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De Beers’ synthetics force rivals’ prices down 30%

MBONGENI MGUNI
De Beers' synthesis have hit the ground running PIC: LIGHTBOX.COM
The worst fears of synthetic diamond manufacturers are coming true, as De Beers has released estimates showing that prices of the manufactured stones in the US have dropped by up to 30%, just six weeks after the diamond giant began producing its own synthetics.

In a remarkable U-turn against an industry it had been fighting for decades, De Beers in May announced it was entering the synthetics production market, as a way of responding to consumer demand for lower priced, fashion stones, while also creating space for natural diamonds to continue being sold at a premium.

De Beers, which is technically capable of producing the most advanced synthetics, announced it would sell its manufactured stones for up to 75% lower than prevailing market prices and would also clearly brand its synthetics.  Synthetics producers read both moves as a power play to take over and crush their market, which for decades has been dependent on marketing synthetics as natural while pricing them at a discount to the natural.

De Beers plans to produce up to 500,000 carats annually, in an industry that produces an estimated 4.2 million carats per year, another signal that its U-turn was intended to control the synthetics industry. On Tuesday, De Beers’ Executive Vice President, Marketing, Stephen Lussier said the diamond group had noted a 25 - 30% drop in the price of synthetic diamonds in the US market. In an interview with BusinessWeek on the sidelines of De Beers’ Diamond Conference, Lussier said the observed trends were in line with expectations. “We only started selling at the very end of September and are only a month into the game, but we have already seen a decline in prices amongst lab-grown producers in the US market and they are probably 25 to 30% down from what they were.

“We will see more price declines going forward

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as the production volume increases and the competition becomes about price,” he said.

Lussier’s comments were in stark contrast to De Beers’ official line expressed through executives in May, that the diamond was not overly focussed or concerned about how the rest of the synthetics industry would react to its own lab-grown stones. “We don’t know how other lab-grown producers will react,” De Beers executive vice-president, commercial and partnerships, Alessandra Berridge told BusinessWeek then.  “They could re-position their products and change the game. “It may also be that others follow suit and over time one finds that consumers understand more about these products and the prices reduce, just like what happened with flat screen TVs.”

This week, Lussier was quick to add that De Beers’ synthetics were not the only factor pushing prices down.

“It is also a reflection of the fact this is a manufactured product, costs are declining and the competition is on price which naturally leads to price decline. “This is what makes synthetics so different from natural diamonds, which are inherently finite and rare and which you cannot just produce more of.” He said De Beers was putting the finishing touches on a US$94 million synthetics production lab in Oregon, US which would further set trends in the market.

“The long term is that as volume increases, the prices will fall. We need to keep watching it; we have only been in the market for six weeks, but it’s encouraging to see prices beginning to decline because that’s what will happen,” he said.

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