The lab-grown gems threatening the diamond industry
Diamonds were forged billions of years ago deep within the earth’s crust, making them rare and coveted throughout the ages. Lab grown stones however are fast becoming so good that even experts cannot tell which is real and which comes from a factory.
This is a problem for the industry as well as investors because lab diamonds are getting to the point where they are jewellery quality, something that threatens to devalue collections the world over.
“Lab-grown diamonds are now the single greatest existential threat to the industry,” says Peter Meeus, former chairman of the Dubai Diamond Exchange. Mr Meeus helped establish the DDE during which time it has become the third largest centre worldwide for rough diamond trade, after Mumbai and Antwerp. The DDE now trades around US$26 billion in diamonds each year.
Speaking on the sidelines at a mining conference in Cape Town recently, Mr Meeus says diamonds from nature should not be replaced by those created by men in white coats.
“At the time in life when authenticity matters, such as marriage, owning the real thing counts. And always make sure to certify before you buy. That way you know you are getting the real thing.”
Mr Meeus says some labs are marketing their diamond products as ‘green’ or ‘eco-friendly’, with celebrities such as Leonardo Dicaprio backing lab diamonds, helping them become respectable.
“Some are calling them ‘conflict free,” Mr Meeus adds in reference to the association of gems used by warlords, mercenaries and opportunists to fund their activities, especially across Africa.
Currently synthetic diamonds costs about a third less per carat than the real thing, and are expected to get even cheaper as the technology evolves. This allows unscrupulous dealers to profit handsomely by passing them off as authentic.
So, should diamond investors be concerned?
Part of the allure of natural diamonds is how nature created them. When the world was still young, intense heat and pressure caused carbon atoms to crystallise into diamonds. By the 19th century scientists had discovered ways to replicate the process but the results were crude and of little threat to collectors of fine, flawless jewels.
The technology has now taken a quantum leap forward, and laboratories from the US to India are producing diamonds so good that even experts are fooled. As a result, the industry is headed for an technological race as it develops new methods to detect artificial jewels from the real thing.
“It was only five years ago that the first engagement-ring quality diamonds were made,” says Mr Meeus. “Just two years before that it was believed there was no chance of synthetic diamonds being cost effective.”
The thinking at the time was that although quality of lab diamonds had improved, the process involved was too expensive to catch on.
Which means the global diamond chain had to adapt to the threat from synthetic diamonds that were being marketed at consumers with a conscience.
“Our research shows millennials – people under the age of 35 – have different priorities when making purchases,” says Sahag Arslanian, head of the Arslanian Group, an Antwerp based diamond-trading house whose origins lie in Lebanon.
“They have values that will have them ask ‘where does this come from.”
Since Millennials represent the new generation of potential diamond collectors, their loss to synthetics would be a wounding blow to the natural industry.
In particular millennials are extremely aware of the risk of consumers inflicting harm by buying products with unethical origins, such as blood diamonds.
In 2003 the worldwide diamond industry set up the Kimberly Process to vet the origins of all of the stones that were produced. Currently the largest suppliers of diamonds are countries that are at peace, such as Russia, Canada, Australia and in Africa, Botswana, Namibia and Lesotho.
The Democratic Republic of Congo is probably the biggest provider of diamonds that is still mired in conflict. Angola though, once bogged down in bloody civil war is now at peace. But most of the industry itself is scattered around the world in conflict-free countries, from India to Africa to the UAE.
Among the so-called millennial generation social awareness is high. Combined with a love of technology, the appeal of lab diamonds is high among this group, Mr Arslanian says.
“It is a generation that loves disruption, that has made Uber a success. They’ve even made fake fur trendy again.”
He points to a San Francisco, US firm called Foundry Diamonds that produces synthetics in its own laboratories. The firm includes Oscar winning actor Leonardo Dicaprio among its celebrity investors, and plays up its American roots.
“Unlike earth extraction from underground in Africa or Russia, ours are created above the ground in America with a zero-carbon footprint,” Foundry says on its website. Foundry did not respond to a request for comment.
Foundry at least openly markets its products as synthetic, but not all do so. India is now in the midst of one of its biggest ever financial scandals involving billionaire Nirav Modi, whom the Financial Times once described as “India’s most celebrated jewellery baron.”