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Technology vs monopoly. Market overview of lab-grown gem-quality diamonds. Part 1. Upstream*

11 may 2020
expert_30042020_uc_1.pngUpstream* - the movement of goods from mining or production to the consumer.

(Navigator for Jewellery Trade) - The world is changing. In most cases, new technologies become drivers of change. They enter the territory of eternal values ​​and change established traditions. And today we are witnessing an interesting phenomenon - the diamond market is entering its new era, where diamonds created in the laboratory are a reality.

Specially for readers of the Navigator for Jewellery Trade Magazine, the experts of Ultra C have prepared a market overview of gem-quality lab-grown diamonds. The first part is devoted to existing technologies and equipment for diamond synthesis, production capacities, as well as production profitability. Thanks to this and the following materials, you will get an idea about the new product, which means you can appreciate its strengths and weaknesses, which will help successful sales in the future.

Valery ZAKHAROV and Galina PLATONOVA, Ultra C

CONTACTS

www.ultrac.ru

www.ndtcompany.com

www.wonderdiamond.com

What is considered a symbol of luxury in the modern world? Yachts, expensive cars, business-class real estates... And, of course, diamonds are the most popular of them. The desire of the best part of humanity to possess a sparkling stone is inexhaustible. But limited purchasing opportunities created a demand for stones that looked like diamonds. On the one hand, this led to the emergence of imitations, on the other, to the creation of a diamond using advanced technologies to make the symbol of love accessible to the consumer.

So, at the beginning of the third millennium, the market saw the advent of gem-quality lab-grown diamonds, which were absolutely identical to natural stones, in contrast to imitations that are not diamonds. The perfectly sparkling moissanite is chemically silicon carbide, and the most popular and affordable phianite is zirconium dioxide. They differ from diamond both in hardness and in optical properties.

Just 10 years ago, the presence of lab-grown diamonds in the jewelry market was negligible and represented only a hypothetical competitive threat to diamond mining companies. But later on a qualitative leap occurred and a series of events followed, which we will discuss here further.

In July 2018, the United States Federal Trade Commission (FTC) amended the definition of polished diamonds removing from it the word “natural”: "Technological advances have made it possible to create diamonds in a laboratory. These stones have essentially the same optical, physical and chemical properties as mined diamonds. Thus, they are diamonds.” The definition of disruptive innovations includes the following words: "Old products become uncompetitive because the parameters on which the competition was based lose their meaning." Prior to the FTC decision, the origin of diamond was such a parameter - only what was mined from the bowels of the earth was considered real. 

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DIAMOND is a cubic form of carbon, the hardest mineral on the Mohs scale. If cut and polished, it gives a unique play of light - sparkling (the amount of light returned from the stone), dispersion - color glare, scintillation - flashes of light on the surface of the stone during its rotation and luster - reflection of light from a polished surface. It was possible to achieve the identity of all the mentioned optical characteristics only by creating a real diamond.

LAB-GROWN DIAMONDS - an established professional term that is recognized by the global professional community to refer to diamonds created in the laboratory. The commonly used term “synthetic diamonds” is considered incorrect. For certification, international laboratories use the term "lab-grown."

Lab-grown diamonds are no longer the subject of illegal admixtures to mined stones; they flow into the existing diamond pipeline going from the laboratory to polishing enterprises and further to retail. They use the market infrastructure of natural diamonds - the prevailing sales system, assessments in independent laboratories using the 4C system (color, clarity, cut, carat) and pricing. However, manufacturers of lab-grown diamonds do not want their products to be used to deceive the buyer, or to hide or hush the origin of their stones. Therefore, they advocate that the products be declared as polished diamonds – being in this case the creation of man and the achievement of modern technology.

Diamond Making Methods

Currently, there are two main industrial technologies for the synthesis of lab-grown diamonds - HPHT (High Pressure, High Temperature) and CVD (Chemical Vapor Deposition).

Lab-grown stones are among disruptive innovations that are rapidly changing our reality. In the case of diamonds, technology has invaded one of the most conservative markets, which has been resisting any change for decades.

TECHNICAL INFORMATION

Diamonds are grown in that segment of the carbon phase diagram where synthesis is possible from a metals melt (at the working pressure of ~ 6.5 GPa and temperature of 1600-1800 ° C); therefore, the High Pressure Cell (HPC) should by all means contain solvent metals in its composition. These can be iron with nickel and / or cobalt, and a number of other metals. In addition, titanium, zirconium, etc., can be added to the growth medium, which acting as nitrogen getters (substances that firmly hold gases), impede the capture of nitrogen atoms by a growing crystal. Besides, aluminum, copper, indium, and a number of other metals with a low viscosity can be included in the composition of the HPC to reduce the penetration of solvent metal inclusions into the growing crystal. In general, a cell recipe may contain more than a dozen ingredients. Each manufacturer for an established HPHT process has its own HPC recipe with temperature and pressure modes. All data, of course, is kept in strict confidence.

