The diamond market disrupted

0:06Pushkin You know what they say, fake it till you make it. Well, that's working out a little bit too well in the most sparkly market of all. Diamonds. Lab-grown diamonds are kind of taking over and the price of the real stones has been in quite a bit of trouble. Today on the show, we're popping the question, have diamonds been disrupted? This is Unhedged, the Markets and Finance and now Shiny Stones podcast from the Financial Times and Pushkin. I'm Katie Martin, markets columnist at the FT in London, and I'm joined today also in London on a nice comfy sofa by the sparkling Alan Livesey from the Lex column.

0:49Alan, you like the finer things in life, if I'm not mistaken, theatre, wine, diamonds. You know, when was the last time you bought someone a diamond? Possibly when I proposed to my wife. I've bought her lots of jewellery. I have, though, veered more towards colour gems than diamonds, but diamonds, she has. Good. Glad to hear it. So listen, you've been writing about diamonds recently. What's going on here? The price has been sliding pretty consistently over the past couple of years, right? I mean, I think in the natural rough stone market, there has been oversupply in the last couple of years. There was a post-pandemic boom, I would say.

1:30There was a bit of a boom in weddings and everything because lockdowns shut everything down. And I guess everyone wanted to get back together. And there were gifts and there was happy. It was a beautiful time. It was a beautiful time. And diamonds were bought. And that was good for the diamond industry. Prices actually went up. But then they came straight back down. And in fact, natural diamond prices, the rough ones, I don't think they've moved in price since 2011. It's a long time. It's rubbish. That's not an inflation hedge. They look nice, though, which is important. But so one of the things that's kind of monkeying around with this market is lab-grown diamonds, right?

2:09And these things are not new. You've been able to somehow, using alchemy and magic, been able to make diamonds in labs for, what, 70 years? Yeah, I think since the early 50s. I think the process was originally, or as far as I know, just a high-pressure kind of Superman-like crush a lump of coal and through high pressure create this diamond. But that required a lot of energy. I think newer processes have found ways of literally growing them in the lab. That is pretty cool, though, isn't it, when you think about it? Yeah. But also, it means you don't have to send people down holes in the ground doing dangerous stuff to find these things, right?

2:49You can just make them in a lab. Which has always been the problem. And it's been a problem for the diamond industry, right? though they've been trying to find ways of marking the provenance of diamonds and showing that they were mined in a sustainable way, in a healthy way, and not hurting anyone. I guess this synthetic diamonds more or less don't have that kind of issue, right? Right, right. So there was this idea for a while that those companies out there that dig these things out of holes in the ground have tried to kind of amp up the kind of romance and kind of organic nature of diamonds.

3:26But that doesn't seem to be working, right? Because live-grown diamonds are grabbing an increasing size of the market. They definitely are. And they've spent a huge amount of money over the decades. You know, a diamond is forever. There are songs by Shirley Bassey and Bond movies and whatever. And it's worked, right? And the jewelers have sold lots of diamond rings for weddings and whatnot. And probably the price now is kind of getting attacked. So what's happened is, if we went back to 2015, lab-grown diamonds really didn't feature. And when you looked at it as a proportion of the diamond jewelry market globally, it's hardly there.

4:06But by last year, it was 10%, 11%, 12%. Right. That may not seem like very much, but it kind of took away the growth, right? Right. And so it's very, the best you could say is the natural market seems to be sluggish right now. So what are we talking about price-wise, just so that I can tell Mr. Martin when I get home? They're not exactly cheap, these large-grown diamonds, by the way, if you want the highest quality. So say we pick an excellent card of an F-color top clarity. Beautiful, clear, sparkly. Sparkly, sparkly, clear diamond, right? Which you can literally order, right, whatever clarity you want in size, which, you know, is great.

4:47But say we took one carrot, which is the typical sizing of diamonds and stones, right? It's kind of like a peppercorn or something, or like a small pea. Yeah, pea. You know, you're going to notice it on the finger, but it's not gigantic. So one carrot of a lab-grown diamond might cost you 1 ,800 pounds for this kind of quality. And that could be made in as little as two weeks, two or three weeks, something like that. The natural stone of that sort of similar quality might be 8 ,000 pounds. So, you know, four times plus more. Yeah. It's a pretty big difference. That gap, though, used to be kind of tiny.

5:30Right. When they first started coming out, there were 10%, 20 % discounts for not being natural. Now that discount's more like 80%, 85 % sometimes. Sometimes, not always, but, you know, it can be 80%. So lab-grown diamonds sort of eating their own lunch in a sense. They've sort of been too successful. Too many of them. Yeah. They are disruptors, but they're kind of victims of their own success. Yeah. Yeah. What is the magic that goes into this process? So like you say, you either get a piece of coal and squeeze it really hard or what? Or you start with a bit of lab-grown diamond. I guess it's a bit like the mother in the sourdough bread.

