Are Synthetic Diamonds a Threat to the Natural Industry?

Last week, Israel Diamond Exchange unveiled a new slogan: “Natural is real.” The slogan is a clever play on the word Israel, and a less-clever poke in the eye to lab-grown diamond producers, who do, in fact, produce real diamonds. This comes on the heels of the bourse’s decision to ban synthetics from its trading floor. (Interestingly, the exchange first banned lab-grown gems 10 years ago. So it’s not clear if this is a re-ban or a clarification of the existing one.) 

These incidents make it seem like the natural sector doesn’t have a lot of confidence about how to handle the eventual arrival of lab-grown diamonds. In fact, it seems scared. And it’s not alone. A recent report by the Botswana Institute for Development and Policy Analysis concluded: “Synthetics do constitute a serious threat to [the mining] industry.”

Which is true—to a point. But we also shouldn’t underestimate the natural sector. We have all seen articles extolling the virtues of lab-grown diamonds. But mined diamonds have some advantages, too. Consider:

Natural diamonds are an established product. Lab-grown diamonds aren’t. 

Mined diamonds don’t need a qualifier. Consumers understand and know what they are. They have decades of marketing behind them.

Lab-grown diamonds need an explanation. They will always be sold with an asterisk. Smart marketing may be able to turn that asterisk into a plus. But it’s still there.

The trade favors naturals, too. Recently, an executive from Charles & Colvard said jewelers “are afraid that [moissanite] will cannibalize sales from their diamonds, and they have already made the investment in their diamonds.” If that’s true for moissanite, which is clearly not a diamond, it’s doubly true for synthetics. And recent episodes involving undisclosed synthetics have hardly increased the trade comfort level. 

Lab-grown diamonds (still) aren’t that cheap.  

For a long time, the fact that synthetics could be sold for less than naturals was a key selling point. After all, why pay more money for essentially the same product? (See this classic Carter Clarke quote in Wired.) That expectation has turned into a problem for the grown business. Consumers think they will cost nothing—Wired predicted $5 a carat—but they remain expensive to grow.

This week, Scio Diamond CEO Michael McMahon told me: “Right now they are less expensive than the naturals. I don’t know if that will change. People out there say [the price is] getting closer to parity.” After hearing that, I compared some Gemesis diamonds to similar stones listed on Blue Nile and found only a 15 percent differential—less than the 20 to 30 percent markdown that Gemesis offered originally. (For examples, see here and here.)  

In this age of frugal consumers, any discount means something. But if you really want a 15 percent discount, buy a diamond from Craigslist. And, in fact, growers tell me consumers are far more interested in environmental and ethical concerns than the discount. Speaking of which…

The ethical arguments can be countered.

To most jewelers, natural is better. But the outside world doesn’t think like the trade does. Many consumers consider diamond mines horrible places, filled with slave and child labor. 

This is, of course, a thorny subject. If man-made producers hit these issues too hard, that might turn off consumers to all diamonds, even theirs. It could also alienate potential retail consumers, who don’t want the rest of their stock labeled unethical or harmful.

Still, man-made diamond producers generally trot out two selling points for socially conscious consumers: Their diamonds aren’t produced in environmentally harmful mines, and their production is said to use less carbon emissions. They also have proof of origin, so they can’t be blood diamonds or associated with any kind of violence. 

There is truth to both of these claims. Yet it’s also true that many natural diamonds could be considered ethical, even allowing the fact that they come from a hole in a ground. The problem is, most consumers don’t know the good things diamonds have done for countries like Botswana—and the industry has not done a particularly good job of telling them.

(This week, a report appeared that rapper Ja Rule has been hired by the Botswana Investment and Trade Centre to promote the country’s diamonds in the United States. I’ve seen similar programs come and go, so we’ll see if this lasts. Still, to show how much this initiative is needed, Rule told a press conference he thought all diamonds came from Sierra Leone.)

The bigger issue is, even if consumers learn the good news about Botswana diamonds, very few gems are sold with any guarantee of origin anyway. Which is why we now see a wide range of products—including synthetics, recycled diamonds, and even moissanite—tout their ethical origins. The diamond business has a left a tremendous hole in the market.

So, the ethical claims can be countered. But that would require the mined industry to offer more origin-certified gems, communicate with socially conscious consumers, and make a serious, concerted effort to clean up the existing problems in the supply chain. That’s a huge challenge—one the conventional business is barely bothering with.

Lab-grown diamonds are an extremely promising product. They are here to stay and part of the future of our industry. And yet like all new industries, the created sector had faced its share of challenges and growing pains. Over the years, I’ve heard more promises of mass production than I care to count. One day, though, someone will figure it out. And the conventional industry will need a strategy to deal with that. 

My advice: The natural gem business shouldn’t be scared of lab-growns. It should be afraid of the reason consumers find them an attractive product: they’ve become turned off to mined diamonds. Just this week, someone wrote on a message board:

Those on the bleeding edge of elitism in certain areas are starting to eschew diamonds due to their association with conflicts, child exploitation, slave labor, etc. I could see a scenario not too far down the road where diamonds go the way of the fur coat—once a coveted luxury item, but now unconscionable to actually purchase and wear.

So yes, at present, lab-grown diamonds do pose a threat to the natural industry. But that’s mostly because the conventional business has let them become one.

JCK News Director