Cultured Diamonds

by Martin Rapaport
Posted: 10/8/2003 1:17 PM

Are laboratory-grown diamonds a threat to the integrity of the diamond industry? Should jewelers support the development of a market for these diamonds? Is it fair to describe these stones as cultured diamonds? What are these stones?

There are two types of lab-grown diamonds — High Pressure-High Temperature (HPHT) and Chemical Vapor Deposition (CVD). The HPHT process mimics the geological conditions that create natural diamonds. It grows diamond layers on a diamond seed by subjecting carbon to high pressure — approximately 850,000 pounds per square inch — and high temperature — about 1,600 degrees centigrade. The HPHT process and equipment has been available and used to create industrial diamonds for many years. It has also been used by GE-Lazare Kaplan to alter molecular structure of natural diamonds and greatly improve the color of certain natural diamonds. Commercial production of carat-size HPHT gem-grade fancy color intense and vivid yellow diamonds has recently begun by Gemesis..

The CVD method is a revolutionary process that is the exact opposite of HPHT. Instead of pressuring carbon into dia-mond, the carbon is freed to become pure diamond. Moderate heat is applied to a carbon cloud in a vacuum chamber causing diamond atoms to rain onto and grow a diamond seed. Commercial production of quarter-carat CVD white diamonds is expected to begin next year by Apollo Diamonds.

The advent of man-made diamonds threatens the diamond industry in a number of ways. Of primary concern to the entire jewelry industry are the three Ds — detection, disclosure and documentation. An additional concern for natural diamond producers is that legitimate, fairly disclosed man-made diamonds will compete with natural diamonds. Such competition may shift jewelry demand away from natural diamonds and reduce or restrain natural prices.

Detection

There are two important concerns related to detection. First,will our industry be able to detect man-made and treated diamonds and thereby authenticate natural diamonds? If our gem laboratories are unable to detect unnatural diamonds, then absent sophisticated auditing procedures there will be no way to prove that our natural diamonds are natural and that our natural diamonds should therefore bring a premium price over unnatural diamonds. If this scenario develops, we can expect natural diamond prices to collapse to the price level of man-made diamonds.

We are in a very sophisticated long-term technology race. The technology of creation/treatment versus the technology of detection. The Gemological Institute of America (GIA), De Beers and other laboratories are on the frontlines doing basic research and developing detection techniques and products. But the technology of creation often gets ahead of the technology of detection and lab reports become dated. As detection technology improves, it is possible that the same stone lab-graded as a natural diamond will turn up as unnatural sometime in the future. As long as new creation/treatment technology is developing, detection will never be perfect.

High Pressure-High Temperature technology development is relatively stable as it is based on replicating a natural diamond — a mission that has been mostly accomplished. Gem laboratories are having a challenging time as HPHT color treaters tweak their process to avoid detection, but HPHT synthetics are readily and consistently detectable and likely to remain so.

CVD technology is a different story. Chemical Vapor Deposition technology development is being driven by the need to create electronic and computer products of the future. Chemical Vapor Deposition gem diamonds are not the goal of CVD developers, they are a mere byproduct of a much greater quest for trillion dollar markets (see page 33). This means that even after CVD diamonds have been perfected, the technology will continue to evolve and develop, creating ever more perfect diamonds and opportunities for firms to create increasingly difficult-to-detect unnatural diamonds. Clearly, we need to support the GIA and other laboratories that do research because this problem is not going away.

Our second concern with detection is that advancing technology is forcing us to use increasingly sophisticated and expensive detection methods. Our ability to detect treatments and synthetics has moved from the trade to the lab. We cannot afford to send all of our stones to the lab for grading. Even if we master the technology necessary to detect unnatural diamonds we cannot afford to apply this technology to every small diamond. The diamond industry’s ability to detect synthetics or treatments is not merely technology based, it is also economically based. Dealers and retailers must ask themselves, “How do I know that the fancy colored melee or small stones are not treated or synthetic?”

Disclosure and Documentation

Obviously, full and complete disclosure of all unnatural diamonds is a prerequisite for an honest and ethical diamond industry. However, disclosure without detection is like trust without verification — something that does not work very well in the real world. The lower the likelihood of getting caught,the more likely people will lie or not tell the truth. Lazare Kaplan,Gemesis, Apollo and others that fully disclose treatments and synthetics are to be commended, but what about the people they sell to? And the people those people sell to? How difficult is it to remove a laser inscription and pass the diamond off as natural? Can we trust everyone in the industry to make proper disclosure?

Since detection and disclosure are problematic, it is critical that all legitimate members of the diamond industry maintain proper and complete documentation identifying all purchases by seller name and product. Since diamonds are frequently mixed in the production and sorting process, documentation of all purchases and sales must be accurately kept and available for audit.

This need for properly documented invoices is necessary to be in compliance with tax laws. It is also a requirement of the Kimberley Process that protects the trade from conflict diamonds. Furthermore, proper documentation is a prerequisite for being in compliance with the new USA Patriot Act — something diamond dealers should do to stay out of jail.

The diamond trade must maintain proper transaction audit trails if we are to remain a credible industry. Having a dealer sell you an unnatural diamond and then claim that he did not know they were unnatural, and then claim that he did not know from whom he bought them is absolutely and completely unacceptable. If someone sells unnatural diamonds without disclosure then the buyer should demand that the local diamond bourse fully investigate every seller in the distribution chain of those diamonds until the identity of the party that has sold the unnatural diamond without disclosure is discovered. Such party should be publicly identified and expelled from the diamond industry. If someone poisons the well from which we all drink then he must be stopped at all costs. What is true for unnatural diamonds is certainly true for conflict diamonds, where terrible harm is done to innocent individuals as well as the diamond industry.

