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Diamonds made in China
https://archive.is/k9JD2
How the diamond industry lost its sparkle
The explosion of lab-grown stones from China has shaken up the sector, leaving established players struggling for relevance
Workers check equipment in the diamond factory of Jiaruifu, in Zhengzhou, China. Feng Canjun, founder of Jiaruifu, displays some lab-grown diamonds in his
showroom © Andrea Verdelli/FT
Eleanor Olcott and Wenjie Ding in Zhengzhou, Leslie Hook in London
Published13 hours ago
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It takes the Earth more than a billion years to forge a diamond. Feng Canjun can grow one in the space of a week.
On a sweltering summer afternoon in Zhengzhou, capital of the central Chinese province of Henan, Feng’s Jiaruifu diamond factory hums with energy. Inside, 600
machines, each larger than an African elephant, simulate the crushing geological pressure and diabolical heat deep in the Earth’s surface, where diamonds
grow. The machines can turn out three-carat diamonds, the size of a large engagement ring, in just seven days.
“We can mass-produce diamonds,” Feng says, proudly pointing to the rows of machines. He has another two factories working around the clock. “Currently, I
produce about 100,000 carats a month,” he adds.
Over 70 per cent of the world’s lab-grown diamonds for jewellery — many destined for the ring fingers of newly engaged couples — originate in a Chinese
factory, with Henan at the centre of the synthetic trade.
“Essentially, we dominate this industry,” says Feng, who trained as an aerospace materials engineer and looks like one in a sober black suit. The only
indication of his vocation is the diamond-encrusted watch glittering on his wrist.
For the natural diamond industry, Feng’s factories and others like them have been devastating. The explosion of lab-grown diamonds on the international
jewellery market has coincided with a slump in demand, sending the price of smaller natural diamonds to their lowest levels in a decade.
Marty Hurwitz, head of the Grown Diamond Trade Organisation, says lab-grown diamonds have “been a massive disruption. People in the industry at first didn’t
believe it and, second, couldn’t accept it.
“This has been the first competitive product that mined diamonds have ever faced.”
Diagrams explaining the two main processes by which diamonds are synthesized
This year the future of natural diamonds is being put to a public test as De Beers, the storied diamond company founded by Cecil Rhodes, has been put up for
sale by its owner, London-listed Anglo American. Anglo American values the unit at $4.9bn in its accounts — but falling sales mean it could fetch far less.
First-round bids from potential buyers are due next month.
Last year, De Beers’ revenues were just half of what they were in 2022. Other miners such as Alrosa, Rio Tinto and Petra Diamonds have seen similar declines
in their diamond businesses.
Lab-grown diamonds first emerged in jewellery more than a decade ago. While the technology to produce diamonds has been well understood since the 1950s, recent
advances have made it cheaper to grow perfect diamonds suitable for jewellery — which are chemically identical to natural diamonds.
Today, a three-carat lab-grown stone sells for just 7 per cent of the price of a mined equivalent, according to analyst Paul Zimnisky.
Lab-grown diamonds have captured 17 per cent of the US retail market by volume, up from just 3 per cent in 2020, according to data from Tenoris, a consultancy.
Their market share is even higher in the engagement ring category, where a survey by online wedding planning platform The Knot found that over half of
respondents had purchased lab-grown diamond rings. Many jewellers believe that number will only grow.
“It looks like permanent cannibalisation,” of the natural diamond companies, says Ben Davis, mining analyst at RBC. For these companies, some of whom have
weathered centuries of trade wars, actual wars, depressions and pandemics, synthetic stones pose the most existential challenge to date.
“For the traditional natural diamond market, it is a disaster,” says Fei Liu, a UK-based jeweller who uses both natural and lab-grown diamonds.
Feng Canjun, founder of Jiaruifu, poses for a photo in his diamond factory in Zhengzhou, Henan
Feng Canjun of Jiaruifu wears his glittering diamond-encrusted watch on his factory floor in Zhengzhou. ‘Currently, I produce about 100,000 carats a month,’
he says © Andrea Verdelli/FT
Feng holds lab-grown diamonds in his factory
Feng displays some lab-grown diamonds in his factory in the province of Henan, which is the centre of the synthetic trade. ‘We dominate this industry,’ he
says © Andrea Verdelli/FT
Liu was initially horrified at the idea of using lab-grown stones: “As a fine jewellery designer, I was like, ‘No, not interested’.” But ultimately the
price difference “blew my mind”, he says.
He introduced them into his pieces 18 months ago and was surprised by the response. Customers, particularly younger ones, have few qualms about provenance, he
says. “If you ask someone who is 30 or 40, they have no problem whatsoever with lab-grown diamonds, actually they are much more preferred.”
