INDIA
The concept of lab-grown diamonds is not new – it goes back almost seven decades. But it began being produced commercially barely a decade ago. Currently, such diamnds are produced by less than half a dozen companies worldwide. However, even collectively, they account for barely 2% of the total global market for diamonds.
But the potential is huge. Especially with new applications for diamonds.
In what may be the world’s first panel discussion on lab-grown diamonds, DNA Conversations brought together an eminent panel to discuss this industry. The panel comprised (in alphabetical order) Lisa Bessel, president and CEO, Pure Grown Diamonds Inc. (USA), Kshitij Chitransh, principal consultant, Frost & Sullivan (Asia Pacific), Richard S Garard, CEO, Microwave Enterprises, LTD (USA), and Vishal Mehta, managing director, IIA Technologies Pte Ltd. Bessel and Garard participated in this discussion through a video link.
Moderated by R.N.Bhaskar, with editorial support from Varghese Koshy and Priyanka Gawande, the discussion threw light on why lab-grown diamonds are here to stay – forever.
Given below are edited excerpts:
dna: Vishal, you are one of the large global players in this industry. Could you tell us how you got into this business and how big the industry is? Also, what exactly is this product that you are making and selling?
Mehta: Yeah. The shortest answer to what grown-diamonds are is that they are real diamonds. Nothing more. Nothing less. Grown-diamonds are a new source of diamonds that can be obtained from above the earth. They are grown in what may be called 'diamond-growing greenhouses' above the earth under 'sustainable conditions'.
These diamonds are physically identical to mined-diamonds, but have a larger application base compared to mined ones. Because these diamonds are grown under certain conditions, are consistent in quality, and can be made available in large quantities, they have applications in many more industries.
High-quality diamonds have generally found application largely in the luxury industry. That's because enough diamonds could never be mined sustainably for commercial applications. You could find one diamond with the right qualities only once in a while.
dna: Which is why industrial applications flagged, even while earth-mined diamonds worked well in jewellery?
Mehta: I wouldn’t use the word “industrial.” As, for example, the grown-diamond [also referred to as lab-grown diamonds, cultured diamonds or purity diamonds- Ed] industry is structured very much like the mined-diamond industry.
Even with earth-mined diamonds there is an industrial side, but which uses lower quality, smaller sizes for various industrial applications.
And, as far as high quality grown-diamonds are concerned, until a few years ago they didn’t exist because people weren’t able to get diamonds in the right quality and quantity to make it commercially viable.
dna: How big are the biggest stones?
Mehta: IIA Technologies is the only company in the world that can grow diamonds above 10-mm (10×10-mm). Now, that to an average person sounds very small. But to be able to grow a diamond that size, you need to first have a seed of that size. So it’s an extremely complicated process.
And, so as far as diamond plates are concerned for non-gem applications, we are pretty much the only company that can grow 10×10-mm diamonds in large quantities. Now, we are trying to make diamonds of larger sizes.
dna: When you say 10×10, that’s almost a square shape. How thick would that be?
Mehta: That depends on the application. A lot depends on which way customers need these diamonds cut or polished. We can grow them up to thickness of 4-mm, 5-mm or 6-mm, or even thicker, if necessary.
dna: Theoretically, if someone had an application for thicker diamonds, you could make them, right?
Mehta: Yes. But, there is a physical limit to that. It depends on what the customer wants. Yes, they are just like earth-mined ones.
dna: Kshitij, you have been researching this industry. According to news reports and in interactions with industry players, there seem to be many players who have been in the conventional space of earth-mined diamonds, who see lab-grown diamonds either as a threat or something that shouldn't be encouraged. Why is this happening?
Chitransh: Let me try and answer that by giving you a background of consumers' perception of lab-grown diamonds.
We conducted a survey in six countries, including India, where we asked consumers various questions on grown-diamonds, including whether they would buy a grown-diamond, or not. We also educated them on what grown-diamonds are, and how they are the real thing. We got an overwhelming response of close to around 80% saying they are willing to buy such a diamond.
dna: So, 80% of customer are willing?
Chitransh: Yes, there is the propensity to buy. The problem, however, is that producers like 2A Technologies and others around the world are facing resistance which always happens when a new product confronts an established product. Also, though consumers are willing to buy it, terms like ‘synthetic’ cause doubts in their minds. So the same set of consumers -- people who had been educated on grown-diamonds -- when asked what they understood by synthetic diamond said that they were fake. Almost 90% of them felt that way.
dna: Synthetic has a connotation of fake, of inferior quality, right?
Chitransh: A product, which is the real thing, is being given the ‘fake’ tag.
dna: So that explains why the lab-grown industry prefers to call them lab-grown or man-made, rather than synthetic.
