The Diamond Industry Is Finally Waking Up to a Long-Standing Threat

Special guest blogger Ben Janowski, a longtime diamond industry consultant and occasional JCK contributor, helms the Cutting Remarks blog while Rob Bates is on leave:
There is a wave of outrage washing across the global diamond business that hasn’t been matched since the issue of blood diamonds reared its head some 15 years ago. This one relates to the expansion of production of man-made diamonds (MMDs) and has an added edge: It potentially impacts every diamond dealer, jewelry manufacturer, distributor, retailer, and consumer in the business.
The immediate issue is the growing awareness that significant amounts of MMDs are being mixed in with parcels of naturals. This is not a difficult trick. First, detection requires expensive, advanced equipment. Second, there are countless companies manufacturing MMDs in Asia—particularly in China—India, and Russia. It is therefore easy for jewelry manufacturers in Asia to obtain MMDs, with little regulation.
The industry has largely ignored the development of MMDs for many years, as production was very low, and most people had little need to bother with them while business was good. There has always been an underlying fear of lab-created diamonds. For one thing, the diamond industry, led by De Beers, has invested heavily in promoting the magic of natural stones, convinced that the public would never opt for diamonds that did not boast a billion-year history. (Privately, however, not everyone believed that to be true.)
For another, a consumer discovering that she has been given a “fake” diamond is a scorned consumer with a damning story to tell.
Over the years, sales of MMDs proceeded nevertheless, and some annoying facts emerged. Even diamonds sold legitimately as MMDs were sometimes resold as naturals and those stones started to appear in embarrassing ways. Still, the problem remained small and did not engender much publicity.
It did, however, stimulate the development of new equipment that could identify MMDs. All the major laboratories now utilize such equipment, though most of the stones inspected are bigger than 0.25 cts.
But the situation has turned into a crisis today for a variety of reasons. Machinery needed to produce CVD (chemical vapor deposition) diamonds has now been perfected to create diamonds fairly efficiently. At present, it takes less than two years for a machine to fully repay an investment. Capacity is easy to expand, and at very little additional overhead. We only can expect further improvements in efficiency.
To that, add the crisis in the diamond market. Diamond miners are pushing the price of rough, just as demand has been hurt by the continuing economic crises, and by evolving consumer preferences. Everyone is caught in a tight profit squeeze. Yes, top end stores catering to the affluent consumer are doing well. But the mass marketers are in a battle for profits and market share.
Using MMDs and (fraudulently) charging for naturals is a seriously tempting way to survive and make real profits. MMDs are no longer a minor inconvenience.
It may be difficult for the industry to develop the controls needed to stop this unethical and illegal trade. It will take some time, even though industry people say they know who the major producers are. Many industry organizations are meeting to plan actions. Let it proceed expeditiously, I say, and let the chips fall where they may.
Once the production and selling of MMDs is out of the shadows, and their true competitiveness is seen, what will the effect be on the diamond market? Will it be two-tiered? Will the price of small naturals fall? Will miners pull back from further exploration and mine development if the fate of natural prices is thrown into question? Many consumers show no reluctance to buy MMDs, but how widely will that be the case? All of this remains to be seen.
P.S. This is the third, and last, blog I have written while Rob Bates is on leave. I am pleased to have been asked to fill in. It has been fun! I extend wishes to everyone in the business for a great finish to 2013, a healthy holiday season, and a prosperous and peaceful 2014.

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JCK News Director