The History of Lab Grown Diamonds: Value Proposition

I sometimes find it rather strange that the principal pre-occupation of the diamond industry today is the detection of synthetic diamonds unscrupulously passed on as natural. While this is an important issue that must be addressed so as not to undermine consumer confidence in the origin of their purchase, it may not be the most important issue to focus on. At the end of the day, if the synthetic manufacturers and retailers can convince consumers that their product offers a better alternative to natural diamonds, people will buy them.

Today, there are three primary marketing angles being used to sell the virtues of synthetic over natural:

1.         They are conflict free and socially responsible;

2.         They are not environmentally destructive;

3.         They are lower cost.

While there can be little argument that synthetic diamonds come from conflict-free sources, this is an issue that has largely been eradicated from the world. It is said that that a minute percentage of the rough diamond market may have financed war. However this can also be said of virtually any commodity that has fallen into the hands of people who will use it for their own unfortunate ends. As long as people continue to fight each other, they will continue to use whatever resources they have at their disposal to pay for it. Although ‘conflict diamonds’ are known to consumers around the world, other commodities such as cassiterite (used to make tin), wolframite (used to make tungsten), coltan (used to make tantalum), petroleum, and gold ore, are far more commonly misappropriated to finance war activities. The fact that consumers are not aware of this, and that many still associate diamonds with wars in Africa, is a problem that the media helps to incorrectly perpetuate.

From the social responsibility angle, the diamond industry employs an estimated 10 million people around the world directly and indirectly. For those companies trying to push synthetics as a socially responsible alternative to diamond mining, what do they propose should happen to those 10 million people? I strongly doubt that taking away their livelihoods will improve their situation. To the contrary: doing so could force millions of people into poverty and distress. There is also little reason to believe that the economics of manufacturing diamonds wouldn’t eventually lead to outsourcing to the developing world, which might continue to perpetuate the same challenges.

Diamond mining has become the entire economy of many isolated locations around the world. For anyone who has ever visited Gaborone in the last few years, it paints a very different picture to what synthetic marketers would like you to see. The same can be said for native communities in Northern Canada, which have gone from isolated and impoverished to modern and thriving.

It is also said that mining disrupts local ecosystems and wildlife. However, diamond mining is perhaps one of the least environmentally destructive forms of mining there is today. Diamond mining uses very few, if any, chemicals, and diamond mines leave a small footprint on local environments compared to other forms of mineral extraction. In some countries, diamond miners must hold back contingency funds over the life of the mine, so that they can restore the location back to its original condition after mining has ceased. Synthetic diamond manufacturing is a highly power-intensive process. Since the burning of fossil fuels generates most of our power, the lab-grown diamond industry cannot claim to have no impact on the environment. In fact, a 2011 study attempted to quantify and compare the power usage in both synthetic manufacturing and natural diamond mining. It was revealed that producing a medium-quality larger diamond using chemical vapor deposition (CVD) took four weeks, and used 28 kilowatt-hours of energy per carat. This compares to the Argyle mine in Australia, which uses only 7.5 kilowatt-hours of energy per carat. Mining in other locations, such as marine mining in Namibia, or mining in Northern Canada, where access to regional power grids is impossible and requires the use of diesel generators, indeed requires more power consumption, but not to such an extent that would help synthetic manufacturers sell the virtues of their supposedly ‘clean’ product.

I think the most dubious claim of lab-grown diamond marketing is that lab-grown diamonds are less expensive than the natural alternative. The reality is that lab-grown diamonds have no intrinsic investment value. Once purchased, they cannot easily be re-sold at any price, and to the best of my knowledge, there is currently no entity that will buy a lab grown diamond back from the consumer should she wish to dispose of it. Much like a print of a Van Gogh painting, it may look just as nice as the real thing when hanging on your wall, but the only place you will be able to sell it is the thrift store, and it may not get you enough money to pay for lunch. Unlike natural diamonds, which are a long-term source of wealth preservation, synthetic diamonds lose almost all of their value immediately upon purchase.

Lab-grown diamond companies often claim that their diamonds can be purchased at the point of sale for 20 to 40 percent less than the cost of the equivalent natural stone, and this seems to be a well-known ‘fact’ that is perpetuated in the media. But is this assertion even correct? To check, I searched a few online diamond portals to compare prices on similarly graded natural and lab-grown diamonds.

Here are a few examples of stones that I found at Diamond Foundry, a producer of lab-grown stones, and Blue Nile, the market leader in online retail sales of natural diamonds:

 ·         1.00 carat, round brilliant, good cut, F color, VS2

o   Lab-grown price:                  $4,974

o   Natural price:                       $5,303

o   Lab-grown discount:              6.2%

 ·         1.07 carat, princess cut, very good cut, G color VS2

o   Lab-grown price:                  $5,136

o   Natural price:                       $5,134

o   Lab-grown discount:             -0.04%

 ·         2.01 carat, round brilliant, ideal cut, H color, SI1

o   Lab-grown price:                  $14,284

o   Natural price:                       $16,476

o   Lab-grown discount:             13.3%

 ·         0.61 carat, round brilliant, ideal cut, G color, SI1

o   Lab-grown price:                  $1,298

o   Natural price:                       $1,592

o   Lab-grown discount:             18.5%

It is also important to note that the natural diamonds quoted here come with industry standard GIA grading certificates. The lab-grown equivalents, in this case, come with in-house grading certificates not recognized by any reputable third party grading laboratory.

In a quick search, not one lab-grown stone was found to have a 20 to 40 percent discount on its natural equivalent. In fact, one stone was even a few dollars more expensive. Yet lab-grown marketers continue to tout their product as being cheaper than natural diamonds. For retailers selling lab-grown stones in a retail store, they are likely to have the same type of retail costs as a store selling natural stones, and this will lead to comparable retail mark-ups, which will further erode any discount for lab-grown diamonds that might exist at a wholesale level.

The fact is that none of the major claims being used by the lab-grown diamond industry to market their product seem to hold up to scrutiny. Whether these sales pitches sway consumers remains to be seen. But the natural diamond industry has an obligation to counter these claims in its marketing so that consumers know the truth.

 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.