A year of declining LGD prices has ended with wholesale prices of loose goods rising in the fourth quarter. The price increases and
market for LGD-set jewelry is almost everything the diamond industry feared: rising prices of +1-carat goods, rising demand for bridal
jewelry, and a feeling among most mid- and downstream players that they need to be in the game.
Among loose diamonds, the strongest demand was focused on lower clarity 1.00-1.99-carat rounds. Demand was driven by large US
retailers catering to price-point conscious consumers. Placed against shortages drove up prices of these items, at times doubling in Q4 vs.
Wholesale prices of the very top larger rounds, such as D color VVS1, actually declined, emphasizing that interest is focused on price and
not necessarily quality, which raises questions about product positioning. It is possible that while consumer interest in larger LGD goods is
rising, the major push by retailers is developing towards a lower cost niche. This would fulfill the diamond industry’s hopes of segregating
LGD as a low-cost item. At this point, however, it is too early to assess, especially since LGD is truly a small fraction of retail sales – well
Average wholesale transaction prices of 1-carat round LGDs increased some 28% in the fourth quarter, yet were still down 7.3% year over
year. Third-carat LGDs were up 6.8% compared to Q3, rising 3.7% year over year. Two-carat rounds, rising in popularity, were up more
than 16% quarter over quarter, but still down 3.3% year over year.
LGD-set jewelry retail sales increased upwards of 50% in the quarter compared to the fourth quarter of 2018 in terms of total items sold.
So while remaining a small fraction of total sales, they represent a continuously growing category. At the same time, average retail prices
declined year over year. This was expected considering that the LGDs set in these jewelry items were bought by jewelry manufacturers
during Q2 and Q3 when prices were lower.
As with natural diamonds, retailers are selling bridal items at much higher prices than fashion, with the average price differences being in
the high double-digit percent points. Accordingly, while bridal jewelry represented less than half of all LGD items sold, it accounted for the
majority of revenue generated from LGD-set jewelry sales.
India’s LGD market
How deep in the game are Indian diamond traders? As one Mumbai trader put it recently, “CVD is now in full flow in the market with most
players entering the space.” The natural diamond market performed so poorly in recent years that these traders seeking an additional
revenue source was only natural, and now most everyone is either in, entering, or considering their entry strategy.
In 2019, India exported an estimated $440 million worth of polished LGDs, up 69.7% compared to exports in 2018. This is a large increase, the kind typical of a new attention-catching product category. Yet, it is still a small part of the business. Compared to the $20 billion in India’s exports of natural diamonds, LGD exports are just 2.1%.
This is not to marginalize LGDs. They are a game changer. The current small market size is just an outcome of infancy, not lack of interest by anyone in the LGD value chain – growers, polishers, jewelry makers, retailers, or consumers. With the right nurturing, this small business will turn into a good size industry.
Consumer interest is clearly brewing. Evidence for this can be found, once again, in search trends. In the past five years, interest in the term “lab grown diamond” peaked in the first week of December 2019. Compared to December 2015, interest soared 2,000% worldwide
But does every consumer market, society, and culture find interest in LGD set jewelry? The majority of searches are surprisingly in Singapore. This is maybe less of a consumer search and more business related
– one of the largest growers is based in the tiny country. Close behind is the US, followed by Hong Kong,
Canada, and Australia. The last two are consumer markets, and LGD jewelry is being offered at a growing number of retailers in those countries. Interest in Hong Kong, as well as in Belgium and India, is probably more closely related to trading. Based on the search trends, the UK may be the next consumer market to open to LGD.
Rising search trends related to “lab grown jewelry” include “lab grown necklace” and “1.5carat lab grown diamond.” Not surprising, LGD necklaces and pendants are among the top selling items; the 1.50-carat size range is the second top-selling loose LGD at US specialty retailers and recently took a major jump in price.