Good analysis of 1. De Beers 2. Syn Diamonds

[Garry H (Cut Nut)]

https://www.diamonds.net/news/NewsItem.aspx?tc_dailyemail=1&ArticleID=62506

Martin Rapaport gives an excellent quick summary of why De Beers lost the boggyman powers. Then goes on to discuss his take on De Beers and synthetics

 

[AprilBaby]

Interesting article. As the mother of millennial I see them buying the bigger synthetic to save money.

 

[Wholovesskunks]

Very interesting. Seems to me this could also work the opposite. If millenials focus on size vs real that will cause production of real to fall making them much more scarce and worth more in the long term.

 

[WinkHPD]

Fascinating article Garry, thank you for pointing it out.

I thought Martin's close was very condescending towards jewelers who sell both the real and the synthetic. Many smaller retailers will have to sell both to survive and doing so is not shameful, so long as they are also transparent in what they are selling.

My wagon is firmly fixed to a natural diamond company whose name I will not tout in this post, so I will not be offering the synthetics at any price.

Wink

 

[Diamond_Hawk]

This crosses-over into a thread on Hangout right now concerning millennials and jewelry in general. I am curious how much the 'average' (is there ever an average person?) millennial will care about the synthetic nature of the MMDs versus knowing that they have a natural diamond?

My thought is that it will, in some part, depend on the relationship they have with money, and the relationship they have with the older generations in their family. Might we find, somewhat ironically, that a couple with an average to below average socio-economic status would think a 4-carat diamond would appear ridiculous on a finger, so they may be tempted to get the 1-carat natural diamond instead? And, conversely, those with more disposable income will find the larger diamonds more acceptable/desired in their peer group and happily pay less for the larger synthetic to be worn on the finger, in the ears, as a pendant, etc??

It will be fascinating.

 

[WinkHPD]

This crosses-over into a thread on Hangout right now concerning millennials and jewelry in general. I am curious how much the 'average' (is there ever an average person?) millennial will care about the synthetic nature of the MMDs versus knowing that they have a natural diamond?

I was at a neighborhood Fourth of July party last evening. A young couple sat at the same table I was at and the setting sun kept hitting her diamond halo ring. I complimented her on the design and the sparkle coming from the center diamond.

They immediately explained to me that it was a ? diamond. I did not catch the term and a few questions quickly confirmed it was clarity enhanced and just over a one carat. The young lady actually told me she wishes it was not so big, as she is just not a jewelry person, and her husband started asking me about synthetic diamonds as soon as he figured out I was in the business. I told them both about the De Beers synthetics approaching the market.

She is not a jewelry person and would like a smaller diamond. He is the happy recipient of the news that he is going to save thousands and thousands of dollars by not buying something that he thinks is silly. Now he will just buy the cheapest synthetic he can find and have it mounted somewhere.

I was thinking that this was a VERY bad thing and I hope it is not the new trend that is coming down the pike.

This morning I am thinking that this is a VERY normal thing. There have always been, and will always be, those who do not like, or do not care about jewelry. It is sad, but I know that it is true.

This new phase of the market, with cheap synthetics will cause a few ripples as they take their place in the market, but like the early synthetics of ruby and sapphire, they will probably enhance the market for the naturals, not destroy it.

Wink

 

[diamondseeker2006]

I agree Wink. I've never found my dream sapphire. If I did, it probably would cost too much! But I'd never buy a lab created one because it seems dishonest to me. On the other hand, I could maybe see myself with studs with these synthetic diamonds just because studs seem to be easier to lose than a ring. But I wouldn't buy them in any size larger than what I could wear/afford in a real diamond, either. I wouldn't wear a lab diamond ring, though.

I really feel like these synthetic diamonds are better than buying CE, so I would be willing to recommend them to people who didn't care about natural diamonds and wanted a certain size with a limited budget. A well cut synthetic is better than a poor quality natural one, in my opinion.

 

[Texas Leaguer]

I agree with much of the Rapaport article, but disagree with some points. Yes, DeBeers is no longer the default custodian of the diamond industry and cannot be expected to operate ‘altruistically’. However, they are still the biggest stakeholder in the industry and as such their interest in helping assimilate synthetics properly into the trade is of primary importance to them. And that should be good news for the industry.

I agree with the article that DeBeers’ knowledge in diamonds and diamond mining is only rivaled by their “detailed knowledge and expertise about the demand side of the diamond equation.” They know the consumer market inside and out and they have been anticipating this day, acknowledging the inevitable, and crafting a strategy for YEARS.

Their approach is to position synthetics as an option for fashion jewelry, gifting, and self purchase. The bridal sector will not be significantly impacted given the emotional and symbolic significance of the purchase. Most consumers will want a natural, earth mined gem as their ‘forever’ diamond.