6:07You start with a bit of the lab-grown diamond from before a chip or something. And then by injecting into the container carbon-rich gas, it can layer more and more carbon into this high-pressure environment. And you create this lab-grown diamond. And the cool thing is, name your size, name your color, name your cut, like whatever. Yeah. You can get whatever you like. Yeah. And I guess there's a limit. I mean, I'm not sure everybody wants to be walking around with an eight-carat blue diamond on their finger. It might invite more scrutiny than they like. But if that's what you want, you can get it.

6:44It won't be dirt cheap, but it'll be a lot cheaper than the natural one. And that's the thing. So you could get a very respectable diamond ring as an engagement ring. And it will probably be a fraction of what you would pay. Say the engagement doesn't work out and you decide you really don't like your partner and you want to sell the ring. What's the resale value on these things? Is there any difference? I think there is. I'm sure there'll be some back and forth about this with the industry. But from what I hear, you just don't get very much for a lab-grown diamond. So you probably may only get the price of the metal itself.

7:25Whereas I think with a real diamond, there will be some residual value. You may pay up, you know, there may be a premium, but I suspect there's more residual value. And that's partly due to scarcity. We would find that there is some inherent value to that scarcity. So like one of the sort of fun things about this whole space is that it shows that disruption is not just for tech, right? These electric vehicle guys think they're so original, but actually there's disruption in everything, right? It's like the oldest industries of all, like mining can get disrupted too. But so who cares about this?

7:57Which companies are affected by this rise in lab-grown? Two really big makers control about two-thirds of the diamond market worldwide. One of them is De Beers, and De Beers is part of the Anglo-American mining group. Also Alrosa, which is the Russian state-controlled or at least owned Russian diamond maker. And those two, they have tried to come to some sort of agreement, But now with the war in Russia, between Russia and Ukraine, the Russians need the money. And in fact, the Russian state has had to buy up extra diamonds from El Rosa. Oh. Yeah. So there is a supply issue. It leaks into India, those diamonds from Russia, where a lot of the cutting and polishing takes place.

8:43Yeah. It's geopolitics and everything, man. So to the naked eye, right? you haven't got one of those kind of, you know, you haven't got a thing on your eyes so you can see in super detail. But can you tell the difference, like can a passing person tell the difference between a lab grown and a knot if it's on a ring? I am not an expert, but I would say probably not. They certainly, the pictures and anything I've seen suggest they are very difficult to distinguish. It's very, very likely that if you're an expert, you will see that because there probably are some minute flaws in... You're going to get emails, Alan, from diamond nerds.

9:18Trust me, people email you from the podcast. They will. They will. Alan.livzee. Forgive me, diamond experts, but as far as I know, you can't tell just by the naked eye. You would need an expert. Yeah. Yeah. But so what do you reckon? Is it all over for natural stones? Are we going to look back on a time when people used to go down into the ground to find diamonds and think, what the hell was all that about? The thing is that the diamond industry has been pretty much saying the same thing for years, which is they're natural. They're scarce. You're going to buy them. Or synthetic diamonds, there's too many of them.

9:54They're falling in price. People won't want them. They've been saying these for years. It's probably going to stumble along like this. I'm afraid so. It's a problem for the natural diamond industry, right? But soon they're going to be so cheap. Diamonds for everybody. have no excuse for not buying diamonds for your wife on a more regular basis. You're going to listen to this, Alan. You're going to be in trouble when I get home. Maybe I will go home and demand a diamond from her. Okay, well, absolutely let me know how that works out for you, Alan. This would be a good one. We're going to be back in a sec with Long Short.

10:35Okay, it's time for Long Short, that part of the show where we go longer thing we love, shorter thing we hate. Alan, you haven't done this before, but I swear it won't hurt. It can be anything. It doesn't have to be a gemstone or a stock or an asset class or whatever. Tell me, what are you long? What are you short? I'm long colored gemstones like sapphires and funny colors like pink and yellow sapphires, unlike diamonds. but I would say I was short of I went to see a musical version of a Charles Dickens book called Our Mutual Friend this was called London Tide and oh dear it wasn't good I'm very short it was with the music by an artist that we both pretty much like I certainly respect PJ Harvey did the music it wasn't good and the audience's reaction sort of said it all no encore no encore Yikes, that does sound unusual for PJ Harvey.

11:27I feel, I felt for, sorry. I am short. Why is it so cold, Alan? It's just so cold. Like I keep trying to put my winter coats away and then I leave the house in the morning and it's absolutely freezing and I'm getting fed up of it. So you're long of down coats. Long coats. I'm short of weather trying to kill my seedlings. I've got tomato plants to think about here. It's like seriously worrying. So enough. We need some spring. Short of heat. Yeah. Alan, it's been a pleasure. I hope you come back again soon. Listeners, this podcast will be back in your feed early next week.

12:06Unhedged is produced by Jake Harper and edited by Brian Ersvat. Our executive producer is Jacob Goldstein. We had additional help from Topher Forges. Cheryl Brumley is the FT's Global Head of Audio. Special thanks to Laura Clark, Alistair Mackey, Greta Cohn and Natalie Sadler. FT Premium subscribers can get the Unhedged newsletter for free. A 30-day free trial is available to everyone else. Just go to ft.com slash unhedged offer. I'm Katie Martin. Thanks for listening.

12:52Thank you.