Alexei Zarakhani
Rough_Rock
- Joined
- Jun 11, 2008
- Messages
- 68
Despite the question is rather short it requires a long detailed answer. If you don''t mind, I''ll rephrase it – will synthetic diamonds have the same fate as synthetic colored stones in regard to their natural counterparts? - I have no crystal ball, time will tell. And that''s would be a simple prudent answer.
Nevertheless, I do think that a phenomena of synthetic diamonds is fundamentally different from synthetic colored stones case.
It all started with technology which for colored stones from the very beginning was relatively simple and easily accessible, relatively small capital investments needed to acquire know how, equipment and skills, it had relatively low cost of production and high output, etc. In other words, one could start a synthetic stone production in his backyard, like the Chinese did with pig iron not so long ago. Such a low threshold entry into the field lead to rapid expansion of capacity and mass production which, in its turn, lead to inevitable price competition. Besides, the situation on a colored stone market was enhanced by wide availability of large quantities of inexpensive treated stones. Those two factors combined resulted in very low prices for synthetic stones vs. their natural counterparts. A relative rarity of untreated natural colored stones helped them to re-gain price levels and retain a crown of “the real thing”. Both treated and synthetic stones turned out to be not so “real thing”. In this line-up synthetics were in the very low-end. Somewhat similar to 10K gold – it is gold, off course, but not that much. And value... well, bigger cleaner stones of top colors at very low prices – this is a value proposition for created colored stones.
With synthetic (lab-grown) diamonds it''s completely different situation. First of all, available technologies are not simple and readily accessible, high capital investments are necessary to build equipment and acquire know how, highly trained personnel is required, relatively high cost of production and low output yield. Those all factors combined prevent a widespread expansion of production capacity. The threshold to enter into synthetic diamond area (I''m talking about large gem-quality monocrystals, not powders) is rather high. I don''t see any new participants joining in over past several years. Secondly, the situation on a diamond market is totally different from colored stones. Majority of stones offered and sold are untreated natural diamonds. Volume of treated stones is not large, a few percentage points of the overall market and a price difference between treated and non-treated diamonds is not as significant (50% at best for white stones) as for colored gemstones. Quantities of lab-grown diamonds that we have on the market today are anecdotal. Besides, their much discussed potential to become 10% of world diamond trade won''t lead to overproduction and oversaturation of this market for the years to come. As I pointed out earlier, a high investment cost per carat of production should prevent a rapid capacity build-up for lab-grown diamonds and a price competition issues won''t be as acute as was in the case of synthetic colored stones. Also, investment and capital cost per carat combined with relative high production costs of lab grown diamonds makes them less attractive investment than into natural diamond mining. So, on one hand, I don''t dispute the forecast of 10% of the market for potential demand in the next 10 years, it''s quite realistic; on the other hand, I have doubts that a capacity to meet such a demand will be available at that time.
Now, let''s get to marketing and pricing. Colored lab created diamonds are being sold at a significant discount to similar natural stones. For, example 1 ct VS fancy intense blue AOTC Created diamond goes for $10,000 retail which is, probably, 25 times less than its natural counterpart. For yellow diamonds the difference in price is at least a factor of 2. So, in the the case of colored created diamonds marketing goes the same way as for synthetic colored gemstones – prices are more affordable for the comparable quality and look. And here all similarities end, for this is not exactly low cost proposition. Our blue diamonds are priced higher than top end of natural colorless stones which can''t be treated as inexpensive. Same goes for our yellows, they are just slightly less expensive that similar whites. Most of our colored diamonds are being sold into a fashion market to make high end designs more affordable. Affordability and availability has nothing to do with a low-end. For example, try to make a necklace of 50 blue color matched diamonds. With natural diamonds the cost will be prohibitive and, most likely, you''ll have to collect matching stones not for one year. With created diamonds it''s much less expensive and easier. You may ask, why our blue prices are 25 times less than natural and not, say, 10 times since there not much competition? Our pricing model is cost driven. However, over past three years we fine tuned our prices several times to reflect a customer demand and preference for a particular color and clarity. It resulted in higher prices for our lighter goods and better clarities.
Our colorless stones is completely different story. To grow a white diamond is the most difficult thing in synthetics and the most expensive. So, a cost of production of whites is much higher that yellows and slightly higher than blues. However, in whites we do not have such a luxury as natural blue diamond prices. Instead, we have a price ceiling established by the market and we have to deal with it. So, why do we grow whites then? The answer is quite simple. There is a definite demand for colorless created diamonds for a bridal market at natural diamond prices. As I mentioned earlier in my posts, D.NEA is also our research tool. The statistics we collected over several years says that over 85% of all requests are for white stones, 10-12% - for blue and the rest – for yellows. Now, out of those 85% the majority is looking for significantly lower prices for synthetics, and that is understandable. The perception that a lab grown diamond has to be inexpensive, as well as big, internally flawless and of a top color, is still there. But there is another group bridal of customers that consciously ask for our diamonds regardless of price mainly because of environmental issues. Most of them have scientific or technical background and they know what they are asking for. In whites we cater to this group. Apparently, it''s not small in numbers and has tendency to grow. We estimate that over several years it could reach 15% of the US bridal market.
So, speaking about values, they undergo significant changes these days. It is being amplified by everyday media reports on global warming, pollution, etc. Computer savvy younger generation is more susceptible to those ideas. And they soon will be in a bridal age. They will have a different scale of values.
So, answering to your question, we shall see. Time will tell.
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