By Giselle Saati
The growth in popularity of gem-quality synthetic diamonds has the top players in the jewellery industry asking whether consumers will lose confidence in the long-term value of this gem. I have spent my entire career in the jewellery industry, and during my master’s studies, I investigated the likelihood of consumers accepting gem-quality synthetic diamonds, as well as how this might eventually drive down prices of their natural counterparts. I discovered many compelling arguments supporting the dominance of synthetic diamonds.
Supply and demand
In 2016, consulting firm Bain & Company published research on the supply and demand for rough diamonds. Demand is projected to grow at an average annual rate of two to five per cent from 2030, and supply is projected to decline by one to two per cent due to the aging and depletion of existing mines. (Learn more by reading Bain & Company’s The Global Diamond Industry: The Enduring Allure of Timeless Gems.) This rise in demand is partly the result of income growth in emerging Asian and Middle Eastern markets due to the adoption of western marriage rituals. (For more, see “Synthetic Gem-quality Diamonds and Their Potential Impact on the Botswana Economy” by R. Grynberg, M. Sengwaketse, and M. Motswapong in The Global Diamond Industry Economics and Development Volume II.)
Although an increase in demand will result in an increase in diamond prices, it will also result in a higher rate of penetration of synthetics into the market, causing a decrease in prices. Given the laws of economics, this would normally suggest a price equilibrium—but other factors are also at play. The increase in supply of high-pressure, high-temperature (HPHT) and chemical vapour deposition (CVD) synthetic diamonds will play a significant role in meeting the growing demand for the gem.
This accession to synthetics could also accelerate the decline of diamond mining. There have been no new large diamond mines discovered in over 15 years, and the gestation period on mining projects is long and costly. Given these factors, combined with the decreasing cost of synthetic diamond production, diamond exploration and mining may become less profitable.
Giselle: This article is one of the best and most comprehensive I’ve read. Since you don’t mention the Chinese … I see the Chinese producers being able to match De Beers Light Box pricing as they are now pressured to lower costs and this will be by lowering the high cost of human [growth] monitoring with automation (labor is highest cost). Why is this important? Taken as a whole Chinese producers have the stamina to be the largest producing block. They, like De Beers E6, are focusing not only gem synthetic diamond but also industrial applications. Why has De Beers chosen Oregon for a production site? It lies within the rich US west coast tech centers from San Francisco to Seattle where hardware and talent are being sourced for their production facility plus close proximity to future tech synthetic diamond business. The revenue from tech sales will fortify producers against any ups and downs and price pressure in the gem market. Light Box is a brilliant strategy and combined with E6 tech sales and other western producers there is competition against the Chinese … at least for the near future. The big Panda may just take the largest slice of synthetic diamond production. China’s ramp up in tech will be an irritating rash on the west! Tariffs anyone?
Hi Mark,
Thank you for your comments. As for DeBeers’ strategy, I couldn’t agree with you more. Also, I didn’t know the reason behind them choosing Oregon as their production site. I would love to discuss the subject further with you if you wish. My e-mail is gisellesaati@gmail.com.
Thank you again for your insights!