The term ‘mined diamonds’ is slowly entering mainstream language in the press and elsewhere, and I find it troubling. We need a clear differentiation between natural diamonds and lab-grown goods, and it needs to be far more distinct than mined vs. lab-grown.
Natural diamonds were always diamonds. They were formed billions of years ago and were mined after huge sums of money were put into exploration. Comparing these ancient, historic, difficult-to-find wonders of nature, to a simple, mass-produced product that was invented only recently and pounded out of a factory puts both on the same playing field – does not make sense. They do not have the same starting point in any which way you examine them.
That is why we should not use the word ‘diamond’ in connection with lab-grown goods. ‘Diamond’ should be used exclusively for diamonds. Even the Bible refers to these natural wonders as diamonds. Using the term ‘diamond’ for a lab-grown product downgrades diamonds. There is no need for a modifier when using the term ‘diamonds’. Everybody knows what you mean when you use the word as-is.
Why lab-grown producers like to peg prices to diamonds
Lab-grown producers set the price of their goods at 30-40% below a diamond with the same 4Cs. It is understandable why they want to peg their prices to diamonds, but their production cost structure is different. Because of this, the price difference is set to increase as lab-grown prices decline.
There are enormous costs associated with exploring for and mining diamonds, and not just direct costs. The process of exploring for diamonds involves great risk, because the search is often fruitless. Sometimes a resource is found, but is very small and not economically worthwhile to mine This happens more often than not.
The high costs of exploration have one of two common results: either the exploration company closes, or it recovers the cost through the price it charges for the found diamonds.
On top of the exploration costs, mining is a very expensive undertaking that is labor intensive, and has high machinery and other associated costs. Then there is the cost of diamond polishing, the cost of certification, and the cost of developing these technologies.
Every diamond extracted from the ground carries these costs. Lab-grown stones do not. They are a purely technology-driven product. The technology for creating them only improves, becomes more efficient, and lowers the cost of production. There is no question that new developments will allow for the doubling or tripling of production, and reduce the cost of production by a third or even a half. The only question is how fast it will happen.
So, why do lab-grown producers tack their prices to diamonds? What is the logic? Every product should be sold at the cost of manufacturing plus a certain return that reflects the manufacturer’s return on capital and investment.
So why attach the price of a mass-produced, factory-made product with its own cost structure to that of a mined item with a very different cost structure? The correct way to price lab-grown goods – and I believe that is what they will have no choice but do in the future – is to base their price on the cost of production, which is set to continuously decline. By doing so, lab-grown producers will conform to their cost structure and its changes. If current producers don’t change their pricing, sooner or later a new competitor will appear that will do so in order to capture market share. This will force all other producers to adapt.
There is another reason why this price structure will change: marketing. Today, lab-grown producers promote their product by arguing that it is identical to diamonds, but better, because diamonds are evil (‘blood diamonds’, ‘child labor’, ‘destruction of the environment’, ‘smuggling,’ etc. are all part of the pitch). This mix is toxic. If they succeed in harming the reputation of diamonds, diamond prices will decline, and tacking their prices to diamonds will backfire. If, on the other hand, the smear campaign fails and diamond prices keep appreciating, than why continue with a failed campaign? Either way, they will have to change the pricing model to conform to the true value of a mass-produced product.
More than cost and price: diamonds are about value
A diamond is not exclusively a jewelry component. As I have stated in previous posts, diamonds have a value all of their own. They are not only beautiful creations of nature, they are rare creations of nature. As such, they have an enduring value, as every person that has ever bought or sold a diamond at auction (or any other public forum) knows.
Let lab-grown products play the limited role of pretty components in jewelry. That is a great business model and a service to a jewelry-loving society. Their declining price will only make them more fitting for that role, and will make them more and more accessible. Diamonds have an extra property that lab-grown products will never have; rarity. Rarity is what allows diamonds to appreciate and serve as a store of value. Our job is to help consumers see diamonds as an asset.
The Diamond industry’s role
To make this a reality, the diamond industry needs to take a number of steps. One is marketing, and another is education. I’ve written about this extensively in the past. It does not end there. The large, established trading fairs are now exhibiting lab-grown products together with diamonds. This adds to the confusion between the two at a time when we need to increase and emphasize the differences. The sales environment should be separated. Diamonds should be sold in a far more public manner, at spot markets, auctions, banks and exchanges, displayed at museums and generate strong media attention.
To my opinion, the industry should reject the use of the terms ‘mined diamond’ and ‘lab-grown diamond’. If it is lab-grown, it is not a diamond. It is a gem, a pretty one, but so is my iPhone. And their prices are sliding down continuously despite heavy branding efforts. We, in the diamond industry need to act, and act fast, to counter the degradation of the diamond and its positioning, and turn the tide.
The views expressed here are solely those of the author in his private capacity. No one should act upon any opinion or information in this website without consulting a professional qualified adviser.