Monday 20 June 2016

Synthetic Diamonds

Martin Rapaport hosted a town-hall discussion the subject of synthetic diamonds at JCK on the Monday morning.  Being so late in the calendar of events (not to mention, the morning after JCK Rocks the Beach with Train,) the turn-out was pretty good.  Mr. Rapaport respectfully gave a lot of time to synthetic diamond promoters to state their case for the industry to embrace their product.  As that time was drawing to a close, Martin predictably attempted to turn the tables on their arguments; using phrases like “bullshit” and “parasitic leeches.”  It wasn’t all acrimony, and there were plenty of industry members who were there to advocate for the traditional natural diamond market.

Here are a few things you should think about when contemplating the roll of synthetic diamonds in our industry:

What do we call them?
·      Much has been made about the use of words and phrases like artisan created, foundry diamonds, lab-grown, cultured, mined diamonds, synthetic, etc. 
o   Rapaport maintains that the proper gemological classification is “synthetic diamond.”
o   Synthetic producers will attempt to use whatever euphemisms to romance and market their own product. 

How should we view synthetic diamonds?
·      Their product is only relevant in the jewellery industry because jewellers and the Diamond Promotion Service spent countless millions of dollars over decades, convincing the world to buy diamonds.
o   They’re not going away.  Producing flawless diamonds could be the “holy grail” to producing Qubit or quantum computers that can store exponentially more information than current technology.
o   After a period of adjustment, they might well prove to validate the worth and desirability of natural diamonds.
o   In the same way that we cannot identify and certificate small Canadian diamonds, synthetic producers acknowledge that synthetic melee will likely never be identifiable.  Currently there are synthetic melee on alibaba.com for a fraction of the price of natural ones.  How long before those allow an unscrupulous manufacturer who doesn’t disclose their origin to gain an unfair price advantage?

Will you sell synthetic diamonds, only to risk what you sold for $7,000 becoming available for $2,000 in a few years when their prices come down?
·      Dissenters believe that as technology and the number of growers increases, the value of synthetic diamonds will drop precipitously.  What now costs 30% less than a natural diamond could devalue to 80 or 90% less than natural.  Maybe even to $100 or $200 per carat.
o   Synthetic diamond proponents could not quantify how many labs and/or foundries are currently competing to produce lab-grown diamonds.  Further, they attempted to convince the gallery that due to the energy required, time-frame and percentage of failure, that prices cannot drop to nominal levels.

Can you endorse a product that Rapaport calls a “parasitic leech” to the natural diamond industry?
·      Natural diamond proponents maintain that those promoting synthetic diamonds are unfairly benefitting from decades of promotion and investment by the natural diamond industry.  Lab grown diamonds did not create a market for their product, they’re riding on the coat-tails of the natural diamond industry.
o   Synthetic diamond producers claim that they are simply filling a demand in the marketplace.  “If The Signet Group needed 1,000 one carat SI/G-H colored diamonds and the traditional (natural) diamond market can’t supply those, then lab-grown diamonds can fill that order.”
·      Sceptics accuse synthetic diamond producers for taking advantage of the value of natural diamonds to make unfair profits
o   Synthetic producers admit that they are charging what they believe “the market will bear,” and couldn’t deny that the prices they charge are linked more to natural diamond pricing than a “cost-plus” value.
o   A common sentiment was that getting down to cost-plus value will inevitably happen when competition and better technology increase.

Are synthetic diamonds an answer to Millennials desire for ethical and environmental products?
·      Lab growers assert that their diamonds avoid harmful mining practices and that there are no synthetic “blood diamonds.”
o   Rapaport emphatically defends the estimated one million artisanal miners in Africa whose entire livelihoods depend on first-world consumption of natural diamonds.
o   Nobody asked what kind of environmental impact is required to produce synthetic diamonds, but nuclear reactors were mentioned as part of the process.  If anyone knows whether that’s just to produce power, or if it’s part of the crystal formation process, please post your comment below. 

Are synthetic diamonds going to become as inconsequential to natural diamonds as other synthetic gemstones?
·      Synthetic emeralds, and sapphires haven’t eliminated the demand for natural ones; rather they have arguably created more reverence for the natural ones
o   A speaker against synthetic diamonds pointed out that retailers still deal with confusion over Grandma’s ruby which the inheritor believed was real, because “Grandma had money, and she never would have bought something imitation.”  Then they assume a jeweller must have switched the ruby.  Most of us in the industry can spot a synthetic ruby from across the room, but diamonds take laboratory scrutiny to identify.  Synthetics will cause massive errors in identification, and with a growing disparity in value these errors will cause front-line jewellers big problems in the future – unless they are indelibly marked.

Just imagine these scenarios, not too far in our future:

Buddy goes out to buy a diamond engagement ring for his sweetheart.  He wants to buy her a one carat diamond, but his budget affords a 3/4ct diamond.  The jeweller offers him a 1ct synthetic to accomodate his budget.  He buys it, and gives it to the girl without telling her it’s synthetic.  They tragically part.  She goes into a pawn shop and sells the diamond.  The pawn broker says, “I’ll give you $1,000 for the diamond because it might be synthetic.”  The pawn broker now owns a diamond that he’s not sure about.  Is he going to sell it as “possibly synthetic?”  Will he identify it by the laser inscription as synthetic?  If he knows it’s synthetic will he have the laser inscription rubbed off?  Will he sell it to a retail jeweller who resells it as natural?

It’s a lot to think about!