During the evolution of the HPHT method, various press designs were used: BELT (General Electric, Sumitomo), Toroid and BARS (USSR). There are still a small number of manufacturers using Toroids and BARS, but modern technologies for HPHT synthesis of gem-quality diamonds are implemented mainly on multi-ton cubic presses. The leading manufacturers of cubic presses on an industrial scale are currently Chinese companies, including Guilin Guiye Machinery Co. Ltd., Luoyang Qiming Superhard Material Co., Ltd., Sinomach International Co Ltd. And others.

According to companies that use cubic presses mass-produced in China, their basic equipment needs substantial modernization to produce high-quality jewelry. In particular, it is required to partially replace electric accessories, pumps, oil stations, etc. Retooling leads to a significant increase in the cost of equipment. For example, the basic prices set by Chinese manufacturers for the 850 series press (according to the Chinese specification) start at $ 300,000, but after modernization, its cost can grow to $ 500,000 or more, depending on the configuration.

Using such a modernized press, it is possible to synthesize an average of up to 200 carats of diamonds per month, depending on the technology, the size of synthesized crystals and the number of initial seed diamonds. The number of such presses working to produce high gem-quality diamonds outside of China does not exceed 100 pieces, while there are several thousand of such presses operating in China.

New diamond technology

HPHT

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HPHT is the initial method that has been used for the large-scale synthesis of industrial diamonds since the late 1950s in the USA, USSR and Europe. This method is also used in China. Since the late 1990s and early 2000s, this country has gradually taken a leading position in the production of diamond materials.

The method was based on an attempt to recreate the conditions under which the formation of diamonds in the Earth's crust took place. To start the process, a high pressure cell is placed in the press chamber. Graphite is used as a carbon source in the composition of the high pressure cell (preferably not lower than Cleanness Grade 5) and HPHT diamonds of ~ 0.5 mm in size are used as diamond seeds. By the way, at the initial stages of diamond synthesis, natural diamonds were used for seed. In other words, a diamond does not grow without another diamond - apparently, it needs genetic information. )))

Wonderdiamond

CVD

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The first successful CVD diamond synthesis was also carried out in the 1950s. However, until the 2000s, due to imperfect technologies, the industrial use of the method seemed inappropriate. The situation has changed radically over the past 10 years. Currently, this method is used to synthesize more than a third of all gem-quality diamonds. Moreover, most of these products are large-size stones – weighing more than 4 carats in their rough form.

In 2003, the Gemological Institute of America (GIA) investigated the first samples of CVD diamonds of tentative gem-quality produced by Apollo Diamond – these were small hazy brownish crystals to which the GIA did not dare to assign any characteristics. After only four years, some polished diamonds from the same company come to the GIA’s lab bench. Among the presented samples there were colorless diamonds of mainly round cut weighing up to 0.62 carats, in colors up to E and clarity up to VVS1; also Fancy brown-pink, Fancy orange-brown and Fancy Dark orangy brown stones.

TECHNICAL INFORMATION

In a CVD reactor, thin diamond substrates onto which a diamond film will be deposited (i.e., where a future diamond will be growing) are placed on a substrate holder in a recreation chamber. A mixture of the corresponding gases — hydrogen, methane, and others gases necessary to attain the desired properties in the final material — is fed into the chamber. This mixture is subsequently ionized using microwave radiation; as a result, a plasma cloud is formed directly above the substrate holder. Plasma heats the substrate to 600-1200 ° C and serves as a carbon source for deposition. The synthesis process occurs under reduced pressure - 100-300 Torr. Two types of microwave radiation are used as standard - 2.45 GHz and 915 MHz. The vast majority of manufacturers use 2.45 GHz reactors. Of the well-known companies, only Diamond Foundry and IIa Technologies grow crystals in plants using 915 MHz plasma. The theoretically effective deposition area at 915 MHz is 7 times larger than at 2.45 GHz (half-wavelength corresponds to a diameter of ~ 160 and 60 mm, respectively). But an increase in size probably leads to an increase in the temperature gradient on the substrate holder, which creates inhomogeneous growth conditions for different seeds, hence, possibly, results in a high percentage of rejects.

