Edahn Golan analyzes the contradictions of the LGD market, where “demand is rising, but prices are falling”

In a recent analysis titled “The Lab-Grown Diamond Contradiction” on Edahn Golan Diamond Research & Data, diamond analyst Edahn Golan analyzes the “living contradiction” of the LGD market, where “demand is rising, but prices are falling.” 

First, Golan examines what he calls “the most surprising contradiction” of all – that of positioning as the sector continues to bash “the old guard in the name of disruption [yet] clinging to natural diamonds for dear life.” According to Golan, the marketing of lab-grown diamonds cannot insist on the same values of natural diamonds (“ancient creations that will keep shining forever”) for long. The sector, he says, “needs to rid itself of the harmful contradictions by shaking off the attachment to the same allure as natural diamonds and start to talk about its own values.”

Second, Golan addresses the contradiction in pricing. Namely, polished LGD prices are falling continuously – wholesale, rough and retail prices. In Q3, wholesale lab-grown polished diamondprices declined 6-37%. The rate of decline was tied directly to size, as well as to color/clarity combinations. 1-carat rounds declined 21.8%, while prices of 2-carat goods dropped nearly 33%. 

Golan then examines the factors contributing to this large decline, including greater availability, lower cost of production, and inventory pressures.

Golan also examines another contradiction – a rise is in retailer margins. “While retailers are lowering retail prices, it is not at the same rate as their decline in costs. Retailers, famous for their ability to protect margins at all costs, have succeeded in increasing their gross margins over the years,” Golan explains.

Golan moves on to talk about the system of providing goods on memo. According to the analyst, “memo terms were provided for more than 40% of the goods supplied to retailers, and this is only growing. Today, it’s already nearing 50%.” This, he says, is strange considering the market has constant price declines.

Golan later analyzes the falling prices of lab-grown rough diamonds, originating not from a lack of demand or a decrease in the cost of production, but “of the action of one large grower.”

In conclusion, Golan claims, the two most “pressing issues” faced by the international lab-grown diamond market are “poor positioning and value erosion.”

Read the full analysis here.

(Article from Israeli Diamond)