Synthetic Worries – Are they Justified?

The growing prevalence of lab-made diamonds is a source of great worry to Indian diamond manufacturers and wholesalers. During a recent visit to Mumbai, every manufacturer I spoke with except one asked about them. All worried about the impact and possible growing popularity of lab-made diamonds on their business.

Lab-made goods sell for 20-25 percent less than natural mined stones. Because they are a technology-based product, their cost of production will decline over time as the technology improves, and their retail price will decline with it. Traders’ greatest concern is that this will also drag down the value of their stock of natural diamonds.

The big question is what role lab-made diamonds will play in the consumer market. Have no doubt – gem-quality lab-made diamonds are here to stay. In all likelihood, they will become a niche product and not a replacement for natural diamonds.

Lab-Made As Consumer Products
A number of traders asked this week why a consumer would want to buy a natural diamond if they can buy for less what is perceived as the same product. The answer is simple: the rationale that consumers only buy the low-cost item is false. Some want a simple watch, others a high-end one; some buy a plywood desk for their office, others want oak or marble desks. The list goes on for fashion handbags, cars and even floors – parquet or whole wood planks?

A variety of options exist, and they differ not only in price and quality, but also in perceived, social and personal value. We buy an expensive watch to celebrate an increase in income, not because it shows the time more accurately – and that is why while some consumers will buy lab-made, others will insist on the “real thing,” natural diamonds from Mother Earth.

But if natural diamonds become even more high-end, what will become of the lower quality pique goods, will there be any justification to buy a low-quality natural diamond when, for the same price, a higher-quality lab-made alternative exists? It is reasonable to expect that low-end naturals will lose their appeal and with it the economic justification for polishing them. Pique, low-color, especially smaller goods (and any combination of these three) may be the biggest victims of lab-made goods.

Conversely, better goods, in particular large, high-color and clarity natural diamonds, will be better positioned and benefit as a result from increased prices.

Opportunities, Not Only Challenges
There are opportunities as well. If lab-made goods catch on, a possible halo effect will increase demand for natural goods, just as iPhone ads promote smartphones in general. Another opportunity for manufacturers is the option to polish lab-made goods in separate sections of their existing facilities.

The current, more burning issue, however, is of course that of disclosure. The growing belief is that today more and more parcels of smaller goods may contain lab-made diamonds. Because smaller goods, such as 0.10-carat items, are not certified, that is, a gemological lab does not examine them, it is easy for an unscrupulous trader to mix them with natural goods.

This is an important reason for concern. No one in their right mind wants to mislead consumers or jewelry manufacturers by selling them low-cost lab-made diamonds as natural diamonds. The price difference is, of course, the reason for selling them undisclosed. Honest traders buying undisclosed goods don’t want to be accused of non-ethical practices.

Strict enforcement, prosecution of guilty parties, and a ban on doing business with the culprits will curtail that problem.

The long-term view is the important one, and it was impressive to see how many firms are already thinking long-term in this regard. The first order of business is, however, psychological. Lab-made diamonds are not an enemy or a threat, they are a change in the business environment that needs to be addressed.

In that regard, traders commonly refer to lab-made as “synthetics” even though there is nothing synthetic about them. They are no more synthetic than test tube babies are synthetic humans. Traders need to accept the challenges of lab-made diamonds and their place in the jewelry market because they exist, and will continue to exist, and are now a fact of life.

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