Are synthetic diamonds a girl’s new best friend?


Amish Shah is the third generation of his family to work in the diamond business. But the first to sell stones grown in a laboratory rather than dug out of mines in far-flung corners of the world — a process that threatens to shake up the $80bn diamond jewellery market built on notions of love and marriage.

By mimicking the conditions at the core of the earth, machines are now able to produce diamonds that are identical to natural ones — in weeks, rather than billions of years. Mr Shah insists they are better quality, cost less and leave a smaller carbon footprint, which he hopes will make them more attractive.

“It’s bigger and better,” says the 42-year-old, whose grandfather started in the business in the Indian city of Kolkata in 1933. “If someone puts a one carat [diamond] on their hand that is mined or a carat and a half that is a created diamond — what makes the biggest difference to them? Who doesn’t want a bigger and more brilliant diamond?”

For most of the 20th century the diamond market was dominated by De Beers, which still controls about 30 per cent of the world’s supply of mined stones, and other mining houses with operations stretching from South Africa to Canada’s Arctic. And while sales of lab, or as some critics describe them pejoratively “synthetic”, diamonds are currently only about 2 per cent of supply, they are expected to reach 10 per cent by 2030, according to analysts at Citi. That could grow even faster depending on the tastes of consumers as big jewellers from Barneys in New York to Swarovski now stock lab-grown versions of engagement rings.

“Synthetics have become a real threat to the natural diamond producers,” says Tel Aviv-based Chaim Even-Zohar, who writes an industry newsletter. “Exploration money will dry up because synthetics are increasingly considered a pure, more affordable economic substitute.

“Why would any company spend hundreds of millions of dollars on exploration with the prospect that long term diamond prices will go down because of the unlimited availability of ever cheaper and larger lab-grown ones 10 years down the road?,” he asks.

The success of lab-grown diamonds, however, will depend on winning over consumers, especially a millennial generation getting married later than their parents. It will also depend on how the powerful natural diamond industry responds to the threat. Miners, from De Beers to Russia’s Alrosa, have the most to lose from any shift in the jewellery industry, since diamond polishers, cutters and retailers can just switch to lab-grown stones.

“This situation will play out in the next five to 10 years,” says Anish Aggarwal, a partner at the diamond consultancy Gemdax, which advises the whole supply chain including the large mining companies. “The lab-grown guys have some real assets, but so do the natural guys. They are the incumbents; they have the ability to shape their own destiny.”

The search for man-made diamonds began in the 19th century, but the first successfully grown in a lab only dates back to the early 1950s. Scientists at a General Electric research laboratory went public with their discovery in 1955, saying they had created a diamond by simulating the pressure and temperature below the earth using a hydraulic press.

The value of shares in General Electric rose by $300m on the day, while those of De Beers fell. But due to its high cost of production and quality, this early lab diamond posed little threat to the jewellery industry. Ralph Cordiner, president of General Electric, said at the time that it was “probably the most costly diamond you ever looked at”.

In 1957, when GE started to sell lab-grown diamonds, the price was double the cost of natural ones sold by De Beers, according to The Diamond Makers, a book on the discovery by Robert Hazen.

For 50 years lab diamonds were mostly used for industrial applications such as drill bits. Element Six, a company owned by De Beers, has been one of the biggest producers of industrial diamonds ever since. During the past decade, however, the quality has improved and production costs have fallen.

There are two common methods of production: creating the diamonds by high pressure, as GE originally did, or by using chemical vapour deposition, known as CVD. With CVD a single crystal diamond seed, that can be bought online for as little as $100, is placed in a vacuum chamber which is then filled with hydrogen and a carbon-containing gas such as methane. The carbon from the gas builds on the seed, forming diamond crystals.

“In the last five years there’s been quite a few breakthroughs in terms of the technologies and the reliability of the equipment, which means the costs have fallen over the knife edge of being profitable,” Paul May, a professor at the University of Bristol, says. “Now it is actually possible to make gemstone quality at a profitable price in the lab.”

St Petersburg-based New Diamond Technology says it can make high quality diamonds suitable for jewellery up to 15 carats in size. The company produces about 4,000 to 5,000 carats a month of lab-grown diamonds using the high pressure method, according to Nikolay Khikhinashvili, its general director. “Our machines are like UFOs,” he says. “They are very big and heavy. Each one is around 80 tonnes, and right now we have 30 machines.”

It is impossible to tell the difference between natural and lab-produced diamonds with the human eye. It is even difficult with the traditional methods of loupes and microscopes used by diamantaires, who cut and polish diamonds.

