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08 october 2018

andrey_zharkov_n.pngAndrey Zharkov, having left the position of President at diamond mining company Alrosa, has established and headed the Ultra C company, which will be engaged in the production of diamonds from the reactor. In this interview with industry news agency Rough & Polished, he talks about prospects for the market of man-made diamonds.

Please tell us how Ultra C was established and why it was so named.

The Ultra C Company was established after I left the position of President at PJSC Alrosa.

The idea of ​​a Russian “Element Six” remained unfulfilled within the framework of Alrosa, but it remains to be understood that the lab-grown diamonds are not only polished diamonds, but also a breakthrough technology that will soon begin to change the world.

The company is being developed by a team, me included, that formed at Alrosa. I’ve been working with some people for many years. We have an understanding of the market, knowledge and experience. This allows us to hope that the project has a future.

‘Ultra C’ has several underlying meanings:

The Ultra C element in sports is a breakthrough, an element on the verge of the possible. The 4C grading pattern is a diamond quality assessment system (Clarity, Color, Cut and Carat). The combination with the "Ultra" is to say that "All is perfect." ‘C’ is the chemical sign of carbon. Diamond is the highest manifestation of carbon, its hardest form.

Currently, there are many companies engaged in the production of lab-grown diamonds. What are the tasks set by your business?

First of all, we need to use our strong points. Indeed, currently there are quite a number of companies engaged in the production of lab-grown diamonds. Since diamonds for them are the most attractive products to date, “low-hanging fruits,” this business of supplying lab-grown diamonds to the market attracts people from the world of technology, who previously had no relation to the diamond world. And this is a unique world, with a great history and business traditions. Even the pricing of lab-grown rough and polished goods is tied to the price of natural diamonds and the diamond pipeline is the same, except for the starting point – one is in the mine and the other is in the reactor.

The fact that we understand this market well, that we know many players, the strengths and weaknesses of the product is our advantage.

Recently, the US Federal Trade Commission released a new edition of its Jewelry Guides, which, as many claim, have softened the attitudes toward lab-grown diamonds. What is your take?

The decision of the US Federal Trade Commission is, of course, a very big step forward for anyone dealing with lab-grown diamonds. The attitude towards this product is changing. The diamond grown in the lab and then cut and polished is identical to the natural diamond in structure, characteristics and quality. And it will be called a diamond. The distinction between natural and lab-grown diamonds is being erased.

Do you think natural and lab-grown diamond markets should exist separately or there should be a single market?

This is a very good question, to which many people will give contradicting answers today. First of all, natural diamonds are not very suitable for technological applications because in this case it is impossible to ensure the stability of characteristics, whereas it is possible if you use lab-grown diamonds.

However, the market of cut and polished diamonds is another matter. Here, the paths of natural and lab-grown diamonds go in parallel and end in diamond jewelry. It is difficult to say now that these markets can be easily divided. Today they exist in one and the same format.

I think some part of the demand for natural diamonds will be cannibalized by lab-grown diamonds, especially in small-size categories and the same can be said about the demand for expensive diamond imitations. The separation of markets will primarily happen through the establishment of standards, bench marks. Today, certification is already translating into a separation of these markets, since the grading reports show the origin of goods. In contrast to the natural diamond market, there are no large players in the market for lab-grown stones, this market is fragmented. I expect there will be consolidation of companies through mergers and acquisitions resulting in the emergence of large-size players. Sooner or later, a pricing system will also be established. But this is not a question of today.

How high is the interest towards lab-grown diamonds from dealers operating in the natural diamond market?

Gradually, the mentality is changing. The interest towards lab-grown diamonds is definitely growing. While working at Alrosa, I heard this view from a large-scale dealer: Growth opportunities for me are limited by De Beers and Alrosa, as I have reached the ceiling in terms of volume within my sightholder contract with both companies, and lab-grown diamonds are an opportunity for growth, he said.

According to NPD’s Diamond Tracker, the turnover of the lab-grown stock is 11 months compared to 18 months for natural diamonds - that is, it is an opportunity to operate with a larger number of stones for the same money having a faster return period on invested funds. Undoubtedly, this fact is also taken into account by dealers.

Why do you think that lab-grown diamonds will radically change the jewelry market in five to ten years?

Lab-grown diamonds will create an opportunity to buy polished goods for a wider audience. If previously the buyer could afford an 0.5-carat natural stone, now he will be able to buy a one-carat lab-grown diamond. The consumer audience will expand. For jewelers, this is also a new opportunity - working in the segment of larger stones, as well as with colored diamonds at an affordable price.

De Beers, having launched Lightbox, a line of lab-grown diamonds, simultaneously offers new, lower prices for these products. How do you think this can affect the market and the performance of your company?

De Beers has extensive experience with grown stones within Element Six. In my opinion, this is a logical solution for the company, the largest producer of lab-grown diamonds for industrial use, taking into account its experience, technology and the rapidly growing demand for gem-quality diamonds.

In my opinion, the launch of the Lightbox line by De Beers has played a positive role for the lab-grown market, generating additional interest from a wide audience. The expected amount of such goods is small, and, of course, the product will cause a certain consumer interest. Diamonds set in low-karat silver or gold having inapprehensible characteristics and bearing no certificates - of course, this is some kind of a mass product. This is an attempt to create a budget version of a diamond. Partly, this is an attempt to popularize lab-grown diamonds and partly an attempt to shift lab-grown diamonds into a low-end market niche, which will inevitably lead to cannibalization of demand for imitation jewelry. We'll wait until the program will be actually launched and start to accumulate metrics. Today it is difficult to assess the real impact on the market, except what I said above. Today, the Lightbox project does not affect the operation of our company.

What are the marketing targets of Ultra C? What conclusions did the company come to while analyzing the market?

Marketing can be divided into several directions. They include the promotion of the product itself (generic marketing), as well as niche products and the actual goods produced by the company.

As for generic marketing, it can be a very interesting story. High technologies make it possible to create a product that can be obtained in natural stones only for very big money. The top colors in natural diamonds have a high value, being at the same time just a small aspect of the diamonds mined. Pink, blue and yellow diamonds have a high added value as a rarity. The possibility of obtaining such colors in lab-grown diamonds is increasing every year.

Often, for marketing purposes, lab-grown diamonds are positioned as eco-friendly, non-conflicting, and this, of course, is an incentive to purchase them for a certain audience. But ultimately, the price plays a decisive role. It is worth asking yourself if the price for lab-grown diamonds were equal to the price of mined diamonds and you would have to pay a premium for eco-friendliness, how many purchases would be made? How much would this factor influence the decision to purchase?

How do you see a possible own brand of jewelry with lab-grown diamonds and its ideology?

We are studying the market and the possibility of creating a brand with lab-grown diamonds. I think the jewelry brand should above all demonstrate the highest achievements of modern cultivation technologies. But so far, I would not like to voice this theme.

Vladimir Malakhov, Rough&Polished