Editor’s Note
This article highlights the key forces reshaping the global diamond industry in 2021: the embrace of digital assets like cryptocurrency, the rising prominence of synthetic diamonds, and the growing focus on sustainability. These trends reflect the sector’s adaptation to new technologies and evolving consumer values.
In July of this year, a super high-priced diamond auctioned at Sotheby’s for $12.3 million was paid for with cryptocurrency. In October, a Harry Winston diamond necklace can also be auctioned for cryptocurrency. The diamond industry’s swift moves to acquire new customers have recently shifted to interest in synthetic diamonds (lab diamonds, lab-grown diamonds). The movement of the global diamond industry, which just a few years ago vehemently opposed the proliferation of artificial, non-natural diamonds, is already a world apart. Of course, the popularity of natural diamonds, welcomed by the super-rich, remains. Amidst this extreme popularity, companies that dominate the diamond market, such as De Beers and Pandora, are also stepping up their pace. So, from an investment perspective, how can this interest be understood? We examined the keywords that led the global diamond market last year and this year. We introduce the market’s moves targeting the MZ generation during the pandemic and the super-rich’s gem investment methods.
This is no exception for the diamond market, where unusual movements are being detected at both the very top and bottom of the pyramid.
On July 9th, at a Sotheby’s auction in Hong Kong, a super high-priced diamond paid for with cryptocurrency caused quite a stir in the industry. The star of the show was the 101.38-carat, D-color, flawless diamond ‘The Key 10138’. This diamond fetched a hammer price of $12.3 million, claiming the title of the first and most expensive gem ever paid for with cryptocurrency in auction history (among gem auctions). Three months later, Sotheby’s also supported cryptocurrency transactions for a Harry Winston necklace set with a total of 177.51 carats of diamonds, accelerating its efforts to secure a new customer base. Thus, Sotheby’s, which successfully attracted the ‘Digital-Savvy’ crowd to the conservative gem auction market, opened an era where virtual assets contribute to traditional luxury sales.
Currently in 2021, the capital pouring into the synthetic diamond (Lab-grown Diamond) market is also beyond imagination. It has been three years since De Beers launched ‘Lightbox’ and threw its hat into the ring of the gem-quality synthetic diamond market. De Beers, which once monopolized the world diamond market, still mines one-fifth of the world’s diamonds. Ironically, the traditional powerhouse of the diamond industry, which until a few years ago was focusing all its efforts to prevent the spread of artificial diamonds, is now exerting influence as a major price setter and supplier of synthetic diamonds.
Jewelry companies with high global market share and Silicon Valley startups armed with innovative technology are also growing at a furious pace in the synthetic diamond market. Pandora announced the ‘Pandora Brilliance’ collection set with synthetic diamonds in May, declaring that it would switch all products to synthetic diamonds starting in 2022. ‘Diamond Foundry’, the largest synthetic diamond producer in the US, recently secured an additional $200 million in investment to increase its production to the level of ‘natural stone mining’. This raised the company’s valuation to $1.8 billion. Thus, in just a year and a half, the high-quality natural diamond market led to the expansion of payment methods targeting the digital generation craving ‘scarcity value’, while the synthetic diamond market is expanding its breadth with major players equipped with massive capital and strong marketing power under the banner of ‘democratization of diamonds’. Both markets are focusing all their efforts to target young consumers.
As the king of gems, diamond is a mineral with the most special creation story in nature. Formed billions of years ago under extreme pressure 150-200 km below the Earth’s mantle, diamonds are a product of chance and miracle that rose to the surface with volcanic eruptions. Even the youngest diamond finished its formation before the extinction of the dinosaurs. If natural diamonds are glaciers made from primordial water that existed before humanity, are synthetic diamonds produced in factories in two weeks like ice from a freezer? Of course, the chemical composition, crystal structure, and optical and physical properties of synthetic diamonds are identical to natural diamonds. This is why synthetic diamond producers around the world prefer the concept of ‘genuine product born of science’ over ‘synthetic’.
The official honor of being the world’s first developer of artificial diamonds goes to America’s General Electric (GE). In 1954, GE succeeded in synthesizing graphite into diamond using the High-Pressure High-Temperature (HPHT) method, similar to the environment where natural diamonds form. Of course, they were extremely small and far from transparent, but they were perfect for industrial abrasives. As synthesis technology advanced, humanity succeeded in developing ‘gem-quality’ diamonds, and with the advent of Chemical Vapor Deposition (CVD), which is simpler and does not require ultra-high pressure compared to HPHT, costs and time were significantly reduced. Quality also improved dramatically to the point where it is difficult to distinguish from natural diamonds with the naked eye. Lightbox, Pandora Brilliance, and Diamond Foundry’s diamonds are also produced using CVD technology.
