Artificial diamonds sparkle with intent

Natural diamonds are the result of carbon, heat and pressure. African miner Petra Diamonds knows all about the latter. Its shares are down nearly 90% in the past two years. The debt-laden company, its market value diminished to £67m, announced an increased full-year loss on Monday. The industry is in its worst state since the 2008 financial crisis, it said.

The US-China trade conflict and unrest in Hong Kong are partly to blame. A bigger problem is the excess inventory released by Indian manufacturers.

The industry — while no longer a cartel — remains an oligopoly, in which just a few companies control supply and price. De Beers, for instance, has responded to falling prices by cutting production targets in 2019 and promising to increase its marketing spend. The company, 85%owned by mining company Anglo American, is the world ’ s leading producer by value. Investors wanting a pure-play vehicle could look at Russian state-controlled miner Alrosa, the biggest producer in carat terms.

The biggest question overhanging the industry is the threat posed by artificial gems. Lab-grown diamonds have existed for about 60 years, but new techniques, notably chemical vapour deposition that creates thin films of diamond, are rapidly cutting costs. The newcomers are not just promising lower prices. Silicon Valley-based Diamond Foundry says ethical and environmental concerns associated with mined diamonds put off millennials.

If artificial diamonds become interchangeable with natural diamonds, the traditional industry will suffer. But the miners are fighting back, attacking the newcomers ’ environmental credentials. They also want to push down the prices of synthetics, to the level of cheap costume jewellery. If successful, that will preserve the mystique — and prices — of mined stones. Investing in the companies that mine them, like Alrosa, could sparkle in the end. /London, September 17 © The Financial Times 2019