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Pandora’s endorsement of lab-grown stones will not devalue natural diamonds – Zimnisky

07 june 2021

Jewellery retailer Pandora recently announced that it will no longer purchase natural diamonds as it had switched to lab-grown diamonds.

However, diamond market analyst Paul Zimnisky told Rough&Polished’s Mathew Nyaungwa in an exclusive interview that historically diamonds represented only a small portion of the jewellery offered by Pandora.

Although the chain sells 85 million trinkets a year, only 50,000 featured diamonds, which makes it a small player in the natural diamond market.

Zimnisky said that the majority of fine jewellers indicated that their customers still prefer natural stones ahead of synthetics and they do not have plans to change.

He said Pandora’s announcement to only sell man-made diamonds will not lead to a devaluation of natural diamonds.

NB: Paul publishes an in-depth monthly subscription-based diamond industry report called “State of the Diamond Market”.

He will also speak at the Southern African Institute of Mining and Metallurgy Diamond Conference on June 9 and Jewelers of America National Convention on July 19, both of which will be virtual this year.

Jewellery retailer Pandora recently launched its first lab-grown diamond collection. What is your comment on this development?

I think most people in the industry were not surprised by this since most fashion jewellers like Pandora have been adopting man-made diamonds quite readily, in this case Pandora is adopting them exclusively. What was most interesting was how it was reported and picked up by the media which was: one of the largest jewellers in the world is no longer selling natural diamonds – however, historically diamonds represented only a very, very small portion of the jewellery offered by Pandora, l believe well under 1%, so in a way I think this was a little misleading. But almost all major media outlets in the world covered this, which is a story in itself. I think it shows how much interest there is in this topic.

What is your comment on projections that the move by Pandora could encourage other players to embrace lab-grown diamonds?

It’s hard to say what the ultimate impact will be if any. Again, most fashion jewellers have already embraced the product, it’s much more mixed with the fine jewellers which is understandable. Based on my analysis, most fine jewellers have indicated that their customers still want natural stones and don’t have plans to change. Some mid-tier jewellers are offering man-made diamonds as just another product offering. But I think a lot of these companies are hesitant to aggressively push man-made over natural diamonds because it could lead to a revenue hit since most man-made diamonds tend to sell for a fraction of what natural does. I have done some analysis on this, and the relative percentage of retail margin is greater with man-made diamonds right now, but I think that may be temporary in nature, and again the top-line revenue base tends to be lower. So ultimately this could result in a hit at retailer’s top line, especially longer-term once the man-mad product matures and becomes less novel. So, I think these are the kind of things you have to think about when you analyze this.

To what extent will this endorsement devalue natural diamonds?

I don’t see the Pandora announcement to only sell man-made diamonds as an event that will lead to a devaluation of natural diamonds. If anything, natural diamond prices have been quite strong in recent months which is being driven by real demand. And again, I don’t think people typically go to Pandora to buy diamonds, they go there to buy charms or other fashion jewellery based on what I have seen. And with their new man-made diamond product line, Pandora made it clear that they are marketing the product as more affordable jewellery, so I think it will compete less with natural diamonds than some may think.

How popular are lab-grown diamonds at the moment?

To quantify this, I think man-made diamonds probably represent a mid-single digit percentage of the global diamond jewellery market. So, its relatively small, but its notably growing because it was zero just a few years ago. Based on what I am seeing, consumers that are buying them primarily because of the much lower price point. Being able to buy a diamond for 75% less than a traditional natural diamond is novel. I think we will get to the point where man-made diamond sales will actually exceed natural diamond sales in volume at some point in the future. But I think by the time we get to that point prices will be even lower and the chasm in consumer perception between natural and man-made diamonds will be much greater. For instance, diamond simulants, e.g. CZ -cubic zirconia, white sapphire, moissanite, YAG -Yttrium aluminium garnet, have exceeded natural diamond sales by volume for years now and the natural diamond industry is still an $80 billon industry that is still growing. So, it’s not necessarily a zero-sum game.

Which country is the biggest producer and consumer of lab-grown diamonds?