Chitransh: That’s right. We have been tracking this nomenclature problem in two of our reports. And what we have understood so far is that it’s the traditional resistance from established players to an emerging product.
dna: Seems the customer is willing, but the trader is not? You have to get the trade barriers down.
Chitransh: That’s right.
dna: Is the trade reluctant to take it because they don’t understand the product. Or, is it because they find the terms unfair, or is there some other reason?
Chitransh: The resistance you encounter is not just in the diamond industry. It's there in every industry. For example, whenever Apple comes up with a new product, there is resistance from established players... like Microsoft, etc.
dna: And given your surveys, how long do you think it will take for much of this resistance to wane?
Chitransh: Any resistance to a new product ebbs when it's marketed sufficiently well. And hence it's important that the industry delivers the right message to consumers. In this case, drive home the fact that the lab-grown-diamond is the real thing, and that the nomenclature is a misnomer.
dna: Lisa, you’ve been marketing lab-grown diamonds across the world. What are your findings on customer perceptions, their willingness to buy. After you sold them diamonds, how happy were they about the acquisition, ownership?
Bessel: Well, first and foremost, this is a new category, especially in the United States. However, we have seen very positive and increasingly optmistic responses from consumers. But our first campaign was for educating consumers. On introducing the new product in the market, we had the opportunity to show retailers how lab-grown diamonds would give them incremental business as consumers would now have a new choice while buying. The feedback has been very positive because we’re not competing with mined-diamonds; we’re giving consumers a new choice.And when they understand the purity and other features—eco-friendly source sustainably and exceptional value from a dependable supply—that grown-diamonds offer, there was a very positive response. So I think consumer acceptance is based on educating them on the product.
dna: What about the trade in the US?
Bessel: The trade in the US is mixed. Consumers are open to the opportunity once I educate them on the product. We also establish and maintain a trust with the retailers; that is an ongoing process. But because it’s a new category, it will take time to gain acceptance, but acceptance is on the way.
And retailers like a new category; they understand it’s not going to unhinge them from their current business, but offers incremental business and increase their consumer base. They may have had consumers who were not able to buy mined-diamonds, and for retailers the new category offers their consumers an additional choice. So, response from retailers has been very positive. But educating consumers and retailers on the product is paramount as acceptance-level increases.
Acceptance is getting higher. The more educational material and support we offer retailers, the more willing they are to get involved with the product. I don’t think retailers have been educated much in the past, so our company is trying to make retailers partners in trying to send the message across to consumer. And I think once retailers feel they are supported well, the trust factor becomes more established and gives us a positive feedback.
dna: Richard, you have been looking at lab-grown diamonds in terms of its application in sectors other than jewellery, could you elaborate on that?
Garard: Yes. In the cutting tool industry that is looking for high precision tooling and hard tooling, optical markets, where its properties help in light transmission, and in the electronics field where its thermal conductivity comes into use, lab-grown diamonds are excellent. The potential of semiconductor-based diamond is also high.
The properties of the diamond have enamoured scientific and engineering community for a long time. Their problem has always been getting enough diamonds.
In the past, people have stopped researching or working with diamonds because of these constraints. We now have the opportunity to promote lab-grown diamonds for existing and future applications where properties of the diamond come into play.
dna: You talked about cutting, cutting-tool, high-precision-tool industries, light transmission, electronic fields, semiconductors, etc. Which is the segment that seems to be attracted more to lab-grown diamonds in terms of volumes and price?
Garard: High-precision-tooling industry, which finds the lab-diamond's hardness valuable, as it enables certain machining and operations that are not possible with certain other tooling materials.Here lab-grown is better because inconsistency of mined-diamonds often causes a lot of yield loss while preparing a tool. Lab-grown diamonds have better consistency. And volumes. So tooling companies, especially high-precision ones, now prefer us.The electronics field has always been interested in diamonds. Here again, cost, availability and purity have discouraged the end user. We are slowly introducing lab-diamonds to a number of research universities not just in the US, but around the world as well.
dna: A part of the lab-grown diamond industry caters to non-jewellery applications, what would be the percentage in terms of volume?
Garard: I’m not sure. We’re still trying to evaluate the total market potential. But I can say we are continuing to grow in this sector.
dna: Vishal, you seem to have some idea on the volumes in non-jewellery application, would you like to talk about it?
Mehta: Volume is a relative term. What happens is, when you’re growing diamonds for higher technology applications, you grow them extremely slowly and carefully to get the required properties. In the long term, we believe 70% of grown-diamonds would move to the non-luxury or non-traditional application sector, and only about 30% would be in the luxury segment.
dna: Does the same rational apply to the mined-diamond segment too?
Mehta: I can't testify to the figures, but can say that, at this point in time, mined-diamonds are used mostly by the gem industry.
dna: So, lab-grown diamond industry is looking at both jewellery and non-jewellery markets, and you think the market share of non-jewellery sector would be larger?
