Transcript: The diamond market disrupted

This is an audio transcript of the Unhedged podcast episode: ‘The diamond market disrupted’

Katie Martin
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.

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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 Livsey from the Lex column. Alan, you like the finer things in life, if I’m not mistaken — theatre, wine, diamonds, you know. When was last time you bought someone a diamond?

Alan Livsey
Possibly when I proposed to my wife. I’ve bought her lots of jewellery. I have, though, veered more towards coloured gems then than diamonds. But diamonds, she has.

Katie Martin
Good. Glad to hear it. So, listen, you’ve been writing about diamonds recently. Like, what’s going on here? The price has been like sliding pretty consistently over the past couple of years, right?

Alan Livsey
I mean, I think in the natural rough stone market, there has been oversupply of late. In the last couple of years, there was a post-pandemic boom, I would say. There was a bit of a boom in weddings and everything because the lockdowns shut everything down and I guess everyone wanted to get back together and there were gifts and there was happy.

Katie Martin
It was a beautiful time.

Alan Livsey
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.

Katie Martin
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? And these things are not new. We’ve been able to somehow, using alchemy and magic, been able to make diamonds in labs for what, 70 years?

Alan Livsey
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 of 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.

Katie Martin
That is pretty cool, though, isn’t it, when you think about it. But also it means you don’t have to send people down holes in the ground doing dangerous stuff to find these things, right? You can just make them in a lab.

Alan Livsey
Which has always been the problem. And it’s been a problem for the diamond industry, right? So they’ve been trying to find ways of marking the provenance of diamonds and showing that, you know, they were mined in a sustainable way, in a healthy way and not hurting anyone. I guess these synthetic diamonds more or less don’t have that kind of issue, right?

Katie Martin
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. But that doesn’t seem to be working, right, because lab-grown diamonds are grabbing an increasing size of the market.

Alan Livsey
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 jewellers 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 jewellery market globally, it’s hardly there. But by last year it was 10, 11, 12 per cent. That may not seem like very much, but it kind of took away the growth, right? The best you could say is the natural market seems to be sluggish right now.

Katie Martin
So what are we talking about price-wise, just so I can tell Mr Martin when I get home?

Alan Livsey
They’re not exactly cheap, these lab-grown diamonds, by the way, if you want the highest quality. So say we pick excellent cut of a F colour, top clarity . . . 

Katie Martin
Beautiful, clear, sparkly.

Alan Livsey
Sparkly. Sparkly, clear diamonds, right, which you can literally order, right, whatever clarity you want and size, which, you know, is great. But say we took 1 carat, which is the typical sizing of diamonds and stones, right? 

Katie Martin
It’s kind of like a peppercorn or something or like a small pea.

Alan Livsey
A little bigger. Yeah, I’d say. You know, you’re going to notice it on the finger, but it’s not gigantic. So 1 carat of a lab-grown diamond might cost you £1,800, right, 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, so, you know, four times-plus more. It’s a pretty big difference. That gap, though used to be kind of tiny.

Katie Martin
Right.

Alan Livsey
When they first started coming out, there were 10, 20 per cent discounts for not being natural. Now that discount’s more like 80, 85 per cent sometimes. Sometimes, not always. But, you know, it can be 80 per cent.

Katie Martin
So lab-grown diamonds are sort of eating their own lunch, in a sense. They’ve sort of been too successful. There’s too many of them.

Alan Livsey
Yeah. They are disrupters, but they’re kind of victims of their own success. (Laughter)

Katie Martin
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?

Alan Livsey
Or you start with a bit of lab-grown diamond. I guess