The battle lines are drawn between synthetic and natural diamonds, with neither conceding much as new developments and regulations in the trade win each side small victories instead of definitive gains. The rivalry plays out in product, price and positioning, with synthetic and mined players out to challenge the status quo.
Developments in the diamond industry these last few months are creating monumental shifts with global ramifications on the identity and image of synthetic and mined stones. De Beers Group and the Federal Trade Commission (FTC) of the US both made surprising turns that sent shockwaves through the diamond jewellery industry.
The rivalry between synthetic and mined diamonds came to a head with the May 29 announcement of De Beers Group on the launch of its Lightbox brand of laboratory-grown diamond jewellery in September (see JNA, July 2018). The implications of the Lightbox launch are significant. First, De Beers – one of the largest natural diamond producers and a key member of the Diamond Producers Association (DPA) – is introducing a synthetic diamond product line. Second, De Beers classified its new brand as fashion jewellery, not wedding jewellery. Third, Lightbox’s pricing structure is different and lower than current market prices.
Identity and identification
The Lightbox announcement once again brought to the fore the issue of nomenclature. De Beers’ move was a clear attempt to define laboratory-grown diamonds on its own terms.
The product has been going by many names – synthetic, laboratory-grown, manmade, and created, among others. The Gemological Institute of America (GIA) defines a Synthetic Diamond as manmade, the result of a technological process, as opposed to the geological process that creates natural diamonds. Synthetic diamonds have essentially the same chemical composition, crystal structure, optical and physical properties of diamonds found in nature. Most synthetic diamonds are either High-Pressure, High-Temperature (HPHT) or Chemical Vapour Deposition (CVD) diamonds, depending on the method of their production. Since HPHT and CVD diamonds are virtually identical to natural diamonds, differences only become clear when they are viewed by a trained grader in a gem laboratory.
Last year, nine leading diamond organisations developed the Diamond Terminology Guideline. This stipulated that “a diamond is natural by definition” hence mined, natural stones do not require qualifiers. Specific qualifiers – synthetic, laboratory-grown or laboratory-created – must be used when referring to synthetic diamonds.
This collaborative effort was however upended in July by FTC’s revised jewellery guidelines, which removed the previously specified “natural” origin from the definition of a “diamond” and expanded the latter to include those grown in a laboratory. The word “diamond” could thus be used for both natural and synthetic stones. Sellers however must still disclose whether a diamond is natural or laboratory-grown.
In response, the DPA said it understood the basis for the decision but was “concerned that it will be exploited by manmade diamond marketers, who may feel they can use the term ‘diamond’ without properly qualifying it, leading to more consumer confusion and deception.”
The DPA’s stand has merit indeed. First of all, a diamond is a gemstone, and a gemstone should be beautiful, rare and durable. Synthetic diamonds, for their part, are industrial products. The FTC ruling places rare gemstones and “not-so-rare” industrial products under one name, which essentially defies clarification. Secondly, since nomenclatures such as ruby, sapphire and emerald imply a natural origin, so should a diamond.
Regulation matters and the long con
The synthetic vs natural diamond conundrum has far-reaching implications for the diamond industry.
India’s diamond sector is seeking government monitoring of the trade in synthetic diamond rough. At present, the country’s imports of the product cannot be tracked since there is no Harmonised System (HS) Code — the international nomenclature to classify traded products — for “rough synthetic diamonds.” Neither the Gem & Jewellery Export Promotion Council (GJEPC) nor the Indian government can ascertain the amount and carat weight of such imports, as the data is combined with other synthetic gemstones and natural coloured gemstones.
In 2016, the Indian government allotted an HS Code for polished synthetic diamonds, but supervision of rough synthetic diamonds remains the missing link. In February 2018, GJEPC urged the Indian government to allocate an HS Code for synthetic diamond rough. “An HS Code would allow segregation of natural and synthetic pipelines, which can be monitored so that illicit mixing becomes virtually impossible,” said GJEPC Chairman Pramod Agrawal.
This is a global problem. According to a synthetic diamond producer in China, apart from the portion to be polished in China, the rest of its synthetic rough is sold to diamond manufacturers from India. It is shipped to Surat for polishing before being sold to any major market – it could most likely make its way back to China, the world’s second largest diamond consumer.