As synthetics continue to get cheaper, the sellers will fall over themselves to discount the product. This will continually reinforce in consumers’ minds the fact that lab grown diamonds are NOT the same product, with no rarity and no stored value.

Therefore, I disagree with the prediction in the article that “ DeBeers will have to go into the synthetic diamond engagement ring market.” I think that is the ONLY way they will legitimize lab grown diamonds as an alternative to natural mined diamonds for engagement rings. And they are clearly aware of that fact and actively avoiding it.

I do agree with the article stance to “strongly denounce those that claim synthetic diamonds are more ethical than mined diamonds”. This is a highly misleading narrative being spun up by the synthetics sellers to appeal to the millennial sensibility. It is inaccurate, unfair, and it needs to stop.

There is a healthy role for synthetics to play in the jewelry industry that has the potential to enhance and expand the industry as a whole. DeBeers can see where that is headed better than anyone and they have brought their weight to bear on making sure synthetics find their rightful place alongside natural mined diamonds.

 

[OoohShiny]

Interesting article, thank you for posting, Garry!

I'm not sure I entirely agree with the concluding parts, as it seems to have a strong focus on the 'brand' aspects of diamonds (and I am personally averse to the practice of deliberately pricing things very highly in order to prevent 'the plebs' from owning them) but he does do some interesting analysis.


This sentence jumped out to me personally:

It should be clear to you and your customers that synthetics are not a substitute for real diamonds, because they are incapable of holding value.

I think how one views diamonds is very personal - and a decision to purchase may not (should not?) be made (entirely) on their 'store of value' aspects.

As we know on PS, the 'store of value' aspects seem to often be used to sell diamonds to consumers, but that claim does not always seem to ring true when consumers are offered anywhere from only 10% to 80% of the original purchase price, the offer being entirely dependent on the party offering the price, any upgrade/buyback policies, the market demand for the characteristics of the stone in question (ref: the recent thread on whether lower clarity stones are a wise choice in terms of resale in some markets) and the desired urgency of the sale.

If one takes the approach that 'a stone is for life, not just for Christmas' (to misquote an RSPCA advert about buying puppies for said seasonal occasion from some years ago in the UK) then the store of value aspects of the purchase could/should/would become (potentially entirely) moot - in which case, what is the attraction of buying a smaller Mined diamond when one could purchase a much larger MMD and, likely, have much increased enjoyment over one's entire lifetime, because even the most modest person is susceptible to some extent to the 'more is better' concept?


Entirely personally speaking again, I experienced a similar internal discussion when looking at (male) wedding rings for myself:

Should I buy a band made of precious metal, such as Platinum or Gold? They can look beautiful, they are 'weighty' (which is a personal preference), they are 'classic', they should last a lifetime, and they have inherent long-term 'store of value' because of the material itself, which is coveted by others.

Or... should I buy something made of a different material, which is more appealing aesthetically to me but will not have such a long-term 'store of value', such as Damascus Steel, Mokume Gane, Cobalt Chrome, etc., as, after all, marriage is supposed to be for life and the band present at the joining of two people should be kept for that life, in order to maintain a bond with the event itself, rather than setting out from the start with the perhaps somewhat pessimistic approach that such an item can/should be thought of as a potential asset that can be liquidated, 'just in case'?


In the end I went for the second option, with Damascus Steel, and I love it I have no regrets about it and I feel glad that I 'took the plunge' and committed to it - even though it's just a small bit of steel, the fact that I went in without a 'what if' mindset and threw 'stored value' to the wind means a lot to me.

On that (entirely personal, far from empirically sound ) basis, I wonder how many other people will have the same approach when offered, as per the examples in the article, two options, the latter MMD being 150%+ in size of the former Mined option?

I will admit, I have vascillated somewhat on the theoretical question of whether or not I'd buy a MMD over a Mined for an engagement ring, or even for the 2ct+ Asscher that I want for a RHR myself , but when they potentially become so substantially cheaper than Mined (what, c.$1600 for a 2ct MMD Asscher vs $16k+ for a similar Mined stone?), I think it would make it a much easier decision than when MMDs were c.70% of the Mined cost!


All IMVHO, of course

 

[HDer]

Sounds like Rapaport thinks mined diamond prices will also come down. Good news for those of us looking at buying more then.

 

[AprilBaby]

Given the number of millennial I know spending big $$$ for very large moissanite, the idea of a “real” synthetic diamond for even less seems to be a great idea in their mind. It will kill the moissy market. I think mined diamonds will only appeal to the older crowd. But what do I know?

 

[Dancing Fire]

Imo, wear the real thing or don't wear anything at all.

