The word comes from the Greek, “Adamus,” meaning unconquerable and indestructible. For centuries this was the case. In 1948, Mary Frances Gerety dreamed up the tagline, “Diamonds are forever.” The catchphrase has lasted for more than half a century. But, as with many things in life, forever is not necessarily forever.
About 10 years ago, scientists discovered a way to make diamonds in the laboratory. These lab produced diamonds are indistinguishable from mined diamonds. Physically and chemically, they are the same. The human eye cannot detect any difference. Only under a microscope can an expert discern the difference.
At first, these man-made jewels were considered a fad, a scientific oddity, interesting but no great threat to the age-old diamond business. But then, about five years ago, lab diamonds became a real thing. For one, they could be produced at extremely low cost. Two years ago, a one carat lab diamond, the standard size diamond in an engagement ring, cost $800. Today the cost is $250. Mined diamonds have also come down in price but not by as much. A one carat mined diamond cost approximately $8-9,000 five years ago. Today the cost might be $7-8,000.
It is estimated that one half of all engagement rings sold in the U.S. today contain a lab diamond. This must surely spell the end of the diamond business and the nail in the coffin for many jewelry stores. Well, not so fast. As they say, it’s complicated. Lab diamonds will have a negative effect on diamond producers, diamond cutters, and wholesale diamond sellers. Russia is by far the largest producer of mined diamonds today, followed by Botswana and Canada. How much they will suffer remains to be seen, but lab diamonds will take a big chunk out of diamond sales, especially at the mid- and low-end of the market. Cutters and polishers will also feel the effect of a softer market. India and China are the main players here.
And finally, there is De Beers, the South African-English company that at one time controlled the price of diamonds by buying up the production of other countries and firms and setting the worldwide price by limiting supply. Anglo American, the current owner of De Beers, is trying to figure out what to do with its wounded division – whether to spin it off, sell it to someone, or bring in private equity.
This brings us to jewelers in the U.S. who in the past sold a lot of expensive natural diamonds. How badly are they suffering? This actually makes for an interesting business case. As mentioned earlier, a one carat lab diamond costs $250 but jewelers mark them up to between $650 and $1,650 when put in a ring. It’s estimated that the margin on lab diamonds might be as high as 90%, although this will be coming down with competition. The profit margin for a jeweler selling a natural diamond is more like 30%, which has been consistent over the years. So, lab diamond rings are a lot cheaper but much more profitable than natural ones today. What you lose in gross sales you make up in margin!
Will lab diamond sales continue to grow and push natural diamonds out of the market? Probably not. Lab diamonds don’t “signal” the same status, wealth, or perhaps even “eternal love” like natural ones do.
What we might end up seeing is lab diamonds and natural diamonds co-existing in the marketplace. At the lower end, lab diamonds may dominate. At the middle and higher-end, consumers might buy natural diamond jewelry for special occasions but wear lab diamond pieces on a daily basis. And jewelry stores are already focusing on colored stones and high-end watches (think Rolex and Patek Philippe) to replace some of the gross sales lost to mined diamonds.
One thing we know for sure, however, is lab diamonds avoid any issue of “blood” diamonds – those stones mined in conflict areas where armed groups control production and use the proceeds for terrorism, insurgency, etc. A nice clean-room production facility will not alarm any human rights advocates.
