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Diamonds that come from mines rather than labs received a strong endorsement last week from LVMH, the French luxury conglomerate that owns Bulgari and Tiffany & Co. “When it comes to jewelry, we use natural diamonds. . . In our opinion, the most beautiful jewels are the natural ones,” said Stéphane Bianchi, Managing Director of the LVMH Group.
It was a nice feeling, but technically it didn’t make any sense. Lab-grown diamonds not only look exactly like solid carbon crystals that formed deep in the Earth millions of years ago, but they are also physically identical. Beauty has to be in the eye of the beholder to justify paying much more for one than the other.
Diamonds is also involved in this week’s planned £31bn takeover of Anglo American, the owner of De Beers, by BHP, the world’s largest mining group. BHP is primarily interested in Anglo American’s copper mines, not its jewels. De Beers has reduced its production due to sluggish demand for its traditional products.
The industry says the lockdown is to blame. Since De Beers’ postwar “Diamonds are Forever” advertising campaign, diamond sales have depended on suitors putting a ring on them. The number of engagements has not recovered to pre-pandemic levels, and jewelers argue that the average three-year delay from the first date to popping the question suggests better times are ahead.
This feels more like an excuse than a full explanation. Natural diamond prices are almost 20 percent below their previous year’s levels after rising in 2022 and were higher a decade ago. The excitement over jewelry prices is now centered around gold, in part because Chinese buyers are opting for pieces that have a safe haven value.
Behind the plight is the growth of lab-grown diamonds and their acceptance as a cheaper alternative to natural diamonds: It is common for half of the diamonds sold at retail by U.S. jewelers to be lab-grown. Because they have, as the U.S. Federal Trade Commission puts it, “substantially the same optical, physical and chemical properties as mined diamonds,” these are numbers.
While prices for mined fine diamonds are low, the situation for lab-grown diamonds is far worse. Many companies are producing synthetic diamonds not just for jewelry but in hopes of new industrial applications, from electric vehicle components to energy storage. A lab-grown stone that was worth 80 percent of the natural price a few years ago is now selling for less than 30 percent.
Diamonds used to be valued not only for their beauty but also for their rarity. The Dutch and British East India Companies made fortunes from India’s Golconda mines in the 15th and 16th centuries. Even after the discovery of diamonds in South Africa in the 19th century, De Beers controlled supply and prices through his cartel.
But the colonial monopolies have long since collapsed and there are now plenty of diamonds. Real shortages only exist for the largest and rarest natural diamonds – the clearest gems and “fancy, vibrant” colored stones that can fetch millions at auction. Bridal diamonds cost an average of $1,800 each in China in 2022: expensive but affordable.
Diamond optimists argue that the dramatic drop in prices for lab-grown stones represents an opportunity. Jewelers who have been able to make higher margins by selling lab-grown diamonds will encourage their customers to buy natural diamonds instead. They will no longer be able to make a living if they become discounters for cheap jewelry.
There is precedent for companies being able to weave emotional stories around products that are functionally similar to cheaper products and command luxury prices. You’ll pay a lot more for mechanical Swiss watches than Apple’s, even though the latter tell time more accurately and are more versatile. Origin, craftsmanship and mysticism can be extremely important.
Perhaps the gap between the prices of mined fine diamonds and lab-grown diamonds shows that luxury premiums have widened after years in which they were dangerously close: the miracle of natural diamonds is that their price has not fallen any further. But there are two hurdles on the way to the mystique they once enjoyed.
One of them is that the origin can be unclear. The industry has reformed since the “blood diamond” scandals of the 1990s in Africa and major efforts are now being put into traceability and proof that jewelry store stones are mined ethically. However, it now faces the additional challenge of the G7 ban on Russian diamond imports, which affects Alrosa, the world’s largest diamond mining group.
Secondly, luxury products need to be marketed, and although Richemont and LVMH are experts in selling their own luxury jewelry, many diamonds are just components of the final products. For natural diamonds, it helps that LVMH sees them as an integral part of luxury, but that halo effect doesn’t extend to every little diamond ring in a mid-range Signet jewelry store.
Paul Zimnisky, the industry’s leading analyst, argues that it has to sell itself: “You can increase demand by spending money to create desire,” he says. De Beers managed this with one campaign when it controlled most of the world’s production, but Diamond ads aren’t forever.