The first company to launch CVD reactors (for university research) in the early 1990s was U.S.-based ASTeX (Applied Science and Technology, Inc). In 1999, the company was acquired by the Japanese SEKI Diamonds. In 2012, SEKI became part of Corners Technologies Ltd (Japan), retaining the SEKI Diamonds brand. In total, around 500 CVD synthesis plants have been sold worldwide under the ASTeX-SEKI brand, according to Corners Technologies. SEKI is still the most famous brand of CVD reactors. Other well-known manufacturers of CVD machines include iPlas (Germany; these machines were very popular among Indian companies), Microwave Enterprises (USA, purchased by IIa Technologies), Plassys (France, mainly focused on university research, not for production), Carat Systems (USA) , Optosystems (Russia, Ardis-100 and Ardis-300 machines).

As in the case of HPHT presses, despite the improvements in the basic configurations of growth units, most diamond growing specialists come to the need of modernizing the acquired reactor in the process of its use, adapting it to their own requirements. Therefore, most of the reactors that actually operate on the production sites of companies manufacturing gem-quality diamonds are significantly different from their factory prototypes. During the last few years, Indian and Chinese manufacturers have launched the production of reactors of their own design. Two years ago, the minimal price for a basic reactor started at $ 300,000, while currently, minimum prices for reactors made in India have dropped to $ 150,000.

A reactor (2.45 GHz) fully adapted to specific production is capable of synthesizing up to 150-200 carats of rough diamonds per month, depending on the technique, size of substrates, and product quality.

HPHT manufacturers market

Today, China accounts for more than 85% of the global production of lab-grown diamonds (by weight). Until recently, Chinese products consisted mainly of medium and low quality abrasive diamond powders and finished goods based on them. Currently, the situation is changing rapidly: Chinese companies are investing heavily in the modernization of techniques and equipment, including for the production of gem-quality stones.

Five years ago, the main Chinese products that came to be cut and polished were diamonds up to 1 carat (mostly polished melee up to 0.2 carats, sometimes it was possible to get stones up to 0.4 carats). At the same time, the volume of production was insignificant. Today, rough diamonds of 4-5 carats (i.e. more than 1 carat if polished) are more and more turning into mass products. Diamonds of 10 carats and more are grown in the course of experiments. With the improvement of techniques, the quality of products is also increasing.

In 2019, Chinese manufacturers supplied the market with approximately 5 million carats of rough diamonds for the jewelry industry. It is China that is mass producing rough diamonds for polished melee, small-size polished goods and “+1 carat” stones. The yield (the ratio of the polished diamond weight to the weight of a rough diamond it was made of) of HPHT rough is quite high and reaches 35-38% for round-cut diamonds. The three largest Chinese companies - Zhongnan Diamond, Henan Huanghe Whirlwind International, Zhengzhou Sino-Crystal Diamond - account for about 75% of the Chinese market.

In addition to Chinese companies, there are companies producing high gem-quality diamonds using the HPHT technique in Russia, Europe and Ukraine. These are just a few companies, but the current level of their technologies significantly exceeds those Chinese allowing them to occupy leading positions in the premium segment producing especially large diamonds of high clarity and color characteristics. Thus, New Diamond Technology (NDT), which has production facilities in Sestroretsk near Saint Petersburg in Russia, has remained to be an unchallenged record holder in the production of large-size diamonds in recent years. In 2018, the company unveiled the largest polished diamond weighing 20.22 carats (cut from a grown stone weighing 55.94 carats), Fancy Vivid Orange in color and VS2 in clarity. In 2015, NDT certified the largest colorless E/VS1 diamond weighing 10.02 carats (made from a rough diamond weighing 32.26 carats).

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De Beers

Now about the event, which played a huge role in the fate of lab-grown diamonds. In 2018, the announcement by De Beers that its affiliate, Element 6 was launching an industrial production of CVD diamond jewelry and its own mass retail brand LightBox was a breakthrough in the industry. The initially announced investment in the project is $ 90 million. The volume of planned production is 500,000 carats. The launch of global production is set for 2019-2020.

CVD manufacturers market

U.S.-based Apollo Diamonds (later renamed as SCIO Diamond Technology) can be considered the pioneer in using the CVD method at an industrial scale. American Diamond Foundry is considered the most famous company on the market thanks to a successful PR campaign involving Leonardo DiCaprio. The company was established in 2012 and started production in 2015 having designed its own technology and reactors. Diamond Foundry is one of the largest manufacturers with the current annual output of about 200,000 carats of rough diamonds (as per 2019 data). Another leader is WD Lab Grown Diamonds based in the United States. It was established in 2008 and started production in 2012 using the technology and reactors designed by the Carnegie Institute of Washington. In May 2018, the company presented its largest certified CVD diamond of brilliant cut, I/VS2, weighing 9.04 carats. Another major producer is IIa Technologies, a private company run by the Indian Mehta family; it was established in 2005 and started production in 2013.

