Living with Lab Growns
September 12, 24
Lab growns - a threat, an opportunity, or a bit of both? Their market share keeps rising, their prices keep falling and the entire industry feels the impact.
Not least the diamond tech company Sarine, whose fortunes serve as something of a barometer for the wider world of diamonds.
Last year wasn't great for the Israel-based business. After an $8.8m profit in 2022, it posted a $2.8m loss for 2023, blaming macro-economic challenges in China and beyond, as well as increasing disruption from lab growns.
This year, however, it's been faring better, largely because it has adapted its technology to the lab grown market and is, as a result, seeing an increase in revenues.
The company reported a modest profit ($1m) according to its half-yearly results, published last month, with lab growns now accounting for 13 per cent of its earnings.
That figure is expected to rise to between 15 per cent and 20 per cent, said Sarine's CEO David Block in an interview with IDEX Online this week.
"Due to the nature of our business, which spans most of the diamond pipeline, we kind of mirror the industry status," he said.
"There's no doubt that lab grown diamonds have significantly impacted the natural diamond industry, I don't think that's a question anymore.
"Up until around two years ago most of our business was based on services and technology for natural diamonds. Any impact on the natural diamond industry therefore has an impact on us.
"If our clients are having a tough time and doing less business themselves, that of course of impacts our business as well."
He says it was around 2017 or 2018 when Sarine first began to seriously consider the impact lab growns would have on its long-term business.
At the time they represented a mere 2 per cent of the diamond market, compared to 20 per cent currently.
Sarine adapted its technology, both for the mapping and grading of lab growns (they have different color and structural characteristics) and restructured (lowered) the pricing of its services to reflect lab growns' position in the market.
"Our grading technology is based on machine learning AI," said Block. "In order to grade lab grown diamonds we had to gather enough data to teach our systems, as the data for lab grown differs from natural diamonds. We adapted the technology to lab grown.
"This year we've seen the impact of introducing those lab grown services, with significant revenue being created.
"We've adapted our pricing structure so that it becomes cost-effective to use our services for lab grown. It needs to be priced very differently than natural diamonds.
"Take for example a 10-ct natural diamond that we scan on Galaxy (mapping technology). The customer will be paying $20 a carat. On the other hand if you take a 10-ct lab grown you'll be paying $1 a carat.
"It's a similar pricing ratio between the cost of natural and lab grown in terms of raw material as to our services.
"Grading reports are more for the retailer, and therefore the price differences are not as big as they are on the B2B side.
"We're on track to reach our goal of around 15 per cent to 20 per cent of revenues for 2024 from lab grown driven services."
And how much will that figure increase in the longer term? Block wouldn't be drawn into making predictions, but he does see an end to the current volatility.
"I think the lab grown segment will still take another year or two to reach a steady state without the dramatic volatility we see today," he said.
Natural diamonds will retain a significant market share, primarily in bridal, and lab growns commanding a more dominant position in fashion jewelry.
Have a fabulous weekend.