Ultimately, the killer feature that allows synthetic diamonds to excel in the tug-of-war with consumers is price. Depending on the stone or brand, white diamonds are on average 30-40% cheaper at retail prices as of 2021. So, what about their investment value? Looking back at history, the answer is closer to ‘no’. Wasn’t cubic zirconia, the epitome of imitation diamonds, once sold for $800 per carat? The synthetic diamond industry is a manufacturing industry. Moreover, it is an item with a much higher dependence on technology than natural diamond mining. As technology advances, production will continue to increase, and as supply increases, price declines are a natural consequence.
Looking at the price trend of synthetic diamonds over the past three years, the wholesale price of synthetic diamonds, which had maintained a relatively high level, began to decline after May 2018. That was precisely when De Beers announced Lightbox’s groundbreaking price system of $800 per carat. According to Ethan Golan Diamond Research & Data, the wholesale price of synthetic diamonds fell by 26% in Q1-Q3 2018, and this trend continued until Q3 2019. Then, from Q4 2019, prices began to recover. Despite many producers entering the market and increasing supply, they benefited greatly from strong consumer demand. In fact, the market share of synthetic diamonds rose from 2.1% to 3.4% in Q4 2019. While numerically modest, this was a surprising result of a 62% increase in market share within a year.
Thus, the price of synthetic diamonds, which showed strength even amid oversupply, began to decline again in March 2020 as consumers closed their wallets due to COVID-19 lockdowns and isolation measures. Although retail stores reopened from late summer and the jewelry market gradually revived, while the wholesale price of natural diamonds rose, synthetic diamonds could not escape the downward trend. Accumulated oversupply and fierce competition were the main causes. Although the rate of decline has slowed this year, due to intensified competition and various efforts to cover losses from the first year of the pandemic, synthetic diamond prices are forecast to maintain a slight downward trend for the time being.
Ultimately, the diamond jewelry market is bound to be stratified into multiple tiers. Led by fancy color diamonds, the highest-grade natural diamonds will occupy the top of the pyramid, while at the bottom will be synthetic diamonds (which are also divided into quality comparable to natural and low quality) and low-priced natural diamonds competing with them. Even in the world of the super-rich, there is a trend of demand for Type IIa diamonds without nitrogen even among top-grade white diamonds. Most diamonds, about 98%, contain trace amounts of nitrogen, which is the main culprit for creating a yellowish tint. However, the super-rich, who have sought differentiation with colorless D-color diamonds, are now craving Type IIa diamonds (1-2%) made of pure carbon without even trace amounts of nitrogen, even among the same D-color. Luxury brands like Cartier, Tiffany, Chaumet, Louis Vuitton, and Chanel are also competing fiercely to secure perfect Type IIa diamonds. Sotheby’s ‘The Key 10138’ and the Harry Winston necklace are also Type IIa diamonds. This reminds us that the super-rich’s gem investments strictly follow a ‘scarcity value worldview’.
When De Beers launched Lightbox in September 2018, both the natural and synthetic diamond industries were shocked. However, De Beers seemed to have already prepared an exit strategy to avoid shooting itself in the foot by eroding the bridal market. Their policy was the lowest price in the industry, not selling loose stones separately, not grading them, and selling only online. They also did not go all-in on philanthropic storytelling emphasizing ethics and eco-friendliness like other companies. Ultimately, their intention was to differentiate from their own natural diamonds. Views were divided, with some seeing it as “an effort not to fall behind the times” and others ridiculing it as “a swift move to devalue synthetic diamonds”. So far, as per their plan, they are targeting the MZ generation in their 20s and 30s, who have emerged as the core purchasing group, by attacking the mid-to-low-priced fashion-oriented demi-fine jewelry market and the gift market. For reference, Lightbox’s sales in 2020 increased by 50% compared to the previous year, and this year, sales are expected to triple compared to last year. Initially distributed only in the US, it is now sold in 75 countries, with overseas market sales accounting for 20% of total e-commerce sales.
When synthetic diamonds were first developed by GE in 1954, many thought the end had come for natural diamonds. However, over the past 70 years, natural and synthetic diamonds have ‘peacefully’ coexisted. However, as technology developed, larger and better quality diamonds began to be produced on a large scale, creating a new jewelry category rather than completely replacing natural stones. For example, choosing synthetic stones for jewelry to be worn lightly and natural stones for once-in-a-lifetime occasions like weddings. In particular, they are expanding the market by demonstrating the power to stimulate the purchasing desire of consumers who never even considered diamond jewelry.
