Synthetic diamonds are a threat - De Beers

The penetration of synthetic diamonds in the industry is disturbing because the ‘duds’ threaten profitability and sustainability in the long run, a senior executive of the company said recently.

Bruce Cleaver, the group’s Executive Head of Strategy and Corporate Affairs, was speaking to reporters from London in a teleconference recently following the release of  results of Anglo American, De Beers’ parent company. “Manufacturers are capable of producing diamonds,” Cleaver said. “However, we continue to teach our clients how to differentiate between synthetic and real diamonds.”

The impact of synthetic diamonds becomes even more severe if manufacturers do not disclose them to the market, for differentiation purposes. The market value of synthetic diamonds is estimated at $9 billion. De Beers, the world’s number one producer of diamonds by value, controls over 30 percent of the global rough diamonds market that is estimated at $14 billion.
The company is not sitting back as its market share declines due to synthetic diamonds, among other factors. According to Cleaver, the company has devices that can detect synthetic diamonds. The unlisted gem miner uses its Gem Defence Fund that assists ‘diamantaires’ to see the difference between real and fake diamonds.

A report released by Botswana Institute for Development and Policy Analysis (BIDPA) last year disclosed that both De Beers, which is a joint venture between Botswana and Anglo American, and its Russian rival Alrosa, are at risk. “De Beers, the former cartel operator and currently the dominant oligopolist in the industry, has seen a long decline, thereby restricting its ability to control prices and the advance of new synthetic technologies as was the case in the past,” BIDPA said in a report compiled by Professor Roman Grynberg, Masedi Motswapong and Margaret Sengwaketse.

The report also stated that synthetic diamonds, especially Chemical Vapour Deposition (CVD) diamonds, are difficult to segregate into a particular market. De Beers, like other diamond producers in the world, depends mainly on the United States and Japan for its market. However, the arrival of synthetic diamonds has led to the fall in unit prices in these countries.
For the year to December 2014, De Beers production stood at 32,6 million carats, up by 5 percent compared to the year before. Debswana mines such as Orapa picked production backed by carry-over effects of 2012-2013 of Jwaneng slope failure. Demand for rough diamonds is expected to increase going forward, enabling the more than century old group to marginally increase output.

Industry experts predict demand for diamonds to rise in the medium term. Supply is likely to let customers down as fewer mines are found. De Beers Chief Executive, Phillipe Mellier, says he expects prices to also rise this year. “I definitely see some potential for a price increase this year,” Mellier said. Prices increased by 7 percent last year.