De Beers shocked the diamond industry in September by selling gem-quality man-made stones for just $800 a carat.
Since De Beers abandoned its decades-old policy of refusing to sell lab-grown diamonds as jewelry, the price gap between man-made stones and natural gems has widened — and the difference is set to get even bigger.
When De Beers shocked the industry with its U-turn in May, a one-carat synthetic diamond cost about $4,200 while an equivalent mined gem sold for $6,000. But since September, De Beers has been selling man-made stones for just $800 a carat.
De Beers says it wants to create a clear distinction between lab-grown diamonds and natural gems. The hope is this will reinforce the mystique of stones formed in the earth’s crust so consumers keep buying them for major events such as engagements.
By contrast, its synthetic diamonds grown in Britain at its Element Six labs and sold through jewelry subsidiary Lightbox are marketed as sparkly, pink, blue or white fashion accessories that are neither as rare nor precious as real gems.
The risk for the 130-year-old De Beers, which coined the marketing tag “A Diamond is Forever” in 1947, is that its branding of lab-grown gems could undermine natural diamonds.
But so far, De Beers’ strategy has been working. According to analyst Paul Zimnisky, the average discount of a one carat generic lab-grown diamond to a natural diamond had widened to 42 percent by mid-November from 29 per cent in January.
At the same time, production costs to make high-tech diamonds in a laboratory have plummeted to as little as $300 a carat from about $4,000 over the past decade, according to consultants Bain & Company and two former De Beers’ employees.
That means De Beers has plenty of scope to cut prices further, to reinforce the cachet of natural gems and to undermine synthetic diamond rivals that have been earning substantial margins in recent years, analysts say.
“The cost of these synthetic diamonds will go down to production costs plus a competitive profit margin. There is no shortage,” said Martin Rap-aport, who publishes a list of natural diamond prices regarded by many in the diamond industry as a benchmark.
De Beers is also investing $94 million over four years to build a US factory that will churn out 500,000 carats of lab-grown gems a year and Chinese producers are stepping up their output of cheap manufactured diamonds. “I think De Beers will keep the pressure up and may even cut prices further from the $800 level once they get their new factory up and running,” an official who used to work for De Beers said.
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