Are Synthetic Diamonds a Threat to the Natural Industry?

Last week, Israel Diamond Exchange unveiled a new slogan: "Natural is real". The slogan is a clever play on the word Israel, and a less-clever poke in the eye to lab-grown diamond producers, who do, in fact, produce real diamonds. This comes on the heels of the bourse's decision to ban synthetics from its trading floor. 

These incidents make it seem like the natural sector doesn't have a lot of confidence about how to handle the eventual arrival of lab-grown diamonds. In fact, it seems scared. And it's not alone. A recent report by the Botswana Institute for Development and Policy Analysis concluded: "Synthetics do constitute a serious threat to the mining industry."

Which is true—to a point. But we also shouldn't underestimate the natural sector. We have all seen articles extolling the virtues of lab-grown diamonds. But mined diamonds have some advantages, too. Consider:

Natural diamonds are an established product. Lab-grown diamonds aren't. 

Mined diamonds don't need a qualifier. Consumers understand and know what they are. They have decades of marketing behind them. Lab-grown diamonds need an explanation. They will always be sold with an asterisk. Smart marketing may be able to turn that asterisk into a plus. But it's still there.

The trade favors naturals, too. Recently, an executive from Charles & Colvard said jewelers "are afraid that will cannibalize sales from their diamonds, and they have already made the investment in their diamonds." If that's true for moissanite, which is clearly not a diamond, it's doubly true for synthetics. And recent episodes involving undisclosed synthetics have hardly increased the trade comfort level. 

Lab-grown diamonds still aren't that cheap.  

For a long time, the fact that synthetics could be sold for less than naturals was a key selling point. After all, why pay more money for essentially the same product? That expectation has turned into a problem for the grown business. Consumers think they will cost nothing—Wired predicted $5 a carat—but they remain expensive to grow.

This week, Scio Diamond CEO Michael McMahon revealed , "Right now they are less expensive than the naturals. I don't know if that will change. People out there say [the price is] getting closer to parity." After hearing that, I compared some Gemesis diamonds to similar stones listed on Blue Nile and found only a 15 percent differential—less than the 20 to 30 percent markdown that Gemesis offered originally.