Cultured diamonds are here to stay

De Beers may soon have to rephrase its most famous slogan, 'A diamond is forever', with something to depict the diamond's natural origin. For, the diamond industry worldwide could soon be confronted with its worst crisis ever.

The burning issue is of man-made, or synthetic, diamonds. Not the Russian variety talked about in hushed tones over the years, but diamonds coming out of the US from companies like Gemesis Corporation and Apollo Diamond Inc, some of them in 72 hours flat.

Recently, on ABC's Good Morning America, viewers were jolted awake when experts concurred live on TV that a regular jeweller's chances of spotting cultured diamonds amounted to "zero". Yes, cultured diamonds are here to stay.

One always knew the Russians had the technology to manufacture synthetic diamonds of gem quality. But it was thought to be economically unviable to manufacture quality diamonds, and moreover the quantity produced was of no consequence.

Now, not only do cultured diamonds exhibit the properties of natural ones, the process too is economically viable. And the huge presses used by the Russians are now much smaller and cheaper. Gemesis has 27 such presses and plans to take that number to 200 in two years. Soon, it will produce close to 20,000 carats a year.

Then there is talk of some cheaper Chinese process, which makes one wonder. Remember those cheap Chinese battery cells, radios, calculators flooding the markets. Imagine a similar story in studded jewellery and the horror would have begun.

In theory the problem can be solved if the two markets -- natural and synthetic -- are made mutually exclusive. This will entail full and proper disclosure by the parties concerned. All will agree on the disclosure norms.

Nobody will advocate selling man-made diamonds without a tracking mechanism from factory to consumer. Thus, in theory, there is no problem. However, the reality is totally different.

There will always be industry players who will not forgo an opportunity to make money by not disclosing, if they can get away with it. No doubt the vast majority of synthetics are very small stones, colours and sizes for which no certification demand exists.

The GIA may, with the best of intentions, not have the tools to measure the size of the synthetic market, even as production moves to Eastern Europe and China.

At present, synthetics have one flaw: their yellow hue. But against the very few yellow diamonds available naturally, more and more yellows are suddenly making an appearance in the marketplace. The alarm bells have started to clang.

Many would argue that it should not matter to the Indian diamantaire whether the diamonds reaching him are natural or man-made/cultured/synthetic.

India is the diamond cutting and polishing centre of the world. And any diamond, whether natural or cultured, has to be cut and polished. So, it does not matter if the stone is real or even fake. The only cause for concern is whether these cultured diamonds eat into the marketshare of the real thing.

Generally, it could be argued that for Indian factories, it could even mean more business and no need to fear the extinction of mines and the resultant loss of jobs.

However, there is also another aspect. India is now said to be the third largest consumer market in studded jewellery. If panic sets in here about natural and cultured diamonds, all hell could break loose.

The market could simply vanish if the consumer cannot be guaranteed the real thing: the fall in price could wipe out the real diamond jewellery market. And with the threat of Chinese cultured diamonds looming, India could well have to say goodbye to the diamond dream.

The big question is how will the diamond industry tackle this enormous problem? Of all the producers of natural diamonds, mined from the bowels of the earth, only De Beers has its own facility to manufacture synthetic diamonds, in the Isle of Man.

This facility was ostensibly put in place to counter the threat from the Russians in the days gone by. De Beers, in theory, can become the largest producer of man-made diamonds, if only to counter the threat from man-made producers and to guard its own turf. It could be able to control the flow of synthetic diamonds and control the market.

But how will the diamond industry at large react? If the way in which the conflict diamonds issue (blood diamonds) was resolved is any indicator, then god bless. But then that is another story.

The writer is an independent analyst on diamonds and the bullion markets. (Acknowledgment: Chaim Even-Zohar)

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