Polished synthetic diamonds are valid products in their own right. The problem arises when they are misrepresented as natural diamonds purposely or unknowingly down the supply chain. Melee parcels are particularly problematic, with greater chances of mixing natural and synthetic diamonds. Further along the supply chain, manufacturers may mount the diamonds into the jewellery pieces. A single synthetic diamond melee out of 100 stones in a micropavé setting is all it takes to ruin the entire piece and, more importantly, erode consumer confidence.
To support Lightbox, De Beers Group is investing US$94 million over four years in a new Element Six synthetic diamond production facility near Portland, Oregon, in addition to its existing facilities in UK. Once fully operational, the plant can produce over half a million carats of rough synthetic diamonds a year.
China does not have large-scale diamond mining like Botswana, Russia and Canada, but it is a prominent synthetic diamond producer, with facilities concentrated mainly in Henan Province. Zhengzhou Sino-Crystal Diamond Co Ltd, a major synthetic diamond producer, reportedly raised US$705 million in November 2016 for a new production project with an annual capacity of 7 million carats of gem-quality synthetic rough.
An August 2016 Morgan Stanley research forecast a 15 percent market share for synthetic diamonds in gem-quality melee diamonds and a 7.5 percent share in sales of larger diamonds by 2020, thereby challenging the US$14 billion rough diamond market.
Compare and contrast
Prices and positioning also see synthetic and natural diamond players at opposite ends of the spectrum.
Synthetic diamond companies traditionally peg their prices at a discount, sometimes of 30 percent, off natural diamond rates. The rationale is that the production cost of synthetic diamonds is around 30 percent less than for natural diamonds. As industrial products though, synthetic diamonds are not as scarce as natural diamonds. Factories can adjust capacity according to demand. On the other hand, natural diamond mines have limited lifespans and are contingent on natural resources. Synthetic diamonds may look like natural stones but are not as valuable and hence should not be priced at a discount of natural goods.
Jewellery giants, De Beers Group and Swarovski, are redefining pricing norms in the lab-grown diamond market with their respective ventures. Diama by Swarovski and Lightbox by De Beers are both setting new pricing standards. Launched in 2016, Diama offers Swarovski Created Diamonds set in 18-karat gold at retail prices from US$595. Lightbox charges US$200 per quarter-carat synthetic diamond, and US$100 and US$200 for silver and gold settings respectively.
Information campaigns are also a battleground. DPA affirms the authenticity and intrinsic value of mined diamonds through its slogan, “Real is rare. Real is a diamond.”
Synthetic diamond retailers, for their part, often promote their products as environmentally friendly, conflict-free and sustainable substitutes for natural diamonds. Swarovski is adamant that synthetic diamonds are 100 percent diamonds, saying, “Created diamonds are identical to mined diamonds according to their optical, physical and chemical properties. Both are 100 percent carbon, both have the same hardness, brilliance and fire – both are forever. They are diamonds with all of the essential qualities of a diamond, only the origin is a laboratory, not the earth. Just as a greenhouse grown orchid is identical to one found in nature.”
The C.V.D. principle
The synthetic vs natural diamond storm will continue to brew. Navigating these turbulent times requires not a new CVD business but a C.V.D. principle.
C. for Certification – Due to the difficulty of identifying synthetic diamonds, rely on reputable gem laboratories for their certification. Beware of certificates from small laboratories that may skip certain tests such as the origin or colour. The World Federation of Diamond Bourses has a World Diamond Mark programme to certify natural diamond retailers.
V. for Verification – Verify the goods you buy to match the description; verify the certificates you obtain to be authentic; verify the diamonds to match the certificates; and verify your testing equipments to be reliable. Most of all, verify that your supplier is being honest with you. Beware of unrealistic prices for natural diamonds. Easy-to-understand certificates and transparent pricing once allowed the trade to buy and sell goods with minimal diamond knowledge. Gemmological training and expertise are now once again required to tackle the infiltration of synthetics in melees, fake certificates, and real certificates with deliberately mismatched stones.
D. for Disclosure – Always disclose information on your goods to your clients and to consumers, and ask your supplier to be just as honest with you. Synthetic diamonds are an emerging and valid business. The key is full disclosure of the goods and their realities.
About the author
Julius Zheng is the Director and Vice President of the Shenzhen Rough Diamond Exchange. Actively engaged in industry matters, he has developed various projects that connect China’s diamond and jewellery sectors with international markets. Formerly General Manager of Rapaport China, he has over 20 years’ experience in the international diamond and jewellery industry.