In 2010, Rough & Polished predicted the imminent emergence of industrial infrastructure in China engaged in production of synthetic diamonds using the CVD technology, as well as the inflow of large amounts of small white synthetic diamonds mixed with natural diamonds to the market. In 2012, the first massive "cocktail" of this kind was detected by the IGI laboratory, and in 2013, Scio Diamond Technology Corp. officially announced a joint venture with partners from China and the transfer of CVD technology to the Chinese side. In 2013 and 2014, the sales of synthetic diamonds under the guise of natural turned to be quite frequent. Finally, the industry got the feel of a serious threat and took a number of countermeasures - from attempts to lobby for changes in national legislations to clearly demarcate the trade in synthetic, enhanced and natural diamonds to widespread introduction of the latest high-performance equipment for instrumental control ostensibly able to distinguish natural diamonds from their synthetic counterparts with one hundred percent certainty.
According to the logic pursued by the authors of these innovations, an ideal solution would be the existence of independent and non-overlapping markets dealing with synthetic, enhanced and natural diamonds, while honestly informed consumers would make their choice based on their preference towards the appropriate marketing patterns. Yes, it is only the question of a marketing pattern, since the only difference between synthetic and natural diamonds is their origin. All the characteristics, which define their jewelry quality, are identical and the difference is only in their images, or informational shells.
The image of natural polished diamonds is based on their "nature," "essence," "entity" and on the projection of this "nature" on human relationships. “Real Love = Real Diamonds™”. And although the image of their opponents is based on no less impressive messages saying they are conflict-free, associated with innovative breakthroughs and do no harm to the environment, the “nature” of diamonds appears to be the decisive factor in the eyes of many prominent industry members. In the words of Martin Rapaport, “While synthetic diamonds can try to get a free ride on the real thing, they will never be the real thing. Make no mistake about it, natural diamonds are better than synthetic diamonds and easier to sell. All we have to do is stop taking our natural diamonds for granted and start setting them against synthetics.”
So, at first glance, the problem may be solved by creating an appropriate legislative framework and by introducing affordable and high-performance monitoring equipment, while consumers enchanted by the "naturalness" of diamonds will be given a chance to make the right choice. Sounds optimistic. However, if you look at the closest analogue - the modern market of colored gemstones, your optimism may a little bit fade. Because there are almost no pristine "natural" emeralds, sapphires or rubies in the market: 99% of colored gems offered to consumers at large are enhanced in one way or another or represent solid synthetic products.
The amount of net synthetics sold, for example, under the guise of natural Columbian emeralds, may so far remain a subject of debate. But the fact that major producers of synthetic colored gemstones are successfully improving their technologies to reduce the possibility of identifying their goods as synthetics, gives no rise to doubts. "It is easy to optimize the color of grown raw materials to the needs of the consumer, as well as the set of distinguishing features characteristic of natural stones from the minefields of Colombia, Brazil and Russia." It would be interesting to learn from such advanced consumers, what makes them place such exquisite orders, but alas, these shy guys do not like publicity.
As for enhanced colored gemstones, everything is more transparent. The modern methods of improving the color of emeralds, sapphires, alexandrites or rubies cannot be detected by instrumental research. Moreover, beryl, which is not precious, can be miraculously transformed into full-precious emeralds involving not very high costs: "The application of the gluing technique to emeralds gives the following results: all the enhancement costs do not exceed $ 5 per gram, while the color and qualitative characteristics are (simultaneously) improved by 2 or 3 grades, in line with the Specification of GOKHRAN. This means that some part of gemstones belonging to the third quality grade become the second or even the first grade gems, while some part of the third and second grade colors pass into the second and first grade colors... About 50% of gemstones improve their quality by one grade, and about 5-10% by two grades. As to color: the third grade color is intensified and about 10-15% of gemstones pass into the second color grade, while up to 40% of gemstones belonging to the second color grade pass to the first color grade. A minor part of the third color gemstones, and even beryl, can move into the second and even the first color grade.” The economic effect is admirable: "If on average 50% of gemstones improve their quality by one grade, it means that raw materials turn more expensive as much as 3 times. If, in addition, 20% of gemstones improve their color by one grade, their value is increased as much as 1.8 times. The yield of final goods goes up 5 times. All this taken totally, helps to increase the value of end products 3.0 x 1.8 x 5.0 = 27 times. In addition, due to increased size of finished goods their price also goes up about five times. Altogether, the value of finished goods is increased as much as 135 times. In reality, this figure is even higher – due to the use of low-quality raw materials, previously excluded from production; enhanced raw materials, which improved their characteristics by two grades; and the possibility to obtain large quantities of finished stones weighing much more than 5 carats (up to 300).”
