Diamond Mines Are Drying Up: Are Lab-Grown Gems The Answer?

JCK Las Vegas is the jewellery industry’s most important trade show, attracting thousands from around the world every May. Two days before JCK 2018, De Beers—which had held a monopoly on rough-diamond production for most of the 20th century—shocked the industry. The company said that a new subsidiary, Lightbox Jewelry, would begin selling lab-grown diamonds at prices that will undercut competitors, in some cases by more than 75%. De Beers, formed in 1888 by a group of British businessmen to protect diamond prices, has for decades worked to promote the value of mined diamonds over lab-grown stones. But the supply of mined diamonds is dwindling. De Beers warned in 2014 that mined-diamond production will begin a permanent decline in 2020 if new mines are not found. Bain & Co., in its diamond-industry report from last year, said that some of the world’s biggest mines are expected to run dry by 2030.

Mined and lab-grown diamonds are chemically identical and distinguishable only by laboratory equipment. (This is in contrast with cubic zirconia, an imitation diamond made of a different material.) Diamonds have been grown for industrial purposes for decades, but gem-quality versions, the product of improved technology, are a more recent development. Diamond miners have long derided lab-grown stones as “synthetics” and even “parasites.” In July, the Federal Trade Commission amended its jewellery guides and removed the word “synthetic” from its recommended list of terms marketers can use when selling lab-created diamonds. The agency and also removed the word “natural” from its definition of a diamond. Lightbox begins sales tomorrow, offering one-carat and smaller solitaire studs and pendant necklaces. The company won’t sell engagement rings and eschews the bridal market, which accounted for 27% of sales in the mined-diamond jewellery market and totalled $22 billion in 2017. While a one-carat mined diamond can cost anywhere from $1,000 (for a low-grade stone) to more than $20,000, an equivalent lab-grown stone from existing producers goes for $1,900 to $6,000. Lightbox’s diamonds sell for $800 per carat—a figure based on production costs, not mined-diamond prices, says Menno Sanderse, an analyst at Morgan Stanley. According to Sanderse, Lightbox Jewelry is an acknowledgement by De Beers that the lab-grown business is here to stay. “It’s better to control it than be overrun by it,” he says, adding that Lightbox sends a message to diamond growers, “If you invest in these machines, you now have a formidable competitor who will price it at 20% of the price you intended.”

Many diamond growers are unimpressed with De Beers’s new business. Martin Roscheisen, the chief executive of Diamond Foundry, a lab-grown diamond producer, describes Lightbox as “cynical, desperate—a Hail Mary-type thing” and an attempt to reverse-disrupt diamond growers before they become a full-fledged industry. Nimesh Patel, De Beers’s chief financial officer, denies that De Beers is trying to destabilize the market for lab-grown stones. The company has a long history of manipulating diamond prices. During the Great Depression, De Beers stockpiled diamonds to prop up prices. In the 1950s the company agreed to pay the Soviet Union above-market value for its rough diamonds, in exchange for the exclusive right to sell them on the international market, which it did until the Soviet Union fell in 1991. Patel says that the company’s focus is still mined diamonds and that Lightbox is, in part, a way to underscore what De Beers sees as the difference between the mined and lab-grown stones. “They’re not of the earth, they’re not rare, and they’re not timeless,” Patel says.

Lab-grown diamonds have gotten considerably cheaper since the Lightbox announcement at JCK Las Vegas, according to a survey by Paul Zimnisky, an independent diamond analyst. A one-carat lab-grown stone sold for $3,625 on average in the third quarter, 14% less than the previous quarter, with an average discount of 45.1% from mined stones, the survey concludes. Zimnisky predicts that the lab-grown diamond market will increase to $15 billion a year by 2035, up from $1.9 billion today. Since diamond mining has maybe 30 years left, some experts say, De Beers is looking to position itself as the leader in both mined and lab-grown diamonds. According to Roscheisen, diamond miners have precious few options other than embracing lab-grown stones. “On the mining side, it seems like the miners are throwing in the towel right now,” he says. “It’s got to be man-made in the future because mining is dead.”

How De Beers Grows Its Stones

Lightbox Jewelry sources its lab-grown diamonds from Element Six, another De Beers subsidiary. De Beers plans to spend $94 million on a new Element Six facility near Portland, Ore., that will produce 200,000 to 250,000 polished carats a year.

  1. Using a process called chemical vapour deposition, engineers start with a “seed,” a paper-thin, square layer of lab-grown diamond smaller than a pencil eraser. Several hundred seeds are placed in a plasma reactor, essentially an oversize microwave oven that runs at 7,000 degrees Fahrenheit, with a proprietary mix of gases.
  2. Carbon atoms in the gases are deposited layer by layer onto the seeds, which develop into crystals. It takes 400 to 500 hours (two to three weeks) to produce a rough diamond large enough for a one-carat gem.
  3. Using laser technology, Lightbox inscribes the interior of each diamond with its geometric logo, visible only under magnification. The inscription indicates the stone’s provenance and prevents it from being passed off as a mined diamond. The rough diamond is then polished and set into jewellery. —Leigh Kamping-Carder

Credit: Oliver Griffin for The Wall Street Journal, 26 September 2018.