Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Diamonds of the kind that come from mines, not laboratories, got a fine endorsement last week from LVMH, the French luxury group that owns Bulgari and Tiffany & Co. “When it comes to jewellery, we use natural diamonds . . . The most beautiful jewels are, in our opinion, the natural ones,” said Stéphane Bianchi, LVMH group managing director.
This was a nice sentiment but it did not, strictly speaking, make sense. Lab-grown diamonds not only look the same as solid carbon crystals formed in deep earth millions of years ago but are physically identical. Beauty must be in the eye of the beholder to justify paying far more for one than the other.
Diamonds are also involved in this week’s proposed £31bn takeover by BHP, the world’s largest mining group, of Anglo American, which owns De Beers. BHP is mostly interested in Anglo American’s copper mines, rather than its jewels. De Beers has been cutting its output due to sluggish demand for its traditional products.
Blame it on lockdown, the industry says. Diamond sales have relied on suitors putting a ring on it since De Beers’ postwar ad campaign “Diamonds are Forever”. Engagements have not recovered to pre-pandemic levels and jewellers argue that the average three-year lag from first date to popping the question means better times lie ahead.
That feels more like an excuse than a full explanation. Natural diamond prices are nearly 20 per cent below their level of a year ago after a run-up in 2022, and were higher a decade ago. The jewellery price excitement is now to be found in gold, partly thanks to Chinese shoppers choosing trinkets that have safe haven value.
Behind the malaise lies the growth of lab-grown diamonds and their acceptance as a cheaper alternative to natural ones: it is common for half the diamonds sold by US retail jewellers to be lab grown. Since they have, as the US Federal Trade Commission puts it, “essentially the same optical, physical, and chemical properties as mined diamonds”, this figures.
While mined fine diamond prices are depressed, things are far worse for lab-grown ones. Many companies are producing synthetic diamonds, not only for jewellery but in the hope of new industrial uses, from electrical vehicle components to energy storage. A lab-grown stone worth 80 per cent of the natural price a few years ago now sells for less than 30 per cent.
Diamonds used to be prized not only for beauty but rarity. The Dutch and British East India companies made fortunes from India’s Golconda mines in the 15th and 16th centuries. Even after the 19th-century discovery of diamonds in South Africa, De Beers controlled supply and prices through its cartel.
But the colonial monopolies broke down long ago, and there are now plenty of diamonds. True scarcity remains only for the largest and rarest natural diamonds — the clearest jewels and “fancy vivid” coloured stones that can fetch millions at auction. Bridal diamonds cost an average of $1,800 per piece in China in 2022: expensive but attainable.
Diamond optimists argue that the dramatic fall in the price of lab-grown stones is an opportunity. Jewellers that were able to make higher margins by selling lab-grown diamonds will switch to encouraging shoppers to buy natural ones instead. They will not be able to make their old living if they become discount stores for cheap baubles.
There are precedents for companies being able to weave emotional stories around products that are functionally similar to cheaper ones, and extract luxury prices. People pay much more for mechanical Swiss watches than Apple ones, although the latter tell the time more precisely and are more versatile. Origin, craft and mystique can be valued extremely highly.
Perhaps the gulf between prices of mined fine and lab-grown diamonds shows the luxury premium widening, after years when they became perilously close: the wonder of natural diamonds is that their price has not fallen more. But there are two hurdles to them regaining the mystique they once enjoyed.
One is that provenance can be murky. The industry has reformed since the “blood diamonds” scandals of the 1990s in Africa and plenty of effort now goes into traceability and showing that jewellery store stones are ethically mined. But it now faces the added challenge of the G7 ban on Russian diamond imports, which affects Alrosa, the world’s largest diamond mining group.
The second is that luxury products need to be marketed and, while Richemont and LVMH are expert at selling their own high jewellery, many diamonds are just components in final products. It is helpful for natural diamonds that LVMH regards them as integral to luxury, but that halo effect does not extend to every small diamond ring in a mid-market Signet jewellery store.
Paul Zimnisky, the industry’s leading analyst, argues that it needs to sell itself: “You can drive demand by spending money on creating desire,” he says. De Beers did so with one campaign when it controlled most of the world’s output, but diamond ads aren’t forever.