Mehta: Yes. It's very simple to understand. A diamond is an extremely unique element. It has extremely high dispersion rates, can withstand extreme pressures. In fact, right now it's being used in quantum-computing or using the electron spin-off of a diamond to actually denote one or zero to store data. These are all applications that are currently in the developmental phase. But having actually grown diamonds makes it possible for these experiments to succeed.
Diamonds are things that people have been wanting for a long time. But there haven't been enough of them, and because of that, high-technology applications couldn’t really take off in any meaningful way. That has now changed, and that is the excitement in the market.
dna: Kshitij, how many big and small players are there in the lab-grown segment today?
Chitransh: It's a nascent industry. There are only two to three players we spoke to; mainly 2A Technologies, SCIO, and Chatham. But most of them focus on lower quality mass produced industrial diamonds, not the gem quality Type IIa that's sold to technologies producers.
dna: Are Washington Diamonds and Gemesis big players?
Chitransh: They are. But Gemesis is not on the production side, but in retail.
dna: Where are these companies located, keeping in mind that they are energy intensive?
Chitransh: Production facilities have been coming up mostly in developed countries, because production requires high-reliabiligty, grid electricity, found mainly in countries like Singapore, Malaysia, Russia and southern Europe.
dna: Are all these countries equally competitive in power and quality?
Chitransh: I think it’s a matter of where producers are able to find the right supply chain, because the key raw material for grown-diamonds is diamonds [as seeds around which the new diamonds grow. Ed]. Hence, it's important to set up the entire supply chain. And, a producer will prefer to set up a supply chain in Singapore and Malaysia than say in Russia.
dna: What percentage of the market would lab-grown diamonds account for today?
Chitransh: We have done a forecast on what the industry could be. Talking about 2014 forecast, lab-grown diamond is around 0.1 to 0.5% of the total sale of polished diamonds for end applications. It's expected to grow in the next five years to 1 to 3% of the total diamond sales.
dna: If it's just 1 to 3 %, why does the (mined-diamond) industry feel threatened?
Chitransh: I cannot talk on why they feel threatened, but can talk about the potential of grown-diamonds. There are two aspects to it.
Publications have recently been talking about production of mined-diamonds getting depleted over time.
When coupled with the capability of players in grown-diamond sector to scale up production, then it becomes a potential viable alternative.
dna: You have a situation where mined-diamond supplies are dwindling…India will be adversely affected?
Chitransh: Yes, you are right. Grown diamonds are, and can be, a potential viable alternative to the upstream supply chain players such as polishers, cutters. So, they now have an alternative supply store, and their business can thrive.
dna: So the grown-diamond industry would actually stabilize the polishing industry in India?
Chitransh: It has the potential. There are obviously restraints in the production or the supply side for the moment, but it has the potential.
dna: Restraints in supply sides, and what else, volumes?
Chitransh: Not just volume. It's a costly technology to begin with. Diamond greenhouses require a lot of capital. And the operation requires a lot of working capital. So, how industrial players take it forward in such a scenario is something that will drive growth in the industry.
dna: Vishal, at what discount to mined diamonds are lab-grwn diamonds being made available?
Mehta: I believe grown-diamonds are 20% to 25% cheaper than mined-diamonds.
dna: Do you expect the margin to increase, or stabilize at this level itself?
Mehta: Over time, diamonds would continue to become rarer. So, as time passes, the value of diamonds will move up. As far as lab-diamonds are concerned, markets will react to the pricing of these diamonds in much the same way as they react to mined-diamonds, because both form the same pie.
dna: Will diamond prices gain some sobriety?
Mehta: Yes, once people and governments understand that lab-diamonds are real diamonds. Then there will be a phase when both would be considered the same product. So, it’s a bit complicated in terms of assessing right now whether prices will rise or fall.
dna: In your opinion what are the measures India’s policy makers should take to make this industry a lot more vibrant?
Mehta: We believe that India can continue to grow as the world’s biggest diamond cutting and polishing centre. Skills that have been created in India over decades are unique because they have been created from scratch. And it has been an industry created based on rough supply – on the basis of whatever is available. Now what lab-diamonds do is to add to this volume. And as Kshitij put it, it becomes one more pie on the table.
So it lets the country that is looking at just cutting and polishing diamonds for jewellery now, to start looking at an entirely different set of industries as a customer base. So you’re not just looking at the luxury industry, but at a whole new set of industries as a customer base. You’re also looking at far higher precision and quality of cutting.
That is needed for higher technology applications. When you talk about precision engineering, there are customers who actually look at a diamond at 500 times magnification to identify whether there are micro cracks on the diamond cutting blade. So, it’s actually a high value application. Earlier skills of diamond cutting may not suffice.