China’s pivot to diamonds began not with a desire for fine jewellery but with geopolitics. When the Sino-Soviet split ruptured trade ties in the early 1960s,
Moscow cut off supplies of industrial diamonds critical for military applications. With no large natural reserves of its own, China turned to synthetic
production, producing its first lab-grown diamond in 1963.
By the 1980s, the industry had taken root in Henan. One pioneering engineer established a factory in Zhecheng, then a chilli farming town. It soon became the
hub of China’s diamond industry.
Diamonds possess a unique combination of physical properties that make them valuable in myriad applications. Made from pure carbon, they are one of the hardest
substances on Earth.
For years, the Zhecheng factories produced diamonds for industrial use, such as diamond-tipped cutting tools and drill bits and diamond-based grinding powders.
“China has been the world’s largest producer of synthetic diamonds for abrasive applications for decades,” says Zimnisky.
It is only in the past decade that companies like Jiaruifu have pivoted to the higher-margin jewellery business.
Today, most synthetic diamonds are grown in China using the “high pressure, high temperature method”. However, increasingly, manufacturers are using the
“chemical vapour deposition method” for larger gems, which builds diamonds layer by layer in a microwave chamber.
Once roughly processed, the stones are shipped to Surat, India — the world’s diamond polishing capital — where labour costs are lower. Feng estimates it
costs Rmb400 ($56) to polish one carat in China, more than it costs him to produce the stone, compared with just Rmb86 in India.
World globes tracing the path of a synthetic diamond from manufacture in China to market in the US
From there, the diamonds travel to trading hubs like Antwerp or Dubai before making their way to retail.
Few consumers realise how central China has become to the global diamond trade — a fact obscured by customs labelling conventions, which normally attribute a
diamond’s “origin” as the country where it is polished, rather than where it is grown or mined.
China’s diamond industry also has strategic significance due to its use in military and defence equipment. Norinco, China’s state-owned arms manufacturer,
operates a lab-grown diamond business alongside its defence operations, complete with its own jewellery brand.
The properties of hardness, thermal conductivity and chemical inertness make diamonds a useful material in a range of high-tech applications — from lasers and
optics, to nuclear fusion and even semiconductors.
Although many of these applications are still in their infancy, the tech uses of synthetic diamonds are expected to grow in coming years.
China’s advantage lies in its ability to control both the technology and the energy that powers the hungry machines. Feng’s diamond-growing machines —
developed with local manufacturers — cost around Rmb2mn ($280,000), cheaper than elsewhere.
Robert Wake-Walker, a gemstone consultant, says that China has a “technological edge” in producing diamonds and is constantly iterating its methods.
“Technology advancement is your key driver of success,” says Wake-Walker. “In the lab-grown sector, that’s been the number one factor in how profitable
you can be.”
However, this equipment is classified as a dual-use technology and is prohibited for export, meaning the benefits of China’s sophisticated industrial supply
chain are only available to local companies.
Technology advancement is your key driver of success. That’s been the number one factor in how profitable you can be
Electricity is another significant cost for growing diamonds. China has relatively inexpensive industrial electricity, especially when compared with Europe and
generally less than in the US, particularly when manufacturers receive state support.
Feng’s factories draw on solar power and government subsidies that have helped halve his energy costs — from Rmb0.9 to Rmb0.4 per kilowatt-hour.
Traditional diamond companies have attempted to contend with the rise of synthetic stones through a variety of means.
In 2018, De Beers established its own lab-grown diamond company, Lightbox, which started churning out cheap synthetic stones. Part of the thinking was to create
a bifurcated market that would ensure the luxury appeal of expensive natural stones was maintained while undercutting synthetic rivals.
Instead, it sparked a price war that also dragged down the price of natural diamonds, which were simultaneously hit by a slump in demand due to lower marriage
rates during the pandemic. By the end of 2024, De Beers had amassed an inventory of unsold diamonds worth $2bn, the largest stockpile since the 2008 financial
crisis.
In 2020, the retail price of a flawless three-carat lab-grown diamond was about $28,900, about half of its natural equivalent. By the second quarter of this
year, that price had dropped to just $3,900, one-eighth of the previous level, according to Zimnisky data. For the unpolished rough diamonds that Feng produces,
the price today has dropped to as low as $15 per carat.
As the Chinese companies improved their technology and lowered their prices, Lightbox lost its edge. The unit shut down this year.
