Overview of the Diamond Cultivated Industry

Cultivation Methods

Laboratory-grown diamonds, commonly referred to as synthetic or laboratory-grown diamonds, are produced in labs or factories using specific technologies and processes, producing crystals with identical appearance, chemical composition and crystal structure as natural diamonds. The National Gemstone Testing Center (NGTC) has taken an lead role in setting national standards for synthetics; cultivation methods used include Chemical Vapor Deposition (CVD) and High Pressure High Temperature (HPHT) techniques.

Industry Chain

Cultivated diamond production begins in China where up to half the production capacity uses HPHT methods; thereafter the midstream comprises diamond manufacturing companies located primarily in India with lower profit margins; after this comes brand retailers such as international ones with prices between $800-2k per carat as well as China ones such as Yuyuan that target broad consumer bases in their operations.

Global Progress Status and Trends of Cultivated Diamonds

Development Stages

Cultivated diamond production has gone through three distinct stages since 1953: technical reserve period between 1953 and 2012, industrial chain preparation from 2012 until 2019, and finally industry breakout between 2019-2020.

Global Production and Penetration of Cultivated Diamonds

Global rough cultivated diamond production reached 0.007 billion carats in 2020, marking an increase from 2019 by 0.001 billion carats with penetration rates reaching 5.9%; an increase of 1.8 percentage points over 2019.

Global Distribution of HPHT and CVD Capabilities

Regarding global HPHT and CVD capacities, China accounts for almost 90% of HPHT diamond capacities globally while Russia holds only 6% and other nations account for only 4%. for Chemical Vapor Deposition (CVD), India occupies 37%, United States and Singapore are each responsible for 25% holdings respectively, and Europe/Middle East together representing 13%.

Global Sales Volume and Penetration of Cultivated Diamonds

Recent years, global demand for diamonds has provided opportunities for the cultivation of rough cultivated diamonds. By 2020, global sales volume reached millions of carats with 5.9% penetration. It is projected that by 2025 sales volume will surpass 26 million carats at 15.80% penetration.

Cultivated Diamond Prices and Market Cap Size are Revealed

Contrary to popular perception, cultivating diamonds is technically demanding, requiring stability of physical and chemical properties at high-temperature and pressure conditions. Cultivated diamond prices remain relatively steady; for instance, in 2020 factory price stood at ¥950 per carat while retail price stood at ¥5700; within five years though this should drop down further to ¥900 and ¥5400, reflecting advances in synthetic diamond technology as consumer awareness rises.

In 2025 projected global retail market size estimated for cultivate diamonds is  140.4 billion, and total manufacturing market size being 23.4 billion for all manufactured diamonds produced.

Current Development and Trends in the American Diamond Cultivated Industry

Acceptance in the U.S. Market

TPC, an organization in the jewelry industry in America, recently conducted a report to gauge consumer acceptance of jewelry made with cultured diamonds in this market. This report revealed numerous development opportunities; 79% of Americans were aware that cultivated diamonds existed and 59% understood their difference from natural diamonds; yet only 16% chose to purchase such stones at present.

At U.S. bridal markets, 83% of people accept purchasing fashion jewelry containing cultivated diamonds while 65% accept purchasing engagement rings. Of those choosing such rings for engagement purposes, 37% purchase them due to lower pricing; 25% choose larger ring sizes while 20% do so for ethical or environmental considerations; 18% opt for ethical reasons as motivation alone.

Sales Volume and Penetration in the U.S.

American companies involved with cultivated diamond production are experiencing strong growth. Both emerging and established players are entering this marketplace. In 2018, the U.S. Federal Trade Commission expanded their definition of diamonds to encompass lab-grown varieties, leading to more players joining the cultivated diamond industry.

 U.S. consumer markets with established consumer demand primarily consist of retail terminals and related service industries that serve them, with most downstream demand tied to self-consumption, gift giving and engagement/wedding purposes. In 2020, the U.S. saw sales volume and penetration rates of roughly 5 million rough cultivated diamonds; respectively 9.60% penetration rates.  With consumer spending increasing annually, this will likely continue and reach 21.20% penetration by 2025 when reaching 17.8 million carats sold and 21.20% sales volume penetration respectively.

Current Development and Trends in China’s Cultivated Diamond Industry

Sales Volume and Market Penetration in China

Cultivated moissanite diamonds manufacturing  is an industry with many high-tech aspects that makes it competitive with technological developments and entry, leading to cost reduction. China continues its rapid rise and is projected to experience increasing penetration rate of cultivated diamonds sales volume of rough carats at 4.0% penetration by 2025, reaching sales volume of 4 million carats with 13.80% penetration rate by then.

China has a leading artificial diamond industry chain cluster. The production capacity of cultivated diamonds in China is high, and even so, there is still a supply shortage. In 2020, China’s cultivated diamond production reached 3 million carats, representing over 40% of global production. Henan Province alone accounts for 80% of domestic cultivated diamond production, which is the manufacturing center for cultivated diamonds in China.

Analysis of Leading Listed Companies

China, as the world’s premier producer and consumer market for cultivated diamonds, has witnessed rising interest and production companies joining traditional industrial diamond producers in researching, developing and producing them. International giants have established jewelry lines featuring these gems while partnerships to expand this  industry. China flourished under a robust industrial cluster effect, giving birth to leading listed companies.

