Running the Numbers: How Many Lab-Grown Diamonds Are There?

One of the biggest deficiencies in our industry is the lack of authoritative stats. So I thought I would kick off a series of posts trying to find out the latest accurate information on our industry.   

An ongoing hot topic in the trade—one that never seems to completely cool down—is what percentage of the overall market is composed of man-made gem-quality diamonds? And how many undisclosed synthetics are out there? These topics were the subject of much debate and anxiety a year ago, when there were numerous reports of undisclosed lab-grown stones. Since GIA and De Beers have introduced new machines and De Beers launched an Indian testing service, the fears have calmed a little. 

As with the traditional diamond industry, most lab-grown diamond manufacturers are private (Scio excepted), and some are as secretive as, well, the traditional diamond industry. Furthermore, new entrants to the field pop up all the time, some crouching well under the radar. As Tom Chatham, CEO of Chatham Created Gems, told me: “There have always been a lot of people in Russia growing diamonds, and those presses are still around. They work on LinkedIn, they work on Facebook, they don’t have websites of their own. Some of their production is pretty good.” According to U.S. government statistics, at least 15 countries have the ability to produce synthetic diamonds, though, generally, they are not gem-quality.

But that, of course, raises the question of the definition of “gem quality.” “It’s a fuzzy line with plenty of room for interpretation and manipulation,” says Eric Franklin, president of D.Nea, which sells lab-grown gem diamonds. “A company in China making tons of brownish yellow (or even JKLM+I2) 2mm grit could count as jewelry quality. Just look up synthetic diamonds on Alibaba. That is a world of difference from a 1ct. G VS2 or even a 0.10 ct. I SI2.”

The talk about smaller diamonds brings up another issue: “It is almost impossible to determine the extent to which these synthetics are already in the jewelry supply chain and in the existing stock,” says a study by a Botswana NGO on how manufactured gems might affect that country’s mining-based economy. “The natural and synthetic products are often indistinguishable and many of the melee sized diamonds (<0.2 carat) have never been tested simply because it is not cost effective.” 

Given all these issues, the available numbers tend to vary. 

Possibly the most in-depth study on synthetics and the industry was conducted earlier this year by the Gem & Jewellery Export Promotion Council, which estimated current lab-grown diamond production at 350,000 carats, compared to 125 million carats of gem-quality mined rough (which would make them 0.28 percent of the market). 

The 2014 Frost and Sullivan report on lab-grown diamonds estimates that synthetics currently constitute 0.2 to 0.6 percent of the polished diamond market by value, or about $45 million to $135 million. It predicts in two years that will grow to 1.1 percent to 3 percent. It doesn’t estimate carat production.

Analyst Paul Zimnisky estimates that 1 million gem-quality carats will be produced this year for use in jewelry, representing less than 1 percent of total diamond production.

“I see the quantity produced being limited until a larger-scale distribution system exists,” he says. “Eventually we will see the large national jewelers and department stores devoting a case or two to synthetics, but we are at least three to five years away from that … Without distribution, the margins are just not favorable enough for the synthetic producers to produce fine jewelry-quality diamonds, especially when the margins are favorable for producing industrial-application quality synthetics.”

Bain’s 2011 report on The Global Diamond Industry, declares that only 0.01 percent of gem diamonds are lab-grown (p. 75), but it only mentions that on a chart and doesn’t elaborate.

Possibly the highest estimate comes from Israeli analyst and journalist Chaim Even-Zohar who has repeatedly written that out of $22 billion in polished goods sold in 2012, at least $500 million were (generally undisclosed) synthetics. He says the numbers are particularly high in the smaller—1 to 3 carat—ranges. Even-Zohar was travelling at press time and unable to provide a more up-to-date estimate. 

Some sources agree that synthetic penetration could be higher in certain segments. The Botswana study authors point to a 2007 Gems and Gemology article (p. 201), which relays research from a Japanese lab. It discovered that 10 percent of the yellow melee-sized diamonds submitted to the lab over a four-month period were synthetic, and half the jewelry items set with yellow melee contained lab-grown stones.

GIA, however, maintains that isn’t the case today. A 2013 report on its website quoted lab director Tom Moses as saying the lab has not noticed an uptick in created diamonds, undisclosed or otherwise. A year later, a spokesman says that is still true.   

One final point: The people active in the lab-grown business tend to believe the lower numbers, and remain skeptical about the talk of rampant undisclosed melee, particularly in the colorless range. “There is ample supply of melee rough in natural,” says Chatham, adding he has “tried to buy white lab-grown melee for our own jewelry through our factory in Shenzhen. No luck.”

The problem, he says, is that it’s just not cost-effective to manufacture small lab-grown colorless rough. “No one will make it at prices that compete with natural,” he says. “You have seen the prices everyone is asking for lab-grown stones and they are high and I can’t get anyone to budge. Remember, we get charged the same cutting prices as natural and when the rough is small, the rough price is meaningless. It is all cutting charge.”

So while synthetics are a growing business in every sense of the word, most estimates say they remain a small one. And it may always be that way, as a note on D.Nea’s website says:

The growing of a diamond is the creation of a raw material, and this production is guided by the laws of nature, not by economics. Each diamond is grown one-at-a-time in a highly controlled environment, in which diamond crystals naturally form under. Each machine is prohibitively expensive and only produces a few diamonds per month.

To have lab grown diamond producers match the production capacity of just 10% of the mined diamond industry, we would have to output 15,000,000 carats per year. The equipment costs alone would easily cost over $10 billion dollars.   

The comment ends with a point that might surprise people: To really produce diamonds at scale, “it is more cost effective to prospect for new diamond mines than it is to build a diamond growing facility.”

In my next installment, I’d like to examine available figures on how much jewelry is sold on the Internet.

JCK News Director