Diamonds, From Your Ring to Your iPhone

On Blue Nile, an online jewelry retailer owned by Signet Jewelers, a 1-carat colorless round lab diamond goes for $1,534, which is about 73% cheaper than the lowest-priced natural diamond with the same specifications on its website. That pricing gap has widened over time. In early 2016, 1-carat round lab diamonds sold at a 17% discount to a natural diamond of similar specifications, according to data from Paul Zimnisky, a diamond industry analyst. 

Pricing is just part of it. Lab-diamond jewelry also has a strong pull for consumers who care about sustainability and ethical sourcing. In December, lab diamonds accounted for 15.7% of all engagement rings sold in the U.S., up from 7.9% a year earlier, according to Tenoris, a jewelry-industry analytics company. 

Unlike the natural-diamond industry, where a cartel controlled the supply of stones for the better part of the past century, lab-grown diamond production is subject to cutthroat competition. It costs just about half a million dollars—sometimes even less—to buy reactors or chambers for chemical vapor deposition (CVD), according to Mike Grunza, chief executive at WD Lab Grown Diamonds, a portfolio company of Huron Capital Partners.

CVD is a less energy-intensive method of creating lab diamonds and involves pumping carbon-containing gas (such as methane) into a sealed, superheated chamber housing a small piece of diamond. The process prompts carbon atoms to form a structure around the seed diamond. The energy-intensive method replicates conditions deep within the earth by subjecting carbon to extreme pressure and temperature. Mr. Grunza says lab-grown diamond-production capacity has almost tripled since 2018. Such facilities are proliferating in India and China, fueled in part by government subsidies. Even diamond-mining giant De Beers Group makes lab diamonds through a subsidiary called Element Six.

The cost of production is rapidly declining. Martin Roscheisen, CEO of San Francisco-based Diamond Foundry, says in an email that the cost of producing a lab diamond has declined by about 12% each quarter over the past five years at his company. It now produces five million carats on an annualized basis, equivalent to 15% of De Beers Group’s 2021 diamond-mining output. Lab-grown producers are reluctant to sit on inventory because the product’s value is “constantly being eroded” by new supply, according to Edahn Golan, industry analyst and managing partner of Tenoris.

So far, retailers have been able to capitalize on those cost declines. Retailers’ gross margins on lab-grown diamonds were about 39% in 2020 and then expanded to 50% in 2021, says Mr. Golan. By the end of 2022, he says, margins were around 54%. By comparison, gross margins on mined diamonds have consistently been around 36%. Of course, a fight for retail market share could eventually undermine lab diamonds’ margins.

Lab diamonds haven’t affected the value of natural diamonds so far, but the industry hasn’t faced a real test because demand for all diamond jewelry surged between 2020 and 2022, according to Mr. Golan. Engagement rings tend to be a symbolic and emotional purchase, so there could still be lasting demand for a stone that took millions of years to form. Even so, a flood of supply probably means diamond jewelry will become more commoditized.

Proceeds from lab-diamond rings could fund an even larger, if distant, ambition: making their way into semiconductors. WD Lab Grown Diamonds, Diamond Foundry and De Beers’s Element Six are all developing diamonds for industrial use in addition to producing them for jewelry. Mr. Grunza calls it the “holy grail” of semiconductor material. 

“There’s no material known to man that’ll do the job of transporting electrons and dissipating heat [better than diamonds],” he says. Widespread adoption is still a big if. There are many technical challenges to producing diamond wafers. Synthetic diamond material for semiconductor research is about 10,000 times as expensive as silicon, according to an article published by the Institute of Electrical and Electronics Engineers last March.

Lab diamonds might never end up inside every electronic device but, in the quest to get there, the stones could easily make their way into everyone’s jewelry boxes. 

Write to Jinjoo Lee at [email protected]