In Russia, the leader in CVD technology is Wonder Technologies. The company works in close collaboration with a scientific group of the Russian Academy of Sciences. After cutting, their stones have high-grade DEF color characteristics and VS+ clarity.

Since the mid-2010s, Indian companies have poured into the marketheaded by New Diamond Era, ALTR and joined by many smaller units. CVD production companies also popped up in China, including Ningbo CrysDiam, Shanghai Zhengshi, as well as smaller prolducers in transition from pilot production to commercial output.

The yield (the ratio of the polished diamond weight to the weight of a rough diamond it was made of) of rough produced by the CVD method is lower compared with the HPHT method and reaches 25-27% if diamond have a brilliant cut. Totally, CVD rough supplied to the market in 2019 exceeded 2.5 million carats.

Intellectual property issue

While developing their technology, pioneer companies have spent huge amounts of money to penetrate a market that was not ready to accept lab-grown diamonds. Therefore, the diamond community is currently facing an emerging issue, which was viewed with a certain caution in recent years, but which did not come to the fore until some time ago - these are the aspects related to intellectual property: patentability of technologies, priority and protection of patents, etc.

This problem practically does not concern the HPHT method. The main patent restrictions on the technology as a whole were lifted in the early 1980s - from the moment the main General Electric patent for this method expired. This allowed many companies all over the world to enter the market, primarily in China, which gave a boost to the Chinese diamond industry.

The CVD method is a completely different story: the first patentable technologies suitable for industrial use appeared in the early 2000s. Their developers tried to subject each individual synthesis mode to patent protection, expanding its range to the maximum extent. As a result, there are currently a large number of patents covering a very wide range of operating parameters and conditions for CVD synthesis, as well as the characteristics of growth plants. Leading patent holders include Element 6, Carnegie Institute and Michigan University.

On February 7, 2020, the diamond community came to know the first high-profile court decision related to the violation of intellectual property rights in the CVD industry. The court of Singapore found a patent infringement by IIa Technologies in a lawsuit filed against them by Element 6 for infringement of its patent rights in early 2016. What specific measures will be taken on the basis of this decision and what consequences it will lead to is not yet clear. In January 2020, Carnegie Institution of Washington together with WD Lab Grown Diamonds (who are the owners of the Carnegie patent) filed three lawsuits in connection with violations of their patent rights: the first against Pure Grown Diamonds and their parent company IIa Technologies, the second against the Indian Mahendra Brothers and its affiliate Fenix ​​Diamonds, and the third lawsuit against ALTR and their parent company RA Riam. Whether this is the beginning of a full-scale patent war and how it can reformat the current market configuration will become clear in the near future.

To summarize

We attributed lab-grown diamonds to disruptive innovations, since they demonstrated a rapid development of technologies characteristic of this phenomenon, a fall in prices for synthesis equipment observed in the market for several years in a row, and a reduction in the cost of grown diamonds. However, today these trends have clearly slowed down as the influencing factors come closer to their current limits.

It is possible that the next stage in the evolution of the lab-grown diamond market will be expanded production along with a series of mergers and acquisitions. The specific cost of production and the profitability of a business depend, of course, on the size and quality of diamonds produced, the number of operating growth plants, the geographical location of such a business (which impacts the cost of labor and electric power), as well as on a number of other factors. The calculations made by Indian manufacturers show that an industrial enterprise located, for example, in Surat (the main diamond-cutting center of India) can be profitable starting with 10-15 installed CVD reactors. In general, the average profitability in the production of lab-grown gem-quality diamonds remains at least 50%.

The average cost of rough diamonds weighing 4-5 carats used to manufacture polished diamonds weighing 1.0-1.5 carats is approximately the same for both HPHT and CVD types. Currently, these methods for growing diamonds are competitive.

Lab-grown diamonds, regardless of the method used in their production – be it a press or reactor - are evaluated by most laboratories using the system for grading natural diamonds. Thus, it is wrong to talk about the difference between lab-grown diamonds produced in different ways. Diamond is the diamond.

According to our estimates, the total production of lab-grown stones in 2019 amounted to about 7.5 million carats in their rough form. The forecast for production growth based on an increase in production capacity may reach 150% during 2020 and will exceed 10 million carats by the end of the year.

In the next part of the review, we will definitely talk about the market, its prospects, pricing, consumer preferences and much more.

Table. Output of rough diamonds, 2019

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