Mmegi

De Beers thrown a curveball on synthetics

Real deal: De Beers wants to see a clear distinction in the market between lab grown and natural diamonds PIC: MORERI SEJAKGOMO
Real deal: De Beers wants to see a clear distinction in the market between lab grown and natural diamonds PIC: MORERI SEJAKGOMO

Diamond giant De Beers has dropped its traditional stonewall dismissal of lab grown diamonds and in its recent commentary on the 2023 financial performance, admitted that the synthetics pinched the group’s numbers.



Despite being amongst the pioneers of synthetics, through its Element Six firm which was established in 1946, De Beers has consistently been dismissive of any argument that these lab grown stones could pose any kind of threat at retail level. Element Six focussed on synthetics’ industrial use, but the fake stones have since exploded onto the retail market.

Sales of natural rough diamonds traditionally go through a series of ups and downs, periods of strong demand and the lows associated with oversupply and uncertain economic conditions.

In 2020, demand for diamonds slumped due to COVID-19 but in 2021 and 2022, demand rose, helping prices and production from countries such as Botswana.

Throughout that period, lab growns were bubbling underneath, offering a fraction of the price of the naturals and the claim that they are more ethically and sustainably produced. Russia’s invasion of Ukraine in February 2022 and the global effort to block Moscow’s stones from selling in the world market, gave synthetics a much needed and major marketing boost.

Presenting De Beers’ financial results last week, De Beers Vice President for Diamond Trading, Paul Rowley conceded that synthetics were causing the natural diamond giant a headache.

The veteran diamond executive also made a curious statement, noting that the price collapse of synthetics has taken longer, consequently creating competition between rough stones and synthetics.

“Synthetics have surely taken longer for prices to fall but we expect their prices to continue dropping in upcoming cycles thereby further creating segmentation from rough diamonds,” he said.

The segmentation of the two, or “bifurcation” as the industry calls it, is expected to occur when lab growns are clearly assigned their own corner of the market with their own prices and niche clientele, while naturals enjoy their premium rating, pricing and prestige.

Rowley’s comments about falling prices refers to the collapse in lab grown prices in recent years, as factories creating them have mushroomed in China and India, with improved technology and higher unit sales.

The executive’s comments also are a reminder of a masterstroke De Beers made in 2018, in an effort to control the growth and pricing of lab growns. Although the firm has never acknowledged its strategy, the launch of the what was the world’s largest synthetic lab appeared to be an effort to snatch the synthetic’s industry’s vanguard and impose standards, certifications and hopefully, pricing levels that would eventually lead to that much needed ‘bifurcation’.

In 2018, De Beers invested about $94 million into producing 500,000 carats of lab grown fashion diamonds per annum under a company known as Lightbox. The company was specifically targetted at fashion jewellery and thus would not compete with the bridal and engagement market, the top seller for natural diamond jewellery. The then CEO of De Beers group, Bruce Cleaver, revealed that lab growns were gaining attention and attraction in other markets and De Beers felt it was safe to move in on the market as it provided no threat to the core business.

“Lightbox will transform the lab-grown diamond sector by offering consumers a lab-grown product they have told us they want but aren’t getting: affordable fashion jewellery that may not be forever, but is perfect for right now,” said Cleaver. “Our extensive research tells us this is how consumers regard lab-grown diamonds – as a fun, pretty product that shouldn’t cost that much – so we see an opportunity here that’s been missed by lab-grown diamond producers. “Lab-grown diamonds are a product of technology, and as we’ve seen with synthetic sapphires, rubies and emeralds, as the technology advances, products become more affordable.”

De Beers introduced standards such as marking its lab growns clearly as lab growns and also pumped out the stones into the market, hoping to influence both standardisation and prices, that would drift towards bifurcation.

However, black swan events, being the COVID outbreak and Russia’s invasion of Ukraine, appear to have inadvertently thrown a curveball into De Beers’ well-laid plans.

By last year, amidst a deep slump in demand and economic uncertainty, retailers in the US were increasingly opting for lab-growns which were flying off the shelf, compared to the expensive naturals which sat in displays burning holes in the accounts of jewellers.

Data from the US, the world’s most important retail market for diamonds, indicates that one third of engagement rings were lab growns last year, with younger generations proving the friendliest to synthetics which claim to be more ethically produced and of traceable origin.

The economic environment post the pandemic has been punishing for consumers with disposable incomes under threat due to inflation and other market imbalances. When disposable incomes fall, it is normal for consumers to shy away from “Veblen goods” such as diamonds and go for conservative price points such as the one offered by synthetics.

The masterstroke to dominate the market and dictate standards and prices has had to wait a little longer.

However Rowley said even though the price collapse has taken forever to achieve, it is surely an imminent occurrence. Last week he admitted that lab growns had eaten into De Beers’ revenue pie but expressed his confidence in the fact that rough diamonds still hold a significant bearing on consumers seeking to make real valuable purchases.

For Batswana, the natural diamond versus synthetic is not a question for idle debate or choices, but an economic life and death issue, as it is for De Beers, one of the richest companies in the diamond world.

Editor's Comment
The people have spoken

In fact, early election results in some areas across the country, speak to large voter turnout which suggests that voters crowded at polling stations to decide appropriately. The Independent Electoral Commission (IEC) revealed that 80% of the 1,037,684 people who had registered to vote turned up to exercise their right.It’s unfortunate that at the time of cobbling this editorial comment, results had just started trickling in. We recognise that...

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