BIDPA warns of synthetic diamonds� threat
Brian Benza | Friday March 28, 2014 14:26
First sold in the United States in 1958, synthetic diamonds has taken over the industrial diamond market and with the improvement in technology the technical and quality distinction between synthetic and mined stones is fast disappearing.
This is posing a major threat to gem quality diamond producers like Botswana, which produces 70 percent of De Beers supply, a research paper published by the Institute for Development Policy Analysis (BIDPA) shows.
According to the research paper, the gradual growth of the synthetic market will have a price decay effect on the mined diamonds thereby affecting Botswana, which is the largest producer of mined diamonds by value.
“Botswana is one of the low cost producers of mined diamonds in the world, and while it may survive a sustained penetration by synthetics, the expected price decreases would mean that government revenues would certainly decline dramatically.
“With government earning significant revenues directly from taxation of diamond mining, any decline in prices will not only affect mineral taxation but also returns on investment in the diamond sector. This will be compounded by the fact that declining prices of diamonds will also affect Botswana through revenues the country derives from share ownership in Debswana and De beers, said BIDPA researchers, Roman Grynberg, Margaret Sengwaketse and Masedi Motswapong.
In 2013, Debswana produced 22.7 million carats and realised P27.45 billion while the junior miner, Karowe Mine produced 441,000 carats amassing revenue of P1.53 billion.
According to BIDPA estimations, a one percent decrease in unit export value of mined diamonds results in a 0.91 percent decrease in mineral revenue.
With Botswana transforming into a global diamond centre, the BIDPA researchers say that the precise impact of synthetics on revenues of Botswana will depend almost entirely on consumer’s acceptability and their penetration of the gem market.
Core to the rate at which synthetics will be accepted and eventually undermine the natural diamonds’ value, researchers say, is the increasingly clouded difference between mined and synthetic diamonds.
“At present consumers remain barely cognizant of the existence of synthetics and a precipitous decline in diamond price is entirely possible as consumers become aware that industry practices such as synthetic enhancement and annealment on mined diamonds blur the distinction between the two and undermine natural diamond value,” reads the report.
In a bid to cushion itself from the threat of synthetics, Botswana in 2004 signed an agreement with De Beers that should the company ever go into the production of synthetics it would form a joint venture with government.
However the researchers says while a joint venture with De Beers in the production of synthetic gem quality diamonds may mitigate a part of the losses that Botswana would suffer, this could not compensate for the losses that would result from the country’s loss of economic rents in the mined diamond sector.
According to US data, “natural diamond accounts for about 1.2 percent of all industrial diamonds used, while synthetic diamond accounts for the remainder. However, the prices of synthetic industrial diamond products are constantly declining as production technology becomes more cost effective. China and Russia are considered the synthetic world’s low-cost producers. Synthetic stones are used for computer chip production, construction, machinery manufacturing, mining services, stone cutting and polishing, transportation systems, vehicles, and a range of other applications.