The talk around LGDs is all hype

As a teenager, Luca Luterbacher began to design and manufacture single pieces and individual items for wealthy private family friends from Switzerland and Lichtenstein. In 2017, he finally invested in his own luxury trademark "Luterbacher."...

12 august 2019

Correct adjustment of advertising is the major challenge

At the recent Amberforum held in the Baltic city of Svetlogorsk, Andrey Yanchevsky, Head of the trade representation of the LA VIVION jewelery company shared his opinion with the correspondent of Rough&Polished on the state and prospects of the jewellery...

05 august 2019

Small-scale diamond mining is the future in Botswana – Leon Daniels

Pangolin Diamonds, which is currently the most active diamond exploration company in Botswana, has called upon authorities in the southern African country to include diamonds into the minerals permit for small scale mining operations. Pangolin chief...

29 july 2019

“There has been a strict policy in Israel against LGDs; have been forbidden on IDE trading floor for years.”: Aviel Elia, Managing Director- IDI

Aviel Elia, an attorney by profession, has served as Legal Adviser and Company Secretary of IDI since 2013. As a key member of the Israel Diamond Institute (IDI) management team, he has been involved in developing company strategy and negotiating...

22 july 2019

Unifying role is the main objective of the National Gemological Association

Yuri Shelementiev runs the Gemological Centre (GC) at the Moscow State University and is a president of the National Gemological Association (NGA) uniting the gemologists of Russia. The head of the MSU’ GC and the NGA answered the R&P’s...

15 july 2019

The place and role of synthetics in gem markets

27 may 2019

A dramatic breakthrough in the development of diamond synthesis technologies, which occurred during the last five years and is also accompanied by a significant decrease in production costs, has caused a lively debate in the industry on what kind of niche in the market can be occupied by synthetic diamonds. To date, there are two main positions. The first is that the synthetic market and the market for natural diamonds are different markets, they should not intersect, synthetics will never replace natural diamonds, and in the best case will be in the rank of expensive imitation jewelry. Proponents of the second position argue that synthetics are a direct competitor to natural diamonds able to oust natural analogues in the foreseeable future, at least in the category commonly called "Indian goods". For obvious reasons, diamond mining companies adhere to the first point of view, while the second is supported by producers of synthetic diamonds. The arguments of each of the parties are numerous and, in many ways, speculative, but for the time being we will leave aside their appeals to environmental and ethical issues, as well as their incantations that true love cannot be “synthetic”, and look at the task in historical retrospect.

The first thing that comes to mind is the situation in the market for industrial diamonds. Before World War II, the market for natural industrial diamonds was equal in value to the market of gem-quality diamonds, their scope of application was continuously and rapidly expanding, and the prospects were cloudless. The first synthetic diamonds were obtained in 1953. It took about four decades for synthetics to dominate the market, leaving a symbolic share of a few percent to natural diamonds. In terms of price-quality ratio, synthetics have now won a complete victory in the market for industrial diamonds. Of course, one can argue that a drill bit is not an engagement ring, and the roller for processing turbine blades is not suitable to be part of a necklace. Of course, this is a fair argument. The consumer audience is different, and strictly speaking, industrial diamonds do not fall within the concept of “precious stones”. But we should not forget that “Indian goods” (diamonds of the -9 size-and-weight group) became classified as gem-quality diamonds only after synthetics replaced them in machinery, and before that they firmly held their place in the category of “industrial diamonds”. A natural industrial diamond could become a polished diamond due to the development of synthesis technology - a logical paradox that theoretically permits a reversible process.

Let us consider an example closer to the luxury market. In 1908, Mikimoto received a patent for a technique permitting to cultivate round pearls. And today, the share of natural pearls in the market is about 3%, while all the rest is occupied by cultivated pearls. Not that this market is fully synthetic, but it is unconditionally hand-made. However, there is nothing tragic about it and consumers are not upset, as the price-quality ratio suits them perfectly and Chinese (mostly) pearl farms are flourishing. Companies used to be engaged in pearl fishing vanished and are now recalled in legends: the development of technology changed the beneficiary of the market. This is an instructive example, but still we should agree that it is not very convincing for the diamond industry, as there are too many differences between pearls and diamonds.