This was brought home to the industry in 2012 when it faced its worst nightmare after 600 undisclosed lab-grown diamonds were found in a parcel of 1,000 sold as natural stones in New York, raising fears about unchecked contamination in the supply chain. The International Gemological Institute issued a notice saying misrepresenting products could cause “irreparable damage to the industry’s reputation”.

In September De Beer’s International Institute of Diamond Grading & Research released a screening device for jewellery retailers, costing $16,250 which it dubbed “SYNTHdetect”.

“Technological developments are making the production of man-made gem synthetics commercially viable and there are increased distribution sources,” De Beers’ parent Anglo American warned in its 2016 annual report, listing them as a risk factor for the first time. “The marketing of synthetics seeks to place them as being environmentally or socially superior.”

The relationship between diamonds and marriage is an invented one. Before De Beer’s launched its “A Diamond is Forever” campaign after the second world war, the gemstones were decorative jewellery for the rich, not a mass market item. “In the public’s mind, diamond rings were still associated with aristocrats, stuffed shirts and gangsters,” wrote the author Tom Zoellner in The Heartless Stone.

But after more than 60 years of marketing success the De Beers narrative may be wearing thin, especially with millennials. While De Beers insists they are spending the same on diamonds compared with previous generations, surveys show they are getting married later and spending on experiences rather than luxury items.

The success of lab-grown diamonds depends on winning the marketing war — especially among millennials in the US, the largest market for diamonds by sales, according to De Beers. In 2016 the top diamond producers — including De Beers, Alrosa and Rio Tinto — launched an advertising campaign targeting millennials that used the strapline “Real is Rare”.

“There is a place for synthetics, perhaps as a fashion item, but there is nothing rare about them and they are not diamonds in my book,” says Bruce Cleaver, chief executive of De Beers. “It’s a traditional question I know, but if you ask a lady would you like to be given for your engagement gift a natural diamond made by the miracle of nature 4bn years ago or something made in a press last week, it’s pretty obvious what the answer is.”

For some the answer is not so clear cut. Lab diamonds have much shorter supply chains, more easily use renewable sources of energy and benefit from an association with sustainability. Natural diamonds are extracted from millions of tonnes of rock that is dug out of large open pits mostly in Botswana, the Northwest Territories of Canada and Russia. Known as rough diamonds, they go on to be polished and cut in Antwerp in Belgium, or India, before they end up at retailers.

Synthetics are also conflict-free, which avoids any association with “Blood Diamonds”, a name derived from the use of the stones to fund African civil wars. That tainting of the stones gained greater prominence after the 2006 film of the same name featuring Leonardo DiCaprio. In 2015 the actor invested an undisclosed sum in Silicon Valley-based Diamond Foundry, one of the largest producers of synthetic diamonds.

In response miners are burnishing their environmental credentials. In May De Beers said it is exploring options for carbon-neutral mining at some of its operations within five to 10 years. It also says lab-grown diamonds are not as green as they seem, as it takes a large amount of energy to produce them. “The claims from synthetics producers that [they] are the eco-friendly option don’t stand up to scrutiny,” a spokesman for De Beers says.

“The lab-grown industry needs to create a brand and a niche to develop the product,” Paul Zimnisky of Diamond Analytics in New York says. “But what is going to drive that demand? Is it that the consumer loves its association with high tech, or because it is environmentally friendly, or is it the price point?”

Prices are not there yet, he adds. Lab-grown diamond engagement rings can cost 15 to 25 per cent less than natural diamonds but that is a far cry from the 95 to 90 per cent discount of rubies and emeralds, which can also be used as engagement rings. “I just can’t see a consumer spending $8,000 [on a lab diamond] compared to $10,000 for a nice engagement ring,” Mr Zimnisky says. “To save 10 to 20 per cent doesn’t seem like enough yet.”

The reality is that diamonds have never been scarce. For much of the 20th century their supply was controlled by De Beers, which had more than 90 per cent of the market. Since the 1990s other suppliers such as Alrosa have broken into the sector, but diamonds still benefit from being a so-called Veblen good — a luxury item whose price does not follow the usual laws of supply and demand — and whose appeal partly depends on their artificially high prices.

If they try to compete on cost, lab-grown diamond producers risk destroying their own industry. Factories full of machines producing high-quality diamonds 24 hours a day could see them losing their scarcity value. “A lot does depend on whether they flood the market or make them too cheaply,” Prof May says, “which is something that the diamond miners are terrified of.”

Sellers of lab diamonds say they offer an alternative to consumers, rather than being hell-bent on destroying the mined industry. “It all comes down to consumer choice,” says Mr Shah. “Uber did not hurt the taxi industry. It’s the consumer that decided — it’s their choice.”