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De Beers Sightholders Embracing Synthetics

Miner prepares new guidelines for clients with lab-grown businesses

Nov 12, 2019 7:12 AM   By Joshua Freedman
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RAPAPORT... Few in the diamond industry were surprised by the news that Rosy Blue chief Dilip Mehta had launched an independent lab-grown business. It’s been an open secret for months that major manufacturers of natural diamonds have been exploring the sector, Rosy Blue being just one of them.

A significant number of De Beers’ approximately 80 sightholders are already trading in synthetics or considering doing so, market consultants told Rapaport News. Many of them are focusing on the engagement-ring market, and are working under separate names from their natural businesses to ensure clear segregation.

“Margins [on synthetics] are better than natural diamonds currently, as anyone involved in that market can tell you,” explained Russell Mehta, Rosy Blue’s managing director. “In the current natural-diamond environment, we’re losing money on every single rough-diamond purchase we make from primary sources. You can ask any direct customer of mining companies — every single company is losing money.”

Dilip Mehta’s new company will soon begin manufacturing lab-grown polished in Surat using rough produced in China, The Times of India reported Tuesday. “This one is our own venture and nothing to do with Rosy Blue,” Dilip Mehta, Russell’s uncle, was quoted as saying.

Rosy Blue itself has already been toying with the category: It recently started supplying synthetic polished when customers demand it, Russell Mehta noted in an interview with Rapaport News. Rosy Blue will not necessarily buy from Dilip Mehta’s new venture, but is “free to source [lab-grown diamonds] to meet its requirements from any source that meets its quality, price and service criteria,” Russell Mehta added.

Exports on the rise

India has seen a sharp rise in its trade of synthetic diamonds in the last year as more companies move into the market. Exports of lab-grown polished more than doubled to $200.3 million in the six months ending September 30, from $97 million in the same period a year ago, according to data from the Gem & Jewellery Export Promotion Council.

Some companies see the sector as an opportunity in itself, while others are using it to hedge their business, noted Anish Aggarwal, a partner and co-founder of diamond consultancy Gemdax. However, they must also consider whether those margins will last, he argued.

“Going into lab-grown just because natural is not making money for you is probably not a long-term business plan,” he said. “A long-term business plan is to develop a solid value proposition for lab-grown, in the same way it’s important to build a solid proposition for natural.”

Synthetics best practices

De Beers has been preparing for the inevitability that more of its clients will move into synthetics. The mining company is working on guidelines to ensure its customers market lab-grown in a fair way and avoid false or misleading statements. For example, it will not allow companies to claim that lab-grown diamonds are more environmentally friendly than naturals, or that the natural industry harms people, Stephen Lussier, De Beers’ executive vice-president of consumer and brands, stressed at the Dubai Diamond Conference in September.

The company is in the business itself: In 2018, it launched Lightbox, a line of fashion jewelry featuring lab-grown diamonds. It is promoting the category as a low-cost, fun product, pricing the items at $800 per carat, and insisting that natural diamonds are still consumers’ jewelry of choice for important milestones such as engagements.

De Beers said it would not actively stop sightholders from marketing synthetics for bridal jewelry, as Signet Jewelers, for example, does with its line of lab-grown diamond pieces on its James Allen site.

However, it is updating its Best Practice Principles (BPPs) with new rules to ensure sightholders and accredited buyers avoid false claims about synthetics, and plans to release the changes in January as part of its annual review of the BPPs. The existing document, which outlines the conditions of receiving natural rough supply, mandates full disclosure, and bans clients from using misleading terms for synthetic diamonds such as ‘natural’, ‘real’ or ‘cultured.’

A matter of principle

“Sightholders are of course at liberty to make their own decisions about their commercial activities and approach, as long as their activities comply with the BPPs,” added Feriel Zerouki, De Beers’ senior vice president of international relations and ethical initiatives. “This places a range of requirements on sightholders relating to responsible behavior with [lab-grown diamonds], including disclosure, segregation and testing, but each business makes its own decisions about [its] commercial approach.”

In the coming two months, the miner will also publish a separate statement of principles that will act as a guideline to help promote consumer confidence, dealing with issues such as misleading statements, Zerouki explained.

The executive would not say how many sightholders were active in the synthetics market. But the number is likely growing, an industry consultant noted on condition of anonymity.

“There’s an absolute flood of [De Beers], Rio Tinto or Alrosa sightholders looking into or already involved in lab-grown,” the consultant said. “You could go down the list of rough cutters, and with very few exceptions, a great many of them are already looking to buy supply or investing in growers themselves.”

Image: De Beers’ Global Sightholder Sales offices in Gaborone, Botswana. (De Beers)
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Tags: De Beers, Joshua Freedman, lab-grown diamonds, Rapaport News, Sightholders, Synthetic diamonds, Synthetics
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