Why is it that in actual practice no one is trying to solve the task of dividing the markets trading in synthetic and enhanced stones from those trading in natural stones for colored gems? Is not it a noble deed to explain to the client craving for "naturalness" that this luxurious "Colombian" is really nothing more than a low-grade beryl treated by a polymer glue or, God forbid, that it is actually the product of the Belarusian military-industrial complex? The answer is simple: if this market will be cleared of all enhanced and synthetic gemstones, there will be nothing left and it will simply cease to exist. You can argue until you get blue in the face trying to define if the cultivated pearls are "natural", "enhanced" or "synthetic". All this is just scholasticism, because there are simply no other pearls in the market.
The evolution taking place in the markets of colored gemstones and pearls proves that markets are not destroyed when ersatz goods occupy the bulk of sales leaving a few percent at best to the previously traded natural goods. Moreover, these markets can significantly expand due to increased opportunities in terms of supply. This is because the genuine commodity in this case is the informational shell and not the gemstone itself, which has no use value per se. Ersatz does not kill markets but it replaces the beneficiary. Companies based on the work of pearl divers gave way to “pearl farmers.” Companies introducing new techniques in the field of upgrading and synthesis of colored gemstones have profit margins several times higher, than miners producing the same kind of raw materials.
Increasing production of synthetic and enhanced diamonds is an accomplished fact. There is no doubt that the synthesis technology will develop, including the ways to beat the methods of instrumental control permitting to identify synthetics with a high degree of probability. Today, the developers of appropriate equipment claim they are one step ahead. May be. But who can guarantee that this will continue forever? This "competition between the projectile and armor" in different areas continues with a varying degree of success, and right now the projectile is a clear favorite in the market of colored gemstones.
If the makers of synthetic diamonds will overcome the barrier of instrumental identification (at least temporarily), the diamond market will inevitably change its beneficiaries. Such mining giants as De Beers and Alrosa will be replaced by companies producing synthetic gem-quality diamonds. There is no point in discussing any further scenarios like market defragmentation, price revolution, etc. - it will be a completely different reality. But even if the instrumental identification of synthetics will continue to be relevant, the market cannot avoid a heavy blow, if we restrict ourselves to those half-measures, which are offered by the industry today.
Here is another analogy. Visiting such websites as this one, it is possible to see counterfeit collectible numismatic materials of all time. Every year the quality of these fakes is improving and the latest versions are made just brilliantly, their circulation is huge, and the manufacturer being, of course, China. No claims can be laid to their official seller, which is honestly warning that they are selling copies. Prices are appropriate - $ 2.40 per every coin, the original of which is worth about $ 2,000. Just think of all this - who buys all this luxury? It is obvious that a genuine collector or investor will not go in for such "masterpieces" even if given them gratis. However, there is no need to guess: these “rarities” are absorbed in the “gray” area accommodating not too scrupulous dealers and in this area they acquire “authenticity” and “value” finding their hapless victims. Scam? Absolutely! But the profit of 1000% covers the risks.
Try to extrapolate the situation to the diamond market. Take some large company producing synthetic rough diamonds and making polished diamonds using this rough. The company sells its goods as synthetics - no complaints. Who is the buyer? Just anyone – they are not weapons or drugs, or even natural diamonds. Meanwhile, the technology is improving and the quality turns higher and higher, while the costs go down... And the premium for risk grows, and grows quickly. Thus, the probability of diverting these goods into the “gray” area and of all kinds of fraudulent manipulations with these goods, including their sales in retail set in jewelry under the guise of natural gemstones, tends to one. Which is definitely confirmed by practice.
May the amendments to the national legislations proposed, for example, in Russia and India and the marketing innovations a la “Real Love = Real Diamonds™” considered to be a sufficient tool to counter the scenario described above? Of course not. The effectiveness of these measures will be inversely proportional to the development of synthesis technologies, as well as to a corresponding increase in the premium for risk. The industry needs a more radical tool.
In 1954, De Beers established the International Diamond Security Organization headed by Percy Joseph Sillitoe, the former head of the British Intelligence Service, MI5. Among other things, this organization was assigned to detect and block possible diamond smuggling through channels, which were supposed to be arranged by the USSR to sell diamonds from the newly discovered deposits in Yakutia. As these fears turned to be unavailing and later the USSR and De Beers signed the well-known agreement, the International Diamond Security Organization was disbanded in 1957. It is quite possible that it is time to revive it in a new way.
The diamond industry compares favorably with peer industries being distinguished for its good structure, existent authoritative industry institutes, strong and positive relationships with the governments of the countries involved in the orbit of the diamond business. These are quite suitable conditions for the establishment of an international security service for the diamond industry, whose tasks would be to detect "gray" and "black" manipulation schemes involving rough and polished diamonds, and especially - to control the traffic of synthetic gem-quality diamonds. The market of synthetic diamonds, including its "gray" zone, is transnational, and only a transnational agency can control it to the necessary extent using appropriate means. This would be an impressive contribution on the part of the diamond industry to preserve consumer confidence.
Sergey Goryainov, Rough&Polished
