough natural diamond production has begun to decline since 2018, with total global rough diamond production of approximately 111 million carats in 2020, down approximately 20% from 2019.

"The three main influences are the New Crown epidemic, the decline in planned production and the industry's downsizing. Diamond production is expected to rebound with a small recovery as the impact of the epidemic eases. From a long-term perspective, the supply of natural diamonds will struggle to meet the growing diamond jewellery market demand due to the gradual depletion of active diamond mines, some of which may not have mining value in the future." Cheng Cheng Wai, an analyst at Deppon Securities, said.