The diamond industry is navigating a period of significant transformation, as highlighted in a recent report by McKinsey & Company. Natural diamond prices have fallen to multi-year lows, driven by shifting consumer preferences, the rise of lab-grown diamonds (LGDs), and increasing focus on environmental, social, and governance (ESG) concerns. McKinsey’s analysis underscores the need for industry players to adapt to these evolving market dynamics to remain competitive.
Natural Diamond Prices Under Pressure
McKinsey notes that natural diamond prices have declined sharply following a pandemic-driven surge. The reversal is attributed to several factors, including the rapid growth of LGDs, which offer affordability and ethical appeal, as well as heightened consumer demand for traceable sourcing. Geopolitical tensions, particularly sanctions on Russian diamonds, have also disrupted supply chains and pricing.
The report highlights that natural diamond production is expected to grow by only 1–2% annually until 2027, constrained by mine closures and resource depletion. Producers are responding with measures to improve operational efficiency, extend mine lifespans, and adopt new technologies to manage production costs.
The Rise of Lab-Grown Diamonds
According to McKinsey, LGDs are gaining market share as a cost-effective alternative to natural diamonds, offering comparable quality and aesthetics at significantly lower prices—up to an 80% discount. Younger consumers, particularly those focused on affordability and ethical considerations, are driving this trend.
The report reveals that LGDs accounted for 46% of engagement ring stones in 2023, up from 12% in 2019. Advances in LGD technology are expected to lower production costs further, intensifying competition with natural stones.
Changing Consumer Preferences
McKinsey’s analysis highlights generational shifts in jewellery purchasing patterns. Younger consumers, especially Generation Z, are prioritising sustainability and ethical considerations while showing a preference for digital and branded products. These trends have contributed to significant growth in online jewellery sales.
Jewellery is increasingly being purchased as a personal investment or fashion accessory, rather than being reserved for traditional milestones like engagements or weddings. Customisability, upcycling, and vintage designs are gaining popularity, adding complexity to market demand.
ESG and Traceability
McKinsey emphasises the growing importance of ESG compliance in shaping the diamond supply chain. Traceability tools, such as blockchain, are becoming more common, allowing consumers to track diamonds from mine to market. While these initiatives add value, they also increase production costs, necessitating closer collaboration with governments and communities.
Although LGDs are often perceived as more sustainable, McKinsey notes that their production can be energy-intensive, particularly in countries reliant on coal-powered electricity grids. This underscores the nuanced environmental considerations in both natural and lab-grown diamond sectors.
Implications for the Industry
The McKinsey report outlines both challenges and opportunities for the diamond industry. Natural diamond producers must address declining prices by emphasising rarity and provenance while investing in efficiency and innovation. LGD producers, on the other hand, need to refine their value propositions and scale operations to meet demand.
McKinsey advises businesses across the diamond value chain to adapt through digital transformation, sustainable practices, and diversification into LGDs or recycled stones. Flexibility and proactive strategy will be critical to navigating these changes and sustaining growth.
The report concludes that the diamond industry’s trajectory will depend on how it addresses price volatility, ESG demands, and emerging consumer trends. Companies that adapt to these shifts effectively will be better positioned for long-term stability and success.
