March 8, 2021 – In March 2019, during my stint as Editor in Chief of IDEX Magazine, I published a cover story entitled “The Iceberg of Diamonds and Climate Change.” *
In the article, I compared the diamond industry and its production to an iceberg floating in the “luxury products ocean.” The bulk, roughly 90 percent of the approximately 40+ million or so carats of rough diamonds annually mined and sold to diamond manufacturers are cut into small and melee stones.
Is the iceberg a good metaphor to describe the diamond industry, I asked.
Yes, it is.
After all, according to the above statistic, nine out of every ten diamonds cut and polished is below 0.10 carats, and just like with a real iceberg, this colossal production remains almost invisible, with the majority, in carat terms, floating below “the surface.” What you do see above the waterline is the diamond jewelry with larger stones, also called aspirational pieces.
For many, if not for all, diamond mining companies, these smaller rough diamonds are their bread and butter. And as we have learned over the past years, a drop in prices of small rough can make or break the business model of these miners.
At the 2019 “Investing in Africa Mining Indaba” in South Africa, Paul Bosma, CEO of the junior diamond mining firm Firestone Diamond, said: “When will the [rough diamond] market recover? We have worked out that we have lost between $15 and $17 a carat because of the drop in the market.” Bosma continued, “…for now, we are OK … not great … but OK. The situation is so sensitive to the diamond price. At $85/carat, our cash position doubles. If the price sticks at $75/carat for another two years, then ourselves, Petra Diamonds, Stornoway, and Mountain Province are all going to be in deep trouble because we all have debt, and we are all just surviving at current prices…” These diamonds make up the bottom of the iceberg. Each individual diamond is unremarkable and relatively cheap but amassed together, they ARE the diamond industry!
The existential threat of synthetics
Meanwhile, there is another existential threat to the diamond industry. It’s the significant rise in market share of gem-quality synthetic diamonds and the danger they pose to the diamond supply pipeline’s survival.
In their latest report on the global diamond industry (February 2021), AWDC and Bain reported that continued technological advances contributed to double-digit production growth and lower retail prices for lab-grown diamonds in 2019 and 2020.
“The price differential between natural and lab-grown fancy color diamonds is particularly striking—up to 10 times. In addition to independent lab-grown manufacturers, major fashion jewelry retailers are adding lab-grown diamonds to their product offerings, further positioning the category into the fashion jewelry segment and making it accessible to a wider range of price-sensitive consumers.”
The report also noted that “consumers across key markets do not see substantial differences in sustainability between lab-grown and natural diamonds. LGDs are edging into the fashion category as interest is rising among price-conscious consumers.”
Note that the report only relates to the consumers’ position on LGDs and does not discuss the challenges LGDs present to the other players in the supply pipeline.
The diamond iceberg is in great danger
If this trend continues, and if the industry, particularly the Indian diamond manufacturers, will not end the salting of natural diamonds with synthetics, retailers may very well throw the towel in the ring. Soon, retailers, too, may no longer be motivated to differentiate between natural and LGDs. Consequently, they will see no justification in paying more for diamond melee than LGDs of the same weight and size category. Worse, they will stop caring about it.
When the downstream market loses its dependence on natural smaller diamonds, the effect on the entire diamond mining production process will be disastrous. Without its solid base – 90 percent of the annual rough diamond production – to support and balance the diamond iceberg, the whole structure may collapse and take the top 10 percent – the visible part of the iceberg – down with it.
The solution is simple but far-reaching. The industry must resolve to preserve the origin of small and melee diamonds throughout the diamond pipeline and include these diamonds in marketing campaigns and storytelling.
Of course, this is not the first time this solution has been presented to the industry. When Indian manufacturers were asked about it in the past, they dismissed it out of hand as unpractical and cumbersome. The logistics, one manufacturer said, would require manufacturers to make unprecedented changes in their production methods and practices. No one, however, did say that it could not be done!
We live in unprecedented times, and the “Next Normal” calls for distinctive, innovative thinking and solutions. Indeed, preserving the origin of mined small diamonds and melees throughout the production and sales processes will demand increased investments in organizational structures, changes in work practices, and calls for effective marketing and sales methods.
At the same time, it will be beneficial for many more reasons: jewelry designers and retailers will love it. They will be given another opportunity to use a much more comprehensive range of polished goods to tell the consumer a compelling story, charge higher prices and achieve higher profits.
By preserving all diamonds’ identity throughout the production and sales, the industry at large can effectively make origin and provenance, i.e., country branding of diamonds, part and parcel of its marketing and promotional activities. It will also offer both the market and the NGOs the full transparency they have demanded for a long time. Finally, by taking all the above steps and including small and melee diamonds in the storytelling, all these activities will create more added value and raise prices and profits throughout the entire supply pipeline.
The newly minted Natural Diamond Council (NDC), the former Diamond Producers Association (DPA), should have no problem aligning with this initiative. After the DPA wasted precious years and tremendous funds going after LGDs, awarding them more publicity than LGD producers could have ever wished for, the NDC is now singularly focused on promoting natural diamonds. This venture, therefore, should be right up its street!
*Unfortunately, IDEX Online has removed the archive of its magazines from its website. The featured image was the over