The Impact of Synthetic Diamonds on the Natural Diamond Industry

There has been much concern about synthetic diamonds threatening the diamond industry. The arrival of synthetic diamonds is indeed a game changer, as they have been proven by diamond-grading laboratories to be physically and chemically indistinguishable from real diamonds, but cost around 15% less. Previously, the technology for producing synthetic diamonds was limited to manufacturing only yellow and other coloured diamonds. More recently, with Type IIa Technologies, a privately-held company based in Singapore, a technology has been developed to produce the purest and rarest grade of colourless rough diamonds, namely the Type IIa. As technology to produce synthetic diamonds progresses, rules and screening devices are being put in place to sieve out the synthetics. Yet fears remain as to whether they will disrupt the diamond industry.

Synthetic Diamonds Raise Concerns

The fear is not so much that people will value a synthetic diamond as much as the real thing – we know that synthetic diamonds are a far cry from natural diamonds in terms of emotional resonance with consumers. Rather, the concern is that synthetic diamonds being passed off as the real deal will lead to other consequences.  There is the concern that synthetic diamonds priced lower could cause the average unacquainted consumer to price-adjust. This would thereby lower price expectations across diamonds, regardless whether real or man-made. Going down this path, diamond producers worry that margins from real diamonds could be eaten into, and that real diamonds may lose their luxury feel due to their cheaper “peers”. From a consumer’s point of view, there is fear of purchasing a synthetic diamond for the price of a real diamond, unwittingly, due to the lack of disclosure.

Throwing Harsher Focus on Conflict Diamonds

There is also the issue of negative spotlight. With lab-grown diamonds touting themselves to be “conflict-free”, the implication misleadingly associates all real diamonds with conflict diamonds, or “blood diamonds”.  Gemesis Diamond Company, an online company that sells lab-grown gems on the internet, has, on every page of its website, the sentence “all diamonds from Pure Grown Diamonds are lab-created, guaranteeing a socially and ecologically responsible point of origin”. However, it is important for consumers to also consider the fact that countries internationally have adopted the Kimberley Process Certification Scheme for Rough Diamonds that went into effect in January 2003. Through this scheme, governments require a documentary trail from the extraction to the polishing of diamonds.  United Nations member states have also banned both direct and indirect imports of rough diamonds from Sierra Leone.  Although questions remain about the full enforcement of these controls and sanctions, they have had a significant impact on illicit trade in rough diamonds.

Real Diamonds will not be Displaced

Synthetic diamonds may change the way we perceive diamonds. For better or worse, this will not displace real diamonds, at least not anytime soon, as there is a clear distinction made between lab-grown and natural diamonds.  This was also the case for rubies and sapphires. The presence of high quality man-made rubies and sapphires has not supplanted the market for the natural stones, which continue to command a premium over their synthetic counterparts. Like other jewellery categories, there is an inherent incentive for diamond jewellers, especially the big players, to disclose when selling synthetics. Without proper disclosure, it would be harder to differentiate the natural from synthetic. The price of natural diamonds would then drop, making synthetic diamonds less attractive as a substitute due to an eroded price advantage.

The synthetic and real diamond markets complement each other and will co-exist. People who want real diamonds with paperwork do not consider lab-grown diamonds as an acceptable alternative. Similarly, those who are only willing to pay for synthetic diamonds at lower prices may not always consider real diamonds that could cost much more, even if the price is considered a bargain. Instead of fearing the presence of synthetic diamonds, jewellers may play to their advantage by offering both synthetic and real diamonds for a wider range of price points and thus a broader consumer base.