And finally, we will touch on the problem that can serve as the most complete analogue of the current situation in the diamond market. It will be about synthetic corundum and beryl. At first glance, this topic is just a balm for the soul of apologists propounding natural diamonds! Indeed, synthetic rubies ​​were first obtained at the end of the 19th century, and synthetic emeralds in the 1930s. Since those gray-haired days, the technology of synthesis has been continuously improved, its prime cost has fallen, but synthetics have not forced natural emeralds and rubies out of the market (as well as sapphires, alexandrites, etc.). At first glance, here it is, a bright and convincing example of the market division: the noble "nature" in stones is one thing, while cheap synthetics are another. In a civilized trade (in the absence of fraudulent attempts to pass off synthetic colored stones for natural), these markets do not intersect. It would seem that the point of view of mining companies triumphs, and the whole problem boils down to the organization of a control system (administrative and gemological) permitting to avoid accidental and (or) deliberate mixing of stones of natural and synthetic origin. Alas, this is a superficial conclusion.

Although the market for colored stones is structured much worse than the market for diamonds, and for this reason it is difficult to analyze it, there is still some tentative analogue of De Beers and ALROSA present on this market, which is the Gemfields Group, and we will take our bearings from the data posted on its official website (www.gemfieldsgroup.com) in further arguments. Today, Gemfields controls about a third of the global emerald market and up to 40% of the global ruby market, which is an ample sample to extrapolate the findings to the market as a whole, especially given the fact that the remaining market share is blurred between many dozens of small producers.

Gemfields sells emeralds and rubies at auctions, and the prices set in the course of such trading accurately reflect the market situation. Gemfields emerald auctions are divided into two types depending on the quality of rough stones sold. High quality (HQ) rough gems are bought mainly by Israeli and Belgian partners, while Indians buy commercial quality (CQ) rough. The distribution by prices and volumes is the following: HQ rough is sold at an average of $ 64.6 per carat, CQ rough – at an average of $ 4.19 per carat; HQ rough sales do not exceed 10% of total sales but generate up to 70% of revenue. Gemfields sells rubies at mixed auctions, but the price-quality-sales ratio shows the same pattern: sales of premium rubies account for only 2% of the total, but bring more than 80% of the total revenue, the average premium price is $ 800 per carat; the average price of the remaining rubies is $ 6.25 per carat. These proportions resemble the diamond market: small-size cheap rough accounts for up to 80% in ALROSA’s production, but the main revenue comes from high-quality large-size rough.

The media claim that since the beginning of auction sales of Gemfields (2009), the market price for rough emeralds went up more than tenfold. The statement is true, but only in relation to HQ rough, whereas prices for CQ rough remained surprisingly stable. The same dependence is characteristic of rubies. The steady growth of prices for high-quality rough emeralds and rubies is quite understandable – these gems are produced in very small quantities. But what determines the price of low-quality, mass, "Indian" rough? By a strange coincidence, its prices almost exactly coincide with the lower limit of wholesale prices for hydrothermal synthetics in the course of several years.

Low-grade rough emeralds and rubies flow to Southeast Asia. This region is also the main consumer of hydrothermal synthetics used in jewelry. The buyer is the same. Therefore, at this point there is no separation, but a convergence of the markets for natural raw materials and synthetics. This is where prices get balanced. Synthetics do not force out “Indian” type natural raw materials from the market, because the buyer is simply not ready to pay for it more than the high-quality synthetics cost. It should be noted that the process has an objective basis, since the “Indian goods” of rubies and emeralds are subjected to intensive “refinement” (including impregnation with polymers, annealing, healing of cracks with Pb2O3, etc.), after which such stones can be considered “natural” only by very big enthusiasts. The problem is that no one can change the initial characteristics of rough gems coming from genuine natural deposits, while the quality and cost of rough from “synthetic deposits” are adjustable.

Over the past five years, the growth rate of synthetic diamonds has tripled, and the cost has fallen by half, and it is clear that this is far from being the limit. The buyer of synthetic rough diamonds and the buyer of small-size rough from ALROSA is the same. If the analogy with the market of colored stones is correct, then such a convergence of the markets for synthetic diamonds and natural "Indian goods" - and in the future for any rough stones 2 grainers and below in size - is inevitable. And synthetics will be the price driver in this case. In such conditions, the refusal of ALROSA to work on the synthetic market seems to be a strategic mistake, the consequence of which will be the complete loss of control over pricing in relation to the major part (in carats) of its own goods. A very deplorable decision, especially given the fact that currently Russia has very promising producers of gem-quality synthetic diamonds, whose entry into the ALROSA Group would have much more effective consequences than the financially senseless acquisition of Smolensk-based Kristall.

Sergey Goryainov, Rough&Polished