The LGD Price Anomaly: Demand Rises, Prices Decline

The LGD Price Anomaly Demand Rises Prices Decline - Edahn Golan analysis photo-margot-richard
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Economy 101 maintains that prices rise with demand. The logic is that when the market wants more of something, competition pushes up the price. But sometimes, there is a price anomaly, and prices behave differently. Enter lab-grown, for instance.

When consumer demand for lab grown (LG) was relatively low, there was a frenzy to join the supply chain. Everyone from producers to retailers wanted in. So far, the result of this frenzy is the LGD Price Anomaly: rising consumer demand and declining wholesale prices.

The Pipeline Vise

This price decline is not completely surprising. The LG supply chain is crowded in all directions. The number of LG-producing factories is growing, and all of them are pushing to increase their production output.

In Q3 2021, the Lab-Grown Diamond Price Index declined 3.1%.

Currently, producers are happy because they are seeing fierce competition for their product: rough lab-grown goods. Demand for rough LG is high, and rough prices are firm.

At the other end of the supply pipeline, the number of retailers offering LG-set jewelry has increased almost exponentially in the past few years. Retailers are more than happy to offer their clients an up-and-coming product, leading to a rise in demand from this sector.

Over time, most retailers have become far more knowledgeable about LG and increasingly specific about their purchases. Some want only non-treated CVDs. Many are refusing LG with color tints. Others prefer HPHT-made LG because it costs less.

Most importantly, retailers are firmer on their buying costs, and many insist on getting goods on memo. Wholesalers have almost no choice but to oblige.

However, the firmness on both ends of the LG pipeline, producers on one end and retailers on the other, is pressing wholesalers in between.

The Making of a Price Anomaly

The wholesale section of the LG market is congested. Traders who found the natural market tough swarmed into LG only to run into the same issues they tried to escape from.

And now, they are finding out the hard way that the LG market is different than the natural diamond market. Despite the obvious overlap, this market requires specialization because the differences are clearly there: different pricing dynamics, inventory issues, marketing, and even acceptability.

The average retail price of round, one-carat, E / SI1 lab-grown was 60% below natural in September

The result is that a massive number of traders, mainly in India, are stuck with large inventories and a desire, if not a need, to leave the LG market behind.

Their exodus includes off-loading goods, further pushing down prices. So while rough LG supply is not easy to come by and retailer demand is growing – normally, the makings of a price surge – it is instead resulting in a price decline – very much a price anomaly!

LG Price Trends in Q3

To be clear, not all goods in all categories are declining. Broadly, prices of smaller goods, half-carats and below, inched up in the third quarter. The average rise is a little more than 1%, according to our diamond market analytics.

Larger goods, 0.70 carats and up, continued to decline, down 3-4% during the period, as the LG diamond price chart shows below.

A Crowded Market Keeps Impacting Lab-Grown Prices
Lab-Grown Wholesale Transaction Pricesthe lab-grown price anomaly: Lab-Grown Price List Index Q3-2018-Q3-2021 - Edahn Golan

Lab-Grown Diamond Price Index Slides

Compared to the second quarter, the Lab-Grown Diamond Price Index declined 3.1%. This is a moderate decline compared to the mid-single digit declines seen in the first and second quarters of the year.

On a year-over-year basis, the LG diamond index dropped a massive 42.7%.

If price declines continue to moderate, or if prices even rise as the holiday season rolls in, expect to see these immense year-over-year changes shrink dramatically.

An Ongoing Downward Price Trajectory
LG Diamond Price Index Q3 2018–Q3 2021

lab-grown price Index & 1 Ct - Q3 2018 - Q3 2021 Edahn Golan


Diamond Price Rally Ends – For Now

The wild rally natural diamond prices had enjoyed since August 2020 largely ended in September. Wholesale transaction prices softened for the first time in just over a year, down 0.5% according to the transaction diamond price index.

But while diamond prices declined in September, don’t expect a price tumble just yet. As the holiday season approaches, expect prices to rise again, especially in December.

Wholesale Diamond Prices Increased for a Year, and Declined
Wholesale Round Polished Diamond Transaction Price Index

Polished Wholesale Diamond Price Index Jan 2020 - Sept 2021 - Edahn Golan

A 60% Price Gap

As all the above indicates, the price gap between natural diamonds and LG remains a large one. According to Tenoris, which analyzes monthly retail activity data from some 950 US jewelry stores, the retail price gap was a high double digit.

The average retail price of round, one-carat, E/SI1 diamonds was $8,900 per carat in September, according to a Tenoris analysis. This compared with $3,557 for LG – a 60% difference.

The cost difference was even larger. Natural diamonds sold in September cost retailers on average $5,475 per carat. LG sold last month, cost them just $1,349 p/c. This is a massive 75% difference.

Two of the conclusions that can be drawn by these figures are that retailers are fighting to reduce their LG costs, but they are not quick to reduce their consumer prices. Second, retailers are doing whatever they can to increase margins.

While retailers’ natural diamond margins are typically around 40-45% (in this example 38%), for LG, they are much higher, around 60% (in this example, 62%).

The Bottom Line

The holiday season will give natural diamonds another upward push, and holiday demand will dictate the price direction afterwards.

Just as competition pushed down LG prices in the wholesale market, this will follow in the retail market. A gross of 60% is something consumers won’t be willing to accept for long.

This decline won’t happen overnight or soon, but it is inevitable.

While a price anomaly happens every so often, it is never a long-term economic trend.

 If you are interested in developing a deeper understanding of the lab-grown market, we are here to help you. You can improve your competitiveness and profitability with accurate, granular data. For full LG data, including sales, costs, YoY changes, and price lists, please contact us.

About the Author:

Edahn Golan
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Edahn Golan has 20 years of experience as a diamond industry analyst. He has a unique ability to provide a global view with context to the exclusive granular data he shares. The New York Times, Wall Street Journal, Business Insider, and other leading publications quote him regularly.

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Comments 6
  1. I manufacture lgd price of 1 CT will drop down to 400 to 500 CT which y now 700.if you need more info contact me

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  2. Great article Edahn.The fascinating question is what will happen when the market matures and these 1 carat lab diamonds ( presently selling at $3000 retail and costing about $700 to $1500 ) start selling for 300 0r 500 dollars. I’m predicting lab diamonds will eventually be relegated to fashion jewelry..Diamonds are alluring and coveted because they are perceived as rare and expensive…Would love to hear your thoughts

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      I’m sure that LG will create a shift in perception of diamonds. As a friend said, LG prices are “a race to the bottom.” It’s reasonable to expect prices to decline to the point that manufacturers make 3-20% on them. The two big questions are will LG sellers succeed in branding them (and command a premium), and will the natural diamond industry succeed in creating a clear perceptional divide between natural and LG in consumer’s mind and position natural as a high-end product.

  3. Agreed. The LG market is a race to the bottom in terms of pricing. The ones who succeed in creating a brand will continue to make great margins.
    With synthetic diamonds on the scene, the mined diamond industry is forced to self-reflect and ponder a diamonds “value” in dollars and emotional attributes.
    A huge problem in my opinion are natural diamonds perceived rarity. When speaking to consumers the common wisdom is that natural diamonds are not rare and prices are “controlled “ The natural diamond industry needs to somehow do a better job at convincing consumers that natural or mined diamonds are limited in quantity, hold their value and are precious.

  4. The issue of price “control” is one that needs to be addressed. No one wants to feel like they are paying more than they should. The sooner this happens, the better.

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