The U.S. was the first consumer market targeted with man-made diamonds probably because it’s the largest diamond jewellery market in the world at almost 50%. Now you are seeing man-made diamonds being marketed all over the world. That said, I think in some markets it will be better received than in others. For instance, in India consumers maybe view jewellery a little differently, perhaps seeing it more as a store of value, so maybe man-made diamonds won’t fare as well there. But who knows, it will be interesting to see how this ultimately plays out in different markets and with different cultures. I think marketing and how the product is sold to consumers in different markets will play a big role in their ultimate success or lack thereof. As far as production centres, I used to try to track all of the man-made diamond producers and the global supply but it has got to the point where there are so many new entrants in the space that it’s getting almost impossible to track. Right now, I would estimate that China, India, the U.S. and Singapore are the largest producers, in that order.

The lab-grown diamond market was projected to register a compound annual growth rate of 7.85% between 2019 and 2024. Is this achievable given the upheaval brought about by the Covid-19 pandemic?

While 2020 was obviously difficult for many reasons, people are buying jewellery right now and they have been for months now. Diamond jewellery demand is quite strong at the moment, and I would say it’s Mainland China and the U.S. as the primary demand drivers. And this could continue if we see a wedding boom in the second half of this year as anticipated. If so, I would imagine man-made diamonds will also benefit. Longer-term, I think we will continue to see growth in man-made production and sales; however, I think it will continue to be at lower and lower price points.

What is driving consumer demand for the lab-grown diamonds?

Again, I follow this quite closely, and I see the primary driver being the lower price point. I think a lot of this has to do with the novelty of being able to buy a diamond for a fraction of what a traditional natural diamond costs. But I think that novelty will wear off. Other man-made gems such as ruby and emerald have been on the market for a long time now and people still buy them, but there isn’t really that excitement around the product –I think it’s fair to say that they are viewed by consumers as different products and that is clearly reflected in the price.

What is the natural diamond sector doing to address concerns about sustainable and ethical mining?

I think provenance or source initiatives by the natural diamond industry is the single, perhaps all encompassing, answer to these challenges. Once a consumer knows with confidence the source of their diamond the concern of whether it is a conflict diamond is alleviated. Additionally, knowing the source also assures the consumer that their diamond is in fact a real natural diamond. Plus, there are additional benefits like the value-added story, which makes a diamond more interesting, but could also let the consumer know that purchasing their diamond contributed to social programs benefiting communities where their diamond was mined etc. I think like any other industry, there are participants in the natural diamond industry that are going above and beyond to reduce their environmental footprint as much as possible, and provide meaningful positive social impact in the communities in which they operate. Provenance allows consumers to reward these companies. Provenance will also allow consumers to patronize small independent artisanal miners that are making a living running legitimate small businesses.

What is the level of conflict diamonds finding their way to the jewellery stores?

I try to track supply data very closely, and I am pretty confident that “conflict diamonds” represent a very small percentage of global diamond supply, a low-single digit percentage, if that. Government sanctions, consumer pressure, NGO work, efforts make by the largest miners et al have resulted in very few unscrupulous goods in the market in recent years in my estimation. Of course, we would like zero conflict goods in the market, but you have to remember that this is a very global industry and initiatives like the Kimberly Process in part rely on local governments to regulate the flow of goods, and there are cases of problems with corruption and fractured governments that make ridding the industry of all conflict goods very complicated and difficult. Again, I think that diamond provenance initiatives are the best solution to this problem for the reasons I mentioned above.

What is the correlation between demand for super abrasives and the demand for lab-grown diamonds?

Almost all diamond used for abrasive application is produced synthetically. This has been the case for years now. The only abrasive-quality diamonds produced by mining are by-products, as jewellery-quality diamonds are what makes diamond mining economic. Some of these established synthetic diamond producers have upgraded their production operations to enable production of higher-quality synthetic diamond to be sold as jewellery. However, in general I would say man-made diamond demand for jewellery and industrial application, whether it be abrasive or high-tech, is unrelated.

Mathew Nyaungwa, Editor in Chief of the African Bureau, Rough&Polished