Responsible firms in the diamond industry insist that all sellers clearly write on all invoices for natural diamonds “Natural Untreated Non-conflict Diamonds.” We are beyond the stage where we can simply assume that all diamonds are okay. They aren’t.

Legitimacy

While natural diamond producers and the trade have the right and obligation to maintain the exclusivity of their product and insist on full disclosure for all unnatural diamonds, they do not have the right to delegitimize synthetic diamonds. Any and all treated diamonds, synthetic diamonds, simulated diamonds or any other kind of diamonds are perfectly legitimate products as long as they are sold with full and proper disclosure. Beauty is in the eye and pocketbook of the beholder. From a public policy perspective, the more product types, selections, price points and competition, the better the market.

It is true that unnatural products create opportunities for dishonesty, but that does not mean the products are dishonest, just that unethical people are dishonest. The challenge for the diamond trade is to figure out what to do with synthetic diamonds. If we relegate them to the dungeon, they will sneak in the back door and pollute our industry. If we position synthetic diamonds as a legitimate differentiated product category, they will be beneficial to consumers and possibly benefit the natural diamond industry as they inspire demand for natural diamonds.

Word Wars

So what should we call these artificial, man-made, laboratory- created, crystal-grown, HPHT, CVD, cultured stones that have the exact perfect atomic composition of natural diamonds? Everyone agrees that we can’t simply call them diamonds because that is the name for natural diamonds. Everyone also agrees that their description must contain a word before the word diamond that communicates what they are. For example, “laboratory-created” diamonds — not sexy, but very legal.

What about “cultured” diamonds? The phrase is interesting because it creates controversy. De Beers has announced opposition. We think it’s because they do not like the idea that it positions synthetic diamonds so closely to natural diamonds in the minds of consumers. On the other hand, aren’t synthetic diamonds grown from a seed?

De Beers and other mining companies may argue that they are very worried about consumer confusion, but who is going to confuse a cultured diamond with a natural diamond? After all, the nomenclature is good enough to make sure consumers do not buy cultured pearls thinking they are natural pearls. Perhaps the problem for De Beers is not consumer confusion, but competition.

But hold it a minute. Isn’t competition good for the diamond industry? Doesn’t it drive increased advertising and a higher advertising sales ratio? Isn’t that what the new Supplier of Choice (SOC) strategy is all about? If competition is good for De Beers sightholders and everyone else in the diamond trade, why isn’t competition good for De Beers? Perhaps it’s time De Beers got a little of its own medicine.

It comes down to market competition. It may take a while, say three to five years, but we have the basis for some seriously beneficial marketing competition here. If the crystal growers can create enough diamonds, and introduce their diamonds in an honest and ethical way that does not damage the diamond industry, of which they wish to become a part, there is a reasonable chance that we can double the size of the diamond jewelry industry within the foreseeable future. Any marketing war between De Beers and producers of closely competing products is likely to create huge increases in demand.

As Carter Clarke of Gemesis points out, consumers expect technology to bring them innovation and better products at better prices. They see innovation everywhere, in their office, home, car and even the clothes they wear. Why shouldn’t they expect and appreciate innovation in the jewelry they wear? Authentic and real are wonderful values that people will pay a premium price for. But people will also buy into modern, different and new. The formula is very simple: more diamonds, more jewelry, more consumers, more profits.

Competition

Perhaps what the diamond industry of the future needs is a very healthy, competitive cultured diamond market. After all, if retailers sell a fine piece of diamond jewelry and make a fair markup, they won’t care if the diamond is natural or cultured. If cutters get paid fairly, do they care if they are cutting natural or synthetic diamonds?

By the way, how did cultured pearls get started? Wasn’t it due to shortages and very high prices for the natural product? Aren’t fancy yellow diamonds very scarce and very expensive? Why shouldn’t consumers have an opportunity to buy affordable fancy yellow cultured diamonds? Of course, natural diamonds will bring significantly higher prices than synthetic diamonds, but why shouldn’t consumers be given a greater choice of all types of diamonds in many sizes and price ranges?

Why shouldn’t the diamond industry have an unlimited horizon the way other industries do? The textile industry does not have to worry about getting cloth and the car industry has no problem with steel. Yet we are always worried about finding enough rough diamonds and we are always paying De Beers prices for that rough. Let’s stop playing hide-and-seek with our raw material and get on with the business of selling as many diamonds as we possibly can. Why should our industry be limited by what comes out of the ground?

Perhaps synthetic diamonds are as much a threat to the diamond industry as they are a threat to the way we think about the diamond industry. As technology surges forward, consumers all over the world will be buying synthetic diamonds, cultured diamonds or whatever name the legal and marketing people agree upon. Ultimately, a large two-tier market will develop. Undoubtedly, natural and synthetic diamonds will coexist side by side, sharing a rapidly growing market for diamond jewelry.

The diamond dream — the promise of forever — will always be there and it will always attract consumers to more expensive natural diamonds. But this dream, this gift from De Beers, is a very big dream; it encompasses all people everywhere striving for the ultimate symbol of love, accomplishment and self-esteem.

After a lot of exciting advertising, De Beers and the diamond industry will come to realize that the diamond dream does not belong to any of them. The diamond dream belongs to the customers who dream of buying diamonds, all types of diamonds.