The prices have got so low in China that the government has intervened. In Henan, the provincial government is behind the formation of a new diamond association
— a move that echoes a broader crackdown on destructive price wars in sectors such as electric vehicles. One of the association’s first moves in March was
to set a minimum price of $15 per carat for rough diamonds weighing between one and 10 carats.
“If producers sell below that price, rivals will file complaints and the government will intervene,” explains Feng. The policy aims to impose a degree of
order in a sector where the cost of entry has fallen but overcapacity and competition threaten the survival of some established businesses.
Another strategy used by the natural diamond industry is advertising. Last year, De Beers and Signet launched the “Worth the Wait” campaign, focused on the
appeal of natural diamonds.
Last month a new accord was signed by diamond-producing nations and De Beers, pledging to contribute 1 per cent of rough diamond sales revenues to a collective
marketing budget run by the Natural Diamond Council. The same organisation recently ran a campaign branding lab-grown stones as “dupes” and “swipe
left”, although it later took down the ads.
David Kellie, chief executive, Natural Diamond Council, acknowledges the challenge posed by lab-grown diamonds, but says the real cause of the slump in prices
was a mismatch between supply and demand after the pandemic.
“The industry has a history of going through peaks and troughs,” says Kellie. “We had a very high peak, and now we are having a deeper trough than we have
had in a number of years.”
An expected boom in consumer demand from China after Covid never materialised. Global supply from mines has declined, but not fast enough to match the drop in
demand.
The emergence of synthetic stones has had the side effect of democratising diamonds.
Inside the More Gold More Silver (Jinduo Yinduo) Jewellery Plaza in Zhengzhou, an eight-storey gem emporium, a group of young women are gathered at one of the
few stalls selling lab-grown diamonds. They are trying on diamond rings and taking selfies. One of them pulls out her phone to purchase a ring for a few
thousand dollars.
Liu Xubin, one of the sellers at Zhengzhou’s jewellery market, says these women represent a new class of consumer. “Before, diamonds were too expensive to
buy for yourself. It was only for special occasions, like an engagement. Now women are buying for themselves.” Liu also sees rising demand among middle-aged
and retired women — a demographic that missed out on luxury purchases when they were younger.
Customers buy lab grown diamonds at Jinduo Yinduo Jewelry Plaza in Zhengzhou, Henan
Customers buy lab-grown diamonds at Jinduo Yinduo Jewellery Plaza in Zhengzhou © Andrea Verdelli/FT
Lab-grown diamond rings on sale at Jin Duo Yin Duo Jewelry Plaza
Lab-grown diamond rings on sale at the Jinduo Yinduo plaza. ‘Before, diamonds were too expensive to buy for yourself,’ says one of the sellers © Andrea
Verdelli/FT
The same trend is happening outside of China. Ankur Daga, who co-founded bespoke online jewellery company Angara, says the company started selling lab-grown
diamonds 18 months ago. He has been surprised by how popular they are.
“It is a perfect substitute — chemically, physically, optically identical,” says Daga. He expects that in five years, around 80 per cent of the centre
stones in engagement rings in the US will be lab-grown, up from just over half today.
“For the jewellery industry, it is actually pretty exciting. All these people who dreamt of buying diamond jewellery can finally afford it,” he says. He
expects the size of the overall jewellery market to expand as a result.
In Liu’s building, cheap lab-grown diamonds have annihilated sales of natural diamonds. His store is surrounded by shops selling gold adornments and a few
selling pearl jewellery, another sector disrupted by Asian companies growing cultivated pearls.
It is a perfect substitute. All these people who dreamt of buying diamond jewellery can finally afford it
Until recently there were a few stores selling natural diamonds in the market. “They have either shut down or switched to selling lab-grown diamonds,” he
says.
Liu views his competition not as coming from natural diamonds, but from gold jewellery, which has recently surged in price. It is customary in China for
newly-weds to buy ornate gold jewellery, which is seen as a long-term investment for the couple.
As gold prices have rallied against the backdrop of investors flocking to safe-haven assets, the economics of the engagement ring have been turned on their
head. For many buyers today looking to purchase a lab-grown diamond ring, the most expensive component is no longer the stone, but the gold that encases it.
Meanwhile Feng is pursuing a new venture. He is looking to offset the impact of cratering lab-grown diamond prices with a growing and more profitable business
in personalised diamonds made from human hair or cremated ashes.
The most enthusiastic customers are from South Korea and Israel, says Feng, who send mixed hair samples — sometimes from entire families or couples — to be
transformed into a single stone.
“They say ‘a diamond is forever’ — but we can go deeper and tell better stories. What we offer carries true significance: a diamond containing your
substance and DNA,” he says.
Additional reporting by Hannah Pedone
Graphic illustration by Ian Bott
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