So you need to look at the kind of skill-sets that will have to be created to attract that kind of business into the country. The base skill-set already exists.
dna: Are you talking about refining the existing skill-sets?
Mehta: Yes. We like to talk about social sustainability, look at the kind of graduates you’re going to have tomorrow; the kind of people and jobs that people will be looking for tomorrow. So, when you’re talking about engineers, you’re talking about diplomas, diploma holders, research scientists, creating jobs for that set of people. Similarly, we have to begin to look at people presently engaged in cutting and polishing, and upgrade those skills to higher skills required for this type of work. So, we see the future as being higher-value cutting and polishing. We see the future as taking on these new industries, new applications and anchoring growth—processing diamonds in India for both domestic use as well as for export.
dna: What about export?
Mehta: India has the capability. Whenever anybody thinks of processing, cutting and polishing grown-diamonds just like they do for mined-diamonds, they must first think of India. There are a lot of companies around the world, which have customers who have cutting and polishing centres in countries in Europe and in the US. They have also opened re-cutting centres and cutting centres in China. India has the skill-sets, and businesses already exist, investments have already been made, so the country does not need to think of something completely new. However, it must now think of how to adapt to this new availability and opportunity.
dna: What should the role of policymakers be?
Mehta: First acknowledge the fact that these are diamonds. That these are the same as mined-diamonds and should be classified as such.
If you look at the HS Code system [which the customs department uses for valuing exports and imports], under 7102, a separation already exists for different types of diamonds, different forms of diamonds. Under 7101, a precedent has already been set, where pearls under 7101 on the fourth and sixth digit-level have already been segregated as natural pearls and cultured pearls.
So, what we would propose is to realize that these lab-growns are not synthetic, not only from a marketing point of view, but technically too, as they actually grow under a crystal growth process and not a synthesis process.
Now there is a very important difference between the two, because synthetic means growing as a result of a synthesis process, that’s again through reaction. It means two or more compounds combining to form a third complex chemical compound.
But if you look at the chemical formula of diamond, it’s just C, a pure carbon. There is nothing else inside. So calling this synthesis is just not right.
Crystal growth is the core process. And therefore, the term synthetic, not only from a nomenclature point of view, from a consumer understanding point of view too, is not the correct term.
dna: So what is it that you would like the government to do?
Mehta: Under 7102, we would request that diamonds be segregated at the sixth and eight digit level, which comes under the country's purview, and to be segregated as mined and grown-diamonds. This way there will be a clear classification of diamonds as mined and lab-grown diamonds.
dna: So you are not averse to being classified as a separate product?
Mehta: It’s actually the opposite. We strongly request to be separately classified as grown-diamonds, but still be recognized as diamonds.
In other words, we should be treated as diamonds.
dna: Any other policy initiative?
Mehta: Yes. We would actually like to request the government that, if possible, there should be incentives to attract investment in this area of high-technology processing of diamonds in order to attract companies that have been doing this for long
There are companies in northern Europe and the US that have been doing it for a long time. They are looking at China now as a potential investment area.
I would think that India is an excellent environment for this to grow quickly. At the same time, now that diamonds, especially quality diamonds, are available, the existing high value or cost might not really work out that well. So we would request that incentives be made available for attracting companies to India and ensure that primary as well as diamond re-cutting facilities are setup overtime.
Chitransh: Let me add one more point. Recently when the PSLV was launched, the prime minister said that this was an opportunity for India to develop its own niche, where it would make or launch satellites for the world at a much cheaper price. Similarly, in the diamond industry too we have an opportunity to develop highly scientific and R&D-oriented jobs.
Mehta: Research based on diamond material was something that took place about two decades ago. Now with these diamonds available, we would request India to look at a research base for next generation diamond-related application to be created in India. So, that R&D centres come up. India has the most amazing talent and can create a centre for future application and take it to the next level. Countries like the US have proved that this can be done.
New applications attract new industry and it has a multiplier effect that is unimaginable. So we would request the government to look at grown-diamonds for what they could be in the future.
Bessel: I think India has always been a very important part of the gem and jewellery industry. With the wealth of talent that India has in cutting and polishing, continued support for our industry with your talent is what will keep our lab-grown diamond jewellery industry expanding in the US and throughout the world. It's a resource we have always relied on and will continue to rely on.
Garard: Yeah. I think as of now, through scientific and high-technology applications, we can control the environment and grow diamonds to meet some of these requirements. Those requirements also need higher-precision polishing, better finishing. And right now that’s the challenge. I think it’s important to use the experience and the knowledge and the manufacturing base for diamonds existing in India.
But I think some improvement is also necessary in technology for some of the high-end applications, polishing and finishing for India to advance in this arena, as well as make the potential that exists for lab-grown-diamond a reality.
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