Registered users can save articles to their personal articles list. Login here or sign up here

Lab-made diamonds for less: Why De Beers’s plan worries rivals

De Beers has plans to manufacture and sell lab-grown diamonds at a fraction of the going rate.

De Beers hasn’t even opened its first synthetic diamond store, but its looming entry into the market for man-made gems has already shaken the industry.

The unit of Anglo American said three months ago that it plans to sell lab-grown diamonds at a fraction of the going rate, undercutting rivals like Chatham Created Gems and Diamond Foundry. That’s already cut the price of man-made gems, furthering De Beers’s aim of increasing the premium paid for the diamonds it mines in Botswana, Namibia, South Africa and Canada.

De Beers will target younger consumers with its lab diamonds, sold under the Lightbox name for about $800 a carat. That’s a fifth of the price of existing man-made stones and one-tenth of the cost of buying a similar natural gem.

While De Beers says its strategy will eliminate customer confusion over man-made diamonds and their natural counterparts, some producers are crying foul. The lab-grown industry has filed a complaint with the US Federal Trade Commission, accusing De Beers of price dumping and predatory pricing.

“De Beers aren’t stupid,” said Chatham Chief Executive Officer Tom Chatham, who filed the complaint. “They know how to grow diamonds, but this equipment is not cheap. They are selling below cost.”

De Beers CEO Bruce Cleaver has said he expects its lab-made gems to be profitable, while adding that it’s not going to be a big business for the company.

Diamond history

Diamonds grown in labs have the same physical characteristics and chemical makeup as mined stones. They’re made from a carbon seed placed in a microwave chamber and superheated into a glowing plasma ball. The process creates particles that crystallize into diamonds in weeks. The technology is so advanced that experts need a machine to distinguish between synthesized and mined gems.

While De Beers has never sold man-made diamonds for jewelry before, it’s good at making them. The company’s Element Six unit is one of the world’s leading producers of synthetic diamonds, which are mostly used for industrial purposes. It has also been producing gem-quality stones for years to help it tell the difference between natural and man-made types.

So far, De Beers’s strategy seems to be working. The premium natural diamonds command has widened since the company’s May announcement, with the 1-carat and half-carat stones it’s going to be producing suffering the biggest prices declines, according to industry analyst Paul Zimnisky. The discount on a half-carat man-made stone has ballooned to 38% from 24%, Zimnisky’s data shows.

“There’s no question that the announcement has caused people to question whether the margins people are currently making are sustainable,” said De Beers’s Cleaver. “I certainly wouldn’t expect the premiums to be at anything like the current prices.”

While De Beers has said it isn’t trying to disrupt existing lab-diamond producers, who have a small, but growing, share of the market, the company has a history of using price as a weapon. When Zaire — now the Democratic Republic of Congo — decided to sell its stones independently of De Beers in the 1980s, the company dumped huge amounts of similar stones onto the market, crashing the price. Within two years, the African nation had returned to the De Beers fold.

The latest move also holds risks for De Beers. By offering lab-grown diamonds at such a steep discount, the company may erode demand for the industry’s lower-quality products that sell for less than $200 at retailers like Walmart. The five-year slide in prices for this sort of diamond — which make up about 80% of supply, but only 20% of profits — has continued since the announcement.

Ethical dimension

Still, its not all about price. Man-made diamonds have positioned themselves as an ethical alternative to natural stones, which have long been associated with conflicts in Africa and the massive environmental footprint of modern mining. Leonardo DiCaprio, who starred in 2006 blockbuster “Blood Diamond,” is a backer of San Francisco-based Diamond Foundry, one of the most famous synthetic brands.

“I think De Beers feel very threatened,” said Ella Drake, founder of Monarc, a London-based jewelry retailer that sells Diamond Foundry stones. “Diamond Foundry know being ethical isn’t enough. They’ll have to possibly lower prices to meet that difference.”

© 2018 Bloomberg L.P

COMMENTS   2

To comment, you must be registered and logged in.

LOGIN HERE

Don't have an account?
Sign up for FREE

One problem in their plan: Why would a young couple pay $8000/carat for a natural diamond?

Hopefully the millennials are less dependent on snake oil sales and marketing.

End of comments.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR

Podcasts

GO TO SHOP CART

Follow us:

Search Articles:Advanced Search
Click a Company:
server: 172.17.0.2