 

[nala]

I know millenials who won’t buy fake Nike’s or Adidas so..... fake diamonds might not be as appealing to them just bc they are cheaper. True story. I was in Barcelona this summer. Fake sneakers. Fake handbags. The 3 millenials that I was with didn’t even bother.

 

[Bron357]

I think the reference to the coloured gem market was interesting.
Man made rubies have been around for over a century, these days they are even producing them with flaws, yet despite their identical chemical composition, premium ruby colour no one seems to be falling over themselves to own “real jewellery” with a lab made ruby in it. People still want natural, people will still pay big $$$$ to purchase real natural rubies.
The biggest change in society as I see is it, is the trend towards “experiences”, young people are more invested in life experiences than material possessions. They much rather travel or take a hiatus from work than save hard for a sparkly gem to put on their finger. No longer do people work for the same company for decades, no longer are people born, living and growing old in the same area, times have changed. I’m sure that gems and jewellery will still have a place in most peoples lives, but look at what happened to watches. I hardly see a young person wearing a watch, when you have a phone / computer, who wants or needs something on their wrist!
Maybe diamond engagement rings are losing their revelance in society, no longer does one need to signify a “taken status”.

 

[nala]

I think the reference to the coloured gem market was interesting.
Man made rubies have been around for over a century, these days they are even producing them with flaws, yet despite their identical chemical composition, premium ruby colour no one seems to be falling over themselves to own “real jewellery” with a lab made ruby in it. People still want natural, people will still pay big $$$$ to purchase real natural rubies.
The biggest change in society as I see is it, is the trend towards “experiences”, young people are more invested in life experiences than material possessions. They much rather travel or take a hiatus from work than save hard for a sparkly gem to put on their finger. No longer do people work for the same company for decades, no longer are people born, living and growing old in the same area, times have changed. I’m sure that gems and jewellery will still have a place in most peoples lives, but look at what happened to watches. I hardly see a young person wearing a watch, when you have a phone / computer, who wants or needs something on their wrist!
Maybe diamond engagement rings are losing their revelance in society, no longer does one need to signify a “taken status”.

I disagree that youth are about experiences. They are about experiences that they can convey on social media. And a ring and getting engaged and flaunting this experience is s high priority. Savvy jewelers know this and showcase couples and their rings. Millenials might like to think they value experiences but I
Think they value flaunting that experience more. Soc media is their status symbol. And as Long as the Kardashian’s are flaunting their diamonds, the youth will follow.
And Nixon watches were a big deal a few years ago with millenials. Don’t forget that in every generation, there are different types of people.

 

[Johnbt]

"And as Long as the Kardashian’s are flaunting their diamonds, the youth will follow."

A few I suppose from looking at their ratings - and they are back up just a little this year. And the young guys following Kim are probably watching her 2002 sex tape, not her diamonds. Heck, maybe they're even watching her Dancing with the Stars reruns from 2008 - she finished 11th iirc after all of the phone and online votes were counted. I do have to admire the folks who are only famous for being famous and getting paid for it, although I don't admire them nearly as much as folks who have actually accomplished something useful.

Being an old guy, the millennials I know are all different and don't seem to fit any of the popular descriptions and definitions.

It will be interesting to see how the jewelry market develops, but I doubt that it's predictable or controllable because like all markets the ups and downs will be the result of millions of individual decisions by the individual customers around the world.

One of my favorite quotes is from John Bogle, the founder of The Vanguard Group investment management company (5 Trillion dollars under management.) It is the standard response when someone dares to predict the future course of the investment market, the indexes, stocks, bonds, ups & downs, etc.
Mr. Bogle, who pretty much invented index investing, was asked about the best piece of investment advice he ever received...

"Nobody knows nothing."

It's fun to speculate, but it's usually a waste of time because the future tends to be full of unforeseen surprises.

 

[Paul-Antwerp]

I already read the article by Martin Rapaport earlier, but am personally more interested in the errors, deliberate or not:

- According to industry-estimates, putting De Beers' market-share at 42% is high. Rapaport earlier used this same percentage in his JCK-speech, where he attacked De Beers' and accused them of abusing monopolistic powers again. Why, some in the industry ask, does Rapaport blatantly use incorrect numbers in his messaging?

- The industry estimates that current production of synthetic rough diamonds is about 5 million carats. This new initiative of De Beers' projects a production of 500,000 carats by 2020. We can assume that other producers of synthetic diamonds will also increase their production in the next years. That makes the market-share of De Beers' in synthetic diamonds less (far less?) than 10%. With such market-share, one cannot really expect them to be the price-setter. If they are clearly cheaper than their competition, they may quickly sell out. But once sold out, what then?