North Industries Group Red Arrow Co.,Ltd

Cultivated diamond products have gained wide recognition by industry members worldwide and enjoy both visibility and status.  North Industries Group Red Arrow Co.,Ltd reported an operating income of  ¥6.46 billion and operating costs totalling  ¥5.33 billion for fiscal 2020, as well as research and development expenses totalling  ¥311 million and net profit attributable to owner of parent company totalling  ¥275 million. They achieved an operating income of  ¥4.85 billion for the first three quarters of 2021; operating costs totaled 3.65 billion; research and development expenses came to ¥203 million,  and they realized a net profit attributable to parent owner at 0.607 billion – all within regulatory compliance guidelines. Developed diamond products are key strategic products that enable it to enter consumer goods sector while simultaneously transform and upgrade itself.

Henan Huanghe Whirlwind Co., Ltd

Henan Huanghe Whirlwind Co., Ltd’s business operations were disrupted by both the COVID-19 pandemic and economic downturn both domestically and globally, creating difficulties such as diminished customer demand following its outbreak, difficulty restarting production/operational processes and stagnant market growth environments.

Henan Huanghe Whirlwind Co., Ltd saw total operating income decrease 15.91% year over year to  ¥2.451 billion; operating income without business unrelated to main activities was reduced 17.01% versus prior year; as a result of factors including decreased income, provision for impairment losses, and disposal of old assets, its net profit attributable to shareholders was negative  ¥980 million for this listed company.

Henan Huanghe Whirlwind Co., Ltd posted operating income of  ¥1.897 billion for the first three quarters of 2021 and operating costs totaling  ¥1.309 billion with research and development expenses totalling 65 million and an attributable net profit to its parent company’s owner reaching 400 million yuan.

Sino-Crystal Diamond

Sino-Crystal Diamond strives to become a reliable provider for new materials. Sino-Crystal Diamond specializes in superhard materials and products for industry applications, focusing specifically on synthetic diamond single crystals (common single crystals) as well as large single crystal diamonds. Superhard material products  include diamond jewelry, micron diamond wires and superhard abrasives (grinding wheels). These products find applications across traditional sectors such as mechanical stone processing, electronics, optics, gem processing and semiconductor wafer cutting; in addition to emerging fields like national defense, aerospace, equipment manufacturing, electronics medical devices, jewelry art other creative industries.

Sino-Crystal Diamond faced production restrictions and decreased sales due to factors including COVID-19 pandemic, market changes, and liquidity limitations in 2020. Business operations were affected to various degrees, with full capacity not being reached resulting in a significant drop in operating income compared with last year.

Sino-Crystal Diamond as a high-tech enterprise emphasizes continuous technological research and development as the basis for maintaining product competitiveness by investing heavily in product research and development. Sino-Crystal Diamond reported operating income of  ¥481 million in 2020 with operating costs totaling  ¥450 million and research and development expenses at 32 million – all contributing to net earnings attributable to parent company of -¥ 1.236 billion.

Sino-Crystal Diamond achieved operating income of  ¥562 million for the first three quarters of 2021; operating costs totaled  ¥370 million, research and development expenses came in at 38 million and net profit attributable to parent company owner was recorded as being – ¥ 0.597 billion.

Sino-Crystal Diamond continued its efforts across both industrial and consumer synthetic diamond sectors during 2020, reinforcing talent development while making significant strides forward operationally. Sino-Crystal Diamond reported operating income of  ¥436 million for superhard materials and products industry which represents a decrease of 360 million year on year compared to 2019. Operating costs decreased 135 million from 2019, leading to gross profit margin of 5.29% which decreased 25.81 percentage points year-on-year; gross profit margin for first three quarters 2021 totaled 379 million for operating income while operating costs were at 413 million, leading to gross profit margin of 35.76% gross profit margin.

Liangliang Diamond

Liangliang Diamond is a high-tech enterprise dedicated to research, production and sale of synthetic diamond products; recognized as one of the key industrial enterprises within Henan Province’s new materials industry.

Liangliang Diamond reported operating income of  ¥0.245 billion for 2020; operating costs totaled  ¥0.138 billion while research and development expenses came in at 0.010 billion; their net profit attributable to their parent company owner was reported as 0.073 billion.

Liangliang Diamond reported operating income of  ¥0.344 billion for the first three quarters of 2021, operating expenses totaling  ¥0.127 billion, research and development expenses amounting to 0.017 billion and net profits attributable to parent company owners totalling 0.161 billion.

Liangliang Diamond took advantage of steady downstream demand growth to expand capital investment in machinery and equipment over recent years, providing strong support for increased production growth of cultivated diamonds. Production reached 62,000 carats/128,000/136,000 for 2018, 2019 and 2020.

Liangliang Diamond embarked on its research and market development phase for cultured diamonds between 2018-20. As early as the first half of 2020, however, their revenue scale had only just begun to expand rapidly. Liangliang Diamond had single crystal diamond sales revenue of  ¥99.38 million with operating costs totalling ¥59.91 million; their operating profit for that year totalled ¥39.47 million at 39.72% gross profit margin. Revenue for diamond micro-powder was approximately  ¥100.77 million with operating costs at  ¥59.87 million for an operating profit of approximately Y40.90 million and gross profit margin of 40.59%.

Revenue from Cultivated Diamonds was estimated at  ¥37.34 Million with operating costs totalling  ¥12.37 Million; this resulted in an operating profit of  ¥24.98 Million with an 66.88% gross profit margin for 2021 as a whole.

Conclusion:

At present, many Chinese are unfamiliar with cultivated diamonds; nevertheless, with increasing consumer knowledge over time and potential markets emerging for these gems remaining promising.

China currently ranks as the world’s foremost producer of rough cultivated diamonds, boasting resources several times larger than total natural mine reserves. China’s leadership in producing such gems  allows foreign institutions to break their monopoly of this valuable product category within consumer markets.

Divergent consumer motivations will lead to the financialization of high-end jewelry in the near future, while mid-low end jewelry meets daily spiritual needs. Design aesthetics will become essential tools in driving future consumption.