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How to Develop the Lab-Grown Diamond Industry While the Future Has Arrived?

publish:2019-11-27

On November 22, organized by Guangzhou Diamond Exchange (hereinafter referred to as “GZDE”) and supported by Swarovski Gemstones Business, the Special Forum “To Propel the Sustainable Development of the Lab-Grown Diamond Industry” was successfully held during the Guangzhou International Jewelry & Diamond Conference 2019. On which the representatives from the United States, Russia, India, Israel and China lab-grown diamond (hereinafter referred to as “LGD”) industry discussed the status quo of LGD sector, market positioning and strategic development, presenting a banquet of vision and thoughts for the industry.
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Since 2018, the lab-grown diamond has received great attention from the industry, developing by leaps and bounds with increasing popularity. As per Liu Yongqi, President of LGD Branch of Gems & Jewelry Trade Association of China and General Manager of Zhengzhou Sino-Crystal Diamond Co., Ltd., "The lab-grown diamond has displayed tremendous market potential driven by technology and industry foundation. However, the opportunities are always accompanied by challenges. The development obstacles to be addressed include the imperfect supply system, imbalanced market supply and demand, diversified nomenclature & grading, and unclear market positioning, etc. "
 
What is the status quo of the LGD market?
How about the recent feedback from upstream supply chain, downstream retail chain and consumer market?
What is the prospect of LGD?
Which direction should we be headed for?
On November 22, the participants to the special forum share their insights of LGD market.
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LGD supply development
According to Andrey Zharkov, Founder of Ultra C, the global gem-quality LGD production volume is estimated at 6 million carats of rough and more or less 2 million carats of polished that gives USD 800 million. The output of synthetic diamond in China has been topping the world for the past 18 years. Among which, the gem-quality synthetic diamond, or lab-grown diamond has also been taking the lead in the global market. China is the largest producer of LGD applying high-pressure & high-temperature method (HPHT). At the meantime, more and more diamond manufacturers are adopting chemical vapor deposition method (CVD) in production. China's LGD production technology and capacity is playing a dominant role in the global market.
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Liu Xiaolei, Sales Director of Huanghe Whirlwind, said the stability of the pricing system is vital for the development of LGD market. In March, the market prices experienced downturn due to the wholesaling overstocks. Major HPHT LGD manufacturers such as Huanghe Whirlwind, ZhongNan and Sino-Crystal etc. joined hands together to stabilize the market price of rough LGD, and even have raised the price.
At present, large-sized and high-quality LGD are in short supply while the market demand is strong. Liu Hongming, General Manager of Huzhou SinoC Semiconductor Technology, mentioned to focus on the production and supply of high-quality LGD. Huanghe Whirlwind said that it had actualized the batch production of 4ct-sized rough LGD; However, only 15% of its over 4000 synthetic diamond production equipment are used for gem-quality LGD production; In the past, 98% of its LGD products were exported to India; At present, the market share of India has been reduced to 85%; The remaining 15% are consumed in China, manifesting the growth of domestic market; If some leading retailers emerge in domestic end market, the supply side are also confident to ensure the productivity.
 
LGD market research
Wong Chun Kit, Henry, Managing Director of Swarovski Gemstones Business in the Greater China region, mentioned in his presentation that in 2018, global polished mined diamond market reached USD25 billion, and that of polished created diamond reported USD500 million. It is estimated that until 2023, the forecasted growth rate of polished created diamond market will reach 7%-20%.  During the launch of Diama from 2016 to 2018, Swarovski learned that:
Consumers acceptance was positive
Education is extremely important
Big potential in bridal
Sustainability is an important added benefit
 
In addition, Swarovski online survey China 2017 showed that:
86% of respondents are very interested in Swarovski Created Diamonds before further information
Trust in the product is important and Swarovski brand gives trust and confidence this new and unknown material
Lab-grown diamonds are suitable for gift giving: Birthday, Anniversary, Valentine`s, Self-Purchase & Wedding
Lack of knowledge at end consumers -> education important
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Richard Garard, Secretary-General of International Grown Diamond Association (IGDA), shared the structure, status and outlook of LGD industry including survey feedback conducted by MVI Marketing.
In 2015, estimates of LGD market share was less than 0.5%, while recent market forecasts indicate a solid 3-4% market share.
Consumer awareness of LGD has been surging from 9% in 2010 to 60% in 2019. 
More and more consumers are considering LGDs for the center stones of engagement rings, rising from 55% in 2016 to 67% in 2019.
Millennial’s are more tuned into LGD; 65% of Millennials have LGD Awareness.
Millennials are also likely to purchase LGD fashion items.
Consumers are expecting LGD options; if they had been shown LGDs, 34% said they would have bought it and 47% said maybe.
The interest in LGDs is based on Bigger and Cheaper; sustainability is also an attraction especially for millennials.
Millennials also drive the Chinese market. In the US, the under-40s bought around 60% of diamonds; in China, that figure is at 80%.
Consumers Want to Know What They Are Buying; 65% of consumers felt a Lab Grown Diamond, 1 carat and above, should be certified.
l Good quality, larger polished lab grown diamonds remain in strong demand, but supply is not keeping up; Further tightening of supply is likely with major players now aggressively entering the market.
 

Do you agree that LGD is a “Disruptive Innovation”? — Innovations that change the value ratio in the market and gradually or incrementally make the other products noncompetitive.

