Lab grown diamonds: value for money?
In the final part of our series exploring the choice between natural and lab grown diamonds we consider value.
Lab grown diamonds cost less than their natural equivalents. Comparing two stones of the same quality and size the lab grown option will always cost less.
For example, we recently (June 2021) priced up a 0.70ct cushion shaped modified brilliant cut diamond for a customer. When doing this we considered all our usual requirements for the stone to get a fair comparison. The diamonds were a G colour and SI1 clarity and the prices were as follows (prices for diamond only):
Lab grown £1400
When we upgraded the colour to F and the clarity to VS1 the prices were:
Lab grown £1700
The difference in price between the two products is greater when comparing finer grade stones. Although the production costs remain the same for all qualities of lab grown stones, the demand for them allows for a premium to be charged compared to the lower grades. With natural stones the increasing rarity of finer grades sees them increase in price much more substantially, creating a wider gap between the prices.
The price of natural diamonds is driven by the finite nature of the supply and the cost of production. As mines get older, they become deeper and the cost of recovering the diamonds increases while yields diminish. Eventually mines close because they are no longer viable, or the increasing costs of production must be covered. This means that (aside from the odd exceptional blip or occasional currency fluctuation) diamonds have historically increased in price over time. Continued supply in the future relies on new mines being discovered to fill the gaps left by depleted sources.
With the right investment in machinery, lab grown diamonds can be produced in whatever quantity the manufacturers desire. They are not limited by geology or accessibility in the same way as natural stones.
The initial costs of producing lab grown diamonds are high. A huge investment in infrastructure is required for their production. Once this early cost begins to be paid back and with increasing competition in the marketplace it is possible that prices will fall, perhaps substantially. As a rapidly developing industry it is also possible that improvements in production techniques will decrease costs (something we have seen already in recent years). We cannot predict the future but experiences with other manmade gem products have taught us that a reduction in price is likely. When new to the market materials such as synthetic moissanite and cubic zirconia had high initial prices that decreased over time as they found their place in the market. The complexity of producing synthetic diamonds means they will almost certainly never be 'cheap', but it does seem probable that the reasons given above will impact upon prices in some way.
As with all product comparisons it is important judge overall value rather than just price. Lab grown diamonds are undeniably lower in price, but they do not necessarily offer better value. They are so new to the market that it is still difficult to judge. We would never recommend jewellery or diamonds as an investment. The amount of tax paid, high costs of retail and transition from new to second-hand pricing mean you always make a loss when selling. However, natural diamonds have an established value and second-hand market, and we are yet to see this with lab grown stones.
We also know from experience that, although an insurance valuation only represents the amount it would cost to replace the item, customers expect their diamond jewellery to increase in value over time. Such pieces have financial as well as emotional significance. It is therefore important to consider the different circumstances of lab grown diamonds. The market is rapidly developing and big names, from DeBeers to Pandora, are investing heavily in their lab grown diamond offerings. From what we have seen this is driving consumer awareness up and prices down.
While we may feel comfortable paying a premium to own the latest mobile phone, accepting that it will be obsolete in a matter of months and would cost much less to buy at that time, jewellery is different. It is not an everyday purchase and not one we expect to keep upgrading each year. Lab grown diamonds will give you a lower price for the same look (comparable size and quality) but whether this constitutes better value remains to be seen. It will likely depend on personal expectations in addition to the way the market develops.
December 2022 - see our update blog for more details on how the lab grown diamond market has changed over the last eighteen months.
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