Big names such as De Beers are grappling with a cyclical downturn – and a long-term challenge from artificial diamonds. It could change the market beyond recognition. Simon Wilson reports.
The global market in diamonds, worth $90bn a year, is slowing dramatically, says De Beers, the firm that has dominated the business since the 19th century. De Beers, now 85%-owned by Anglo American while the government of Botswana holds 15%, enjoyed a near monopoly on diamond production for much of the 20th century. It coined one of the most effective advertising slogans of all time – “A Diamond is Forever” – and still accounts for 35% of global mined diamonds. This year the volumes it is achieving at auctions to its “sightholders” (authorised purchasers who process the rough diamonds for onward sale into the retail market) have plunged. October’s auction saw a 39% year-on-year fall in sales to $295m. At the previous auction in August, the annual decline was 44%.
What’s going on?
Part of the issue is simply oversupply and weak demand. Global macroeconomic uncertainty, and in particular the trade war between the world’s two biggest diamond-buying countries – the US and China – have made wholesalers and retailers nervous. Diamond buyers, who cut and polish the rough rocks for the retail market, are struggling with downward pressure on retail prices and tighter credit, so they are buying fewer diamonds. Tiffany has reported falling sales. Petra Diamonds recently reported widening losses while Gem Diamonds’ shares have fallen sharply. But there’s also a structural reason for the gloom: the rise (and shine) of lab-grown diamonds.
How can you “grow” a diamond?
There are two ways. The first is known as “high temperature, high pressure”, in which a carbon source (such as graphite) is placed in a giant mechanical press and subjected to temperatures of about 1,600C and pressures of five to six gigapascals. The second method is chemical vapour deposition (CVD), in which a single crystal diamond “seed” substrate is placed in a vacuum chamber, which is filled with hydrogen and a gas containing carbon (such as methane). At temperatures of around 3,000C to 4,000C, the gases turn to plasma, and carbon atoms break free of their molecular bonds to combine with the seed base and form layer upon layer of diamond.
But are these real diamonds?
In terms of their physical and chemical properties, they are exactly the same as mined diamonds. Indeed, it is the tiny imperfections in mined diamonds, rather than created ones, that allow experts to tell the difference (which can’t be done with the naked eye). Created diamonds are about 40% cheaper (and the price gap is getting bigger). And unlike mined diamonds, there’s an unlimited supply. Moreover, last year, the regulators in the biggest diamond market, the US Federal Trade Commission, expanded their legal definition of “diamond” to include those created in labs.
Are lab-grown diamonds new?
No. Experiments aimed at creating diamonds have been going on since the 19th century, but the first successful attempt dates from the 1950s, when scientists at General Electric announced they had created a diamond by simulating the pressure and temperature below the earth using a hydraulic press. However the cost was so high, and the quality so low, that the resulting stones were used for industrial applications (such as drill bits) rather than as gems. However technical advances, especially in the CVD method, have revolutionised the sector. Lab-grown diamonds still account for less than 3% of the $14bn rough diamond market, but they are expected gradually to take a bigger share of the market. One projection suggests that they will overtake mined diamonds in around 20 years’ time.
Are lab-grown diamonds more “ethical”?
Proponents say they are better for the environment, and are untainted by the “blood diamond” connection. According to Jason Payne, who co-founded the San Francisco lab-grown diamond retailer Ada Diamonds, the advent of lab diamonds means that “we no longer need to burn millions of gallons of diesel and detonate countless tonnes of dynamite to dig the largest holes in the earth”. Given the climate emergency, the “looming cessation of diamond mining is something we should be celebrating”. Naturally, diamond miners don’t agree. “Taking up to a million years to form, natural diamonds developed about three billion years ago. They are a finite, scarce resource,” counters Jean-Marc Lieberherr of the Diamond Producers Association. “Lab-grown diamonds… are mass-produced alternatives made in industrial microwaves [in] two weeks” – and firms flogging them should stop making “unsubstantiated… environmental claims to try and confuse consumers”.
How are the big miners responding?
Last year De Beers made a radical move: it started its own lab-grown diamond consumer brand, called Lightbox. It’s a gigantic gamble by the venerable diamond company: a move widely seen by the market as a strategic ploy to control the narrative around lab-grown diamonds by redefining and repositioning them as a totally different value proposition from “the real thing”. The Lightbox branding has no connection with De Beers, and is marketed at young women buying fashion jewellery, not men seeking to spend big on an engagement ring. Even so, it’s a risky move from a company that dominates the market in what economists call a “Veblen good” – a luxury item whose appeal depends partly on its artificially high price. If consumers can’t tell the difference between mined and created diamonds, the company’s insistence that they are two totally different things could well be a position that can’t last forever.