China is poised to take on the world’s fine jewellery producers using sophisticated technology to offer increasingly cheap alternatives. This move threatens to upend the lucrative fine jewellery market.
The technological disruption that has affected the auto, medicine, banking, and countless other industries is finally spilling over into the diamond market, where a massive oligopoly of just four miners control over 60 per cent of production, according to the Bain & Company consultancy.
The knowledge learned from becoming the world’s largest makers of synthetic diamonds used in industrial cutting tools is now being applied in the consumer jewellery market. By doing so, China is now making approximately 56 per cent of the world’s gem-quality synthetic diamonds, far outpacing India, who is in second place.
While the synthetic diamond market only encompasses around 3.5 per cent of the world’s diamond jewellery, the share is expected to grow to six per cent within the next four years, and even higher in the future, says Paul Zimnisky, a New York-based independent diamond sector analyst.
“In the last few years some Chinese producers have been upgrading existing equipment to produce larger, better-quality synthetic diamonds for use as jewellery,” Zimnisky said.
“China already has the infrastructure in place which allows for high production scalability of higher-quality synthetic diamonds, as existing high-pressure high-temperature equipment is upgraded.”
This could potentially pose a huge threat to the world’s diamond miners.
According to Zimnisky, five years ago, a “fake” diamond could cost about 10 per cent less than a genuine one. Now the discount is around 50 per cent. Within five years, it is predicted that diamond alternatives could be up to 90 per cent cheaper.
“Technology has progressed rapidly, not only are the lab-grown diamond producers able to produce bigger stones … but also better clarity and colour,” Georgette Boele, senior precious metals and diamonds analyst at Holland-based bank ABN AMRO, wrote in a report.
“There seems to be a higher acceptance … probably driven by perception that lab-grown diamonds are more sustainable and the price more attractive.”
The “sustainability” issue is also becoming a bigger selling point for lab-grown diamonds.
The threat that synthetic diamonds pose to natural diamonds is only expected to grow. As such, the price of natural diamonds could very well experience a sharp decline. Such concerns may lead distributors to keep smaller inventories to protect themselves.