The lab-grown diamond industry chain can be described as a "smile curve," where the upstream (raw diamond production) and downstream (retail) segments have higher profit margins, while the midstream (cutting and polishing) segment has lower profit margins.
Value Distribution in the Lab-Grown Diamond Industry Chain (Using a 1-Carat Diamond Ring as an Example)
- Upstream Segment: Raw Diamond Production
- Primary Location: China, specifically Henan Province.
- Production Methods: Mainly High Pressure High Temperature (HPHT) method, with a leading global capacity, and also significant in Chemical Vapor Deposition (CVD) technology.
- Capacity: Approximately 3,000-4,000 HPHT presses, with integrated R&D and production capabilities.
- Competitive Advantage: China's Henan Province has developed a comprehensive cluster for lab-grown diamond production.
- Midstream Segment: Diamond Cutting and Polishing
- Primary Location: India, particularly Surat.
- Market Share: India accounts for over 90% of the global diamond processing market.
- Processes: Involves rough diamond design, marking, sawing, faceting, and polishing. This segment is labor-intensive and difficult to automate.
- Competitive Advantage: India benefits from abundant, inexpensive labor and has established itself as the world's central hub for diamond processing and exporting finished diamonds.
- Downstream Segment: Retail and Consumer Markets
- Primary Markets: United States and China.
- Market Share: The U.S. accounts for about 50% of global diamond retail sales, while China accounts for around 10%.
- Market Maturity: According to Bain & Company's 2021 report, the U.S. market for lab-grown diamonds is more mature, holding about 80% of the global market share with a 56% penetration rate by 2024. In contrast, China is just beginning to grow, with an 8% global market share and a 2% penetration rate.
Current Dynamics and Challenges
- U.S. Market: The U.S. has adapted to lab-grown diamonds faster, changing consumer perceptions and leading the market transition.
- Chinese Production: China excels in lab-grown diamond production, leveraging industrial diamond technology to achieve breakthroughs in gem-quality lab-grown diamonds. The HPHT method is globally leading, and the CVD method is also advanced.
Future Directions for the Chinese Lab-Grown Diamond Industry
- Strengthening the Midstream: China needs to enhance its cutting and polishing capabilities to complete the value chain.
- Expanding the Consumer Market: To fully control the industry chain, China must boost domestic consumption of lab-grown diamonds.
- Innovative Brands: Emerging brands like Xiaobaiguang and CARAXY are gradually transforming the retail market, and more innovative Chinese brands are needed to stimulate consumer interest.
Conclusion
The global lab-grown diamond industry chain is intricate, with each segment playing a critical role. The upstream segment, dominated by China, provides the essential raw diamonds, while India's midstream processing capabilities handle the labor-intensive tasks of cutting and polishing. The downstream segment, driven by consumer markets in the U.S. and China, completes the value chain.
China's challenge is to strengthen the midstream and boost the downstream segments to fully leverage its upstream capabilities. By doing so, China can maximize its potential in the lab-grown diamond industry and achieve comprehensive control over the entire value chain.
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