Guangzhou Diamond Exchange made a questionnaire survey at the forum on the 22nd. A total of 162 from the forum and industry WeChat group responded to the survey: 68% of them considered lab-grown diamond is a disruptive innovation, 25% disagreed, and 7% failed to make judgement. 

Do you agree that LGD is a "disruptive innovation"?
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Note: For a complete survey report, please contact Guangzhou Diamond Exchange.
 
Richard Garard mentioned that bridal solitaire market is already being disrupted, but the pie is growing. Andrey Zharkov pointed out that if we think LGD falls into the innovative technology category, we should be ready to face all the opportunities and risks arising from it, such as devaluation, overproduction, value paradigm shift of diamond as a symbol. Should we expect a change in the business landscape - will we see industry consolidation, a series of mergers of manufacturing companies? When will generic marketing become necessary and who will play a leading role in the promotion? The value of associations as representatives of industry interests and much more is interesting to discuss today and express one's point of view on the future forecast.
 
LGD market strategy
As one of the most recognized brands in the world, Swarovski shared some information of its created diamond products:
l Shapes: round, fancy shapes like oval, princess, pear etc.;
l Colors: white, and fancy colors to come in Jan 2020;
l Sizes: from 0,003ct. / 0.8mm to 2.5ct./ 8,8 mm; other sizes on request;
l 2 quality ranges: D, E, F / VS+ and G, H, I / SI1+;
l Every Swarovski Created Diamond larger 0.1 ct/ 3mm is marked with a microscopic laser inscription;
All products in all sizes are checked by IGI to ensure that they are lab grown. Larger Swarovski Created Diamonds (0.70 carat / 5.80 mm) comes with addition a lab report from IGI. Swarovski works hand in hand with NGTC to ensure it fits Chinese specifications. 
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From Swarovski’s perspective, jewelry is becoming more design driven; emotional content remains important but comes less from the associations of the diamond and more from the design material, light and color. All in all, Swarovski is committed to be a trend setter and pioneer in the LGD market, shaping a new jewelry category.
 
Marketers were "hooked" on the idea of environmental friendliness, says Andrey Zharkov, it is not possible to build a marketing strategy on the contrary, that LGDs are eco-friendly and mined diamonds are not. Main task of marketing LGD is not to destroy the value of a diamond, but to allow different audiences to get what they want. Additionally, diamond as an achievement of science and technology is also a primary driver. Marketing should be about new features: work with color, shape, sets of perfectly calibrated stones of a very high quality of cut and polishing provide designers with more space. The main theme of LGD is the democratization of luxury in its most extreme manifestation.
Li Wei, CEO of Mutual-win Business, believed that with the joint efforts of government supervision, association guidance and cooperation among manufacturers, China LGD market system will gradually become mature. Zhang Dong, Founder of Zhengyuan Hanshang Jewelry, shared his thoughts on the necessity and strategy of stepping into the LGD sector as a successful traditional Chinese jewelry retailer. As one of the leading HPHT diamond producers in China, Sino-Crystal Diamond introduced two brands of MULTICOLOR and Brisa & Relucir to test the retail market. Cui Yuekun, Director of Sino-Crystal Marketing Management Center, shared the different positioning of the two brands and the relevant strategies of the company. Wu Jianbo, Vice Chairman of Zhengshi Technology, a well-known CVD LGD producer in China, voiced the intention to cooperate with recognized designers and jewelers in cultivating LGD jewelry consumption market, believing that China will develop its own LGD brands with global influence.
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LGD industry development
Richard Garard urged that the entire LGD industry should deliver a consistent and clear message, that LGD is 100% diamond; the lab-grown diamond should be graded and fully disclosed as lab-grown instead of natural. Only when there is a consensus in the industry, can the sustainable and healthy development of the industry be ensured. The United States Federal Trade Commission has revised the Jewelry Guidelines in 2018, stating that a diamond is a diamond; the definition of diamonds includes both of mined and laboratory-grown diamonds.
Collins Bie, Director of China Laboratory of IGI, pointed out that the identification and grading standards for LGD are the same as those for natural diamond. For example, the master stone for diamond color grading applies to both natural diamond and LGD. All over the IGI laboratories around world, the United States boasts of the largest and fastest growing lab-grown diamond market with the largest quantity of LGD submitted for grading, with a ten-fold increase of grading volume from 2015 to 2019. At present, IGI also provides identification and grading services at Hong Kong and Shanghai.
According to Lu Taijin, Chief Scientist of National Gemstone Testing Center (NGTC), NGTC currently only provides identification service for LGD. The industry standard for grading LGD is under development. It is expected that LGD grading standard will take into account of color and clarity instead of 4Cs, which is simplified compared with natural diamond grading.
The development of LGD has drawn great attention all over the world. It is reported that at the annual meeting of The World Jewellery Confederation (CIBJO) held in Bahrain on November 18-20, CIBJO voted to establish the Lab-Grown Diamond Committee which is supposed to formulate rules for the synthetics sector.
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The future of lab-grown diamond has arrived.
Hi-tech genes, diverse design possibilities, alternative ways of wearing, democratization of luxury ... has opened a new marketing space for this new material of LGD.
Ideally, LGD shall coexist harmoniously with natural diamond, creating a larger market for the industry.
As advocated by the theme of this forum, we need to work together to propel the sustainable development of the lab-grown diamond industry!
 
Andrey Zharkov, Founder of ULTRA C, and Parul Merchant, Consultant of Bonas Marketing India, respectively chaired the panel discussion on LGD production & supply system and the discussion on marketing strategy.
 

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