- De Beers' announced pricing of 800$/Ct. with a maximum size of 1Ct. No info on shapes, cut-quality, color or clarity. Rapaport however takes that pricing and applies it to far bigger sizes, in order to demonstrate how an almost non-existing production (scarce, possibly?) of synthetic diamonds is going to present a huge competition to natural diamonds. I find the reasoning quite a stretch, despite it having merit, if one takes De Beers' and their non-existing production at non-existing prices out of the comparison.

In building his reasoning on errors (deliberate or not?), Rapaport comes to a conclusion:

- Mining companies need to source-certify their diamonds. Incidentally, in his speech at JCK, Rapaport attacked De Beers' specifically because of their non-cooperation with Rapaport on source-identification. Rapaport wants that info as part of his industry-information-business, his investment in artisinal mining, his project of lab-grading will all benefit from better source-identification. The so-called reporter Rapaport (journalist?) is attacking De Beers' in this article, because of his own business-interests.

- Natural diamonds are real because they hold value. I am sorry, but natural diamonds often lost value because the cut-quality turned out to be not good enough. 15 years ago, GIA had no cut-grade and still none exists for fancy shapes. Value of these older stones has only decreased with the appearance of (still far too lenient) cut-grading-systems. Rapaport would do well reading a bit more on PS, where he would see that most consumers do not really buy diamonds because of value-retention, but far more because of the joy they get from wearing the most fiery, sparkly diamond on their finger.

- On top of that, he attacks jewelers for simply doing their job: If their clients wish to buy synthetic diamonds, who can call them out for being unethical in satisfying the needs of their clients? I cannot help but feel deeply ashamed for the way in which Martin Rapaport describes people in the natural diamond industry in this article.

Thus, my conclusion: While Rapaport makes interesting points, the article should not be seen as an independent, journalistic effort. It is meant to support the business-interests of Mr. Rapaport, and he is not ashamed to build it upon incorrect figures and incorrect reasoning.

Live long,

 

[AprilBaby]

“Natural diamonds are real because they hold value”. They seem to be like cars as soon as they leave the lot. They resell for 50% what you pay. Just look at the preloved and loope troop.

 

[HDer]

Natural diamonds are sold by jewelers as holding value/investments though. Otherwise it's hard to get people to fork over so much money purely on the idea that something is sparkly.

 

[MelloYello8]

IMHO

On marketing: I don’t consider myself a millennial, but as someone with certain sociopolitical leanings I had never wanted a new mined diamond. My spouse and I discovered mmd right before our engagement in 2007 so we didn’t have to search the earth for estate or secondhand rings that were also to my tastes. As someone who had viewed the Kimberly process as dishonest at the time, I did not consider it dishonest to market mmd as conflict free. Thus the mined diamond industry never lost me as a customer to mmd because I was never one to begin with. Maybe if the Kimberly process is fixed in its review that completes in 2019 I’ll have a change of heart.

On fakes: Most of my jewelry is from Tiffany. Of course I only buy jewelry that doesn’t have diamonds. I would never buy a fake Tiffany or other luxury item because I care about quality that original items can reasonably ensure. And whenever something hasn’t worked out, Tiffany would go above and beyond to make things right. Knock off vendors likely would not do the same. As most mmds are identical in quality to mined diamonds (except likely irradiated pinks) I consider them equivalent.

On investment: My spouse presented me the choice of purchasing a gorgeous thick mesh 18k black and yellow gold scarf necklace I had been fawning over but was heavy; so heavy it would have cost as much or more than my newest mmd ring. It was priced by weight in the Middle East, so truly an investment piece that would at the very least hold its value in gold and could be resold easily and possibly at a profit if the gold market was high unlike most consumer grade diamonds. As it wasn’t practical to wear over half a pound around my neck to work on a regular basis I opted for the ring in the end. We’ll continue to invest our money instead in stocks and income generating real estate.

On the Lightbox grand opening: sounds like a perfect mommy-daughter outing. . Does anyone know where they’ll be opening their stores?

 

[AprilBaby]

For those who wont buy mined diamonds, how about gold. Isn’t it just as unethical?

 

[MelloYello8]

While the use of gold as a commodity has a longer and different history than diamonds, that’s a good point. I don’t believe conflict minerals had really come to light when I had gotten engaged and the major issue I was aware of was the environmental toll. The store we bought my engagement ring and our wedding bands from only used recycled metals (and made their own alloys which allowed me to get nickel free palladium white gold) and also provided the option of contributing to a carbon offset tax for the making of the jewelry. They also accepted gold in exchange for a discount on jewelry equivalent to the gold value. Unfortunately that store has since closed. The environmental impact also was not a big deal to me I suppose as I continued to make new gold jewelry purchases. I will have to look more into conflict gold before making a major purchase of new gold jewelry.

 

[AprilBaby]

It’s just something we don’t think much about. I’m sure recycled gold is a great idea!