National Post (National Edition)
LAB-MADE diamonds for less: De Beers plan worries rivals
Company has history of using price as weapon
LONDON • De Beers hasn’t even opened its first synthetic diamond store, but its looming entry into the market for man-made gems has already shaken the industry.
The unit of Anglo American Plc said three months ago that it plans to sell labgrown diamonds at a fraction of the going rate, undercutting rivals like Chatham Created Gems Inc. and Diamond Foundry Inc.
That’s already cut the price of man-made gems, furthering De Beers’s aim of increasing the premium paid for the diamonds it mines in Botswana, Namibia, South Africa and Canada.
De Beers will target younger consumers with its lab diamonds, sold under the Lightbox name for about $800 a carat. That’s a fifth of the price of existing manmade stones and one-tenth of the cost of buying a similar natural gem.
Some producers are crying foul. The lab-grown industry has filed a complaint with the U.S. Federal Trade Commission, accusing De Beers of price dumping and predatory pricing.
“De Beers aren’t stupid,” said Chatham chief executive officer Tom Chatham, who filed the complaint. “They know how to grow diamonds, but this equipment is not cheap. They are selling below cost.”
De Beers CEO Bruce Cleaver has said he expects its lab-made gems to be profitable, while adding that it’s not going to be a big business for the company.
Diamonds grown in labs have the same physical characteristics and chemical makeup as mined stones. They’re made from a carbon seed placed in a microwave chamber and superheated into a glowing plasma ball. The process creates particles that crystallize into diamonds in weeks. The technology is so advanced that experts need a machine to distinguish between synthesized and mined gems.
While De Beers has never sold man-made diamonds for jewelry before, it’s good at making them.
The company’s Element Six unit is one of the world’s leading producers of synthetic diamonds, which are mostly used for industrial purposes.
So far, De Beers’s strategy seems to be working.
The premium natural diamonds command has widened since the company’s May announcement, with the 1-carat and half-carat stones it’s going to be producing suffering the biggest prices declines, according to industry analyst Paul Zimnisky. The discount on a half-carat manmade stone has ballooned to 38 per cent from 24 per cent, Zimnisky’s data shows.
“There’s no question the announcement has caused people to question whether the margins people are currently making are sustainable,” said De Beers’s Cleaver. “I certainly wouldn’t expect the premiums to be at anything like the current prices.”
While De Beers has said it isn’t trying to disrupt existing lab-diamond producers, who have a small, but growing, share of the market, the company has a history of using price as a weapon.
When Zaire — now the Democratic Republic of Congo — decided to sell its stones independently of De Beers in the 1980s, the company dumped huge amounts of similar stones onto the market, crashing the price. Within two years, the African nation had returned to the De Beers fold.
The latest move also holds risks for De Beers. By offering lab-grown diamonds at such a steep discount, the company may erode demand for the industry’s lower-quality products that sell for less than $200 at retailers like Walmart.