Why Are Domestically Cultivated Diamonds Starting To Increase in Price

Natural diamond giant De Beers has just announced a price reduction, while domestic diamond manufacturers have started to collectively raise prices.

 

Recently, Huajing Jewelry announced a 13% price increase for large single crystals (cultivated diamond blanks) starting from January 1, 2025; The Yellow River Cyclone has also issued a price increase notice, with a comprehensive price increase of around 10%. Other domestic diamond manufacturers have also released price increase signals, driving the strength of A-share related sectors.

 

In sharp contrast, in early December 2024, De Beers announced a comprehensive reduction of over 10% in diamond prices. Amidst the changing trends, is the cultivation of diamonds ushering in a new wave of enthusiasm?

 

In fact, based on the performance of related companies, the situation is not yet so optimistic. Due to the significant price drop in the past, most companies in the industry have performed poorly in terms of profits; The debate over the technological roadmap for cultivating diamonds may also carry significant risks.

 

An unbearable price war

 

The background of this round of price increase for domestically cultivated diamonds is the long-term significant price reduction that has been experienced before. According to a report by The Paper in September 2024, the price of cultivated diamonds has dropped by nearly 90% in the past two years.

 

From the international market perspective, the current price of cultivated diamonds is only about one twentieth of that of natural diamonds.

 

Cultivate diamonds to seize the natural diamond market at low prices, benefiting a large number of consumers. Paul Zimnisky, a well-known diamond industry analyst abroad, stated that cultivated diamonds have accounted for 20% of global diamond jewelry sales ($89 billion).

 

However, due to the fact that the growth rate of market share is far behind the price decline, the profits of upstream enterprises are being greatly eroded.

 

Taking the top enterprise Power Diamond as an example, in the third quarter of 2024, the company's net profit attributable to the parent company was 28.6596 million yuan, a year-on-year decrease of 68.39%. However, in the performance peak of the second quarter of 2022, the company's net profit attributable to the parent company reached 138 million yuan.

 

In fact, based on the financial report, it can be inferred that the scale of the company's diamond business cultivation has continued to grow since 2022. In 2022 and 2023, the operating costs of cultivating the diamond business of the company were 80.64 million yuan and 107.71 million yuan, respectively, accounting for 24.24% and 29.63% of the total operating costs. In the first half of 2024, the operating cost was 69.71 million yuan, a year-on-year increase of 50.2%, accounting for 31.75% of the total.

 

Considering that the production cost of cultivating diamonds itself will not increase significantly, the increase in operating costs can to some extent reflect the growth of production.

 

However, the company's revenue did not increase accordingly. In 2022, 2023, and the first half of 2024, the operating revenue of the diamond cultivation business was 389 million yuan, 228 million yuan, and 166 million yuan, respectively, with year-on-year growth rates of 97.12%, 41.46%, and 61.63%, respectively. Although there is a significant rebound in 2024 compared to 2023, it has not yet returned to the same period in 2022.

 

Correspondingly, the gross profit margin level of the company's diamond business cultivation has decreased from around 80% in 2021-2022 to around 50%.

 

Due to the sluggish industrial market, the net profit attributable to the parent company of Power Diamond has fallen back to the level of 2020 before the outbreak of cultivated diamonds.

 

Overseas, the decline in the price of cultivated diamonds has caused many companies to fall into difficulties. In October 2023, WD Diamonds, the second largest diamond cultivation company in the United States, filed for bankruptcy protection; In August 2024, Israeli company Lusix, which had received a $90 million investment from LVMH, announced a debt of $27 million and sought debt relief.

 

Recently, diamond companies have actively raised prices, which is undoubtedly good news for industries with excessive "involution". However, it remains to be seen how long the price increase can last in the fierce market competition.

 

Some practitioners in the international market are not optimistic. Chimniski recently predicted that the price of cultivated diamonds in 2025 may experience the same decline as in 2023, which is the year with the most severe price reduction.

 

The website Business Insider quoted Cormac Kinney, CEO of diamond trading company Diamond Standard, as saying that the price of cultivated diamonds will ultimately decrease by 50% -80%. In his view, "the value of fashion jewelry can only be a small fraction of that of real jewelry

 

Since 2022, the prices of cultivated diamonds and natural diamonds have decreased synchronously. Did the cultivation of diamonds crush natural diamonds, or did the sluggish global demand lead to a joint decline in both? At present, it is difficult to draw a clear conclusion.

 

The global natural diamond industry is still trying to maintain its pricing power. For example, the Gemological Institute of America (GIA) has established its own cultivation diamond production plant to develop instruments for identifying cultivation diamonds.

We are working hard to cultivate them (diamonds) and using different methods to make them more difficult to identify, "said Tom Moses, GIA's chief research and appraisal officer." At the same time, our scientists and engineers are manufacturing instruments that can easily identify synthetic diamonds. That is to say, we grow diamonds, try to deceive instruments, and then improve instruments

When the price of natural diamonds falls, we never become overly anxious; when the price rises, we never become overly excited.

 

"David Kelly, CEO of the Natural Diamond Association, recently told the media that the current price decline is just a small setback in the long-term development of natural diamond prices, and in the next one or two years, natural diamond prices may still rise to historical highs again.

 

Chimniski believes that the demand for natural diamonds is still likely to maintain annualized single digit growth in the future, although this will be significantly lower than the 20% -30% increase in cultivated diamonds.

Even if cultivating diamonds really drags natural diamonds down the pedestal with low costs, causing diamonds to lose their value preservation properties, the question that comes with it is whether it is enough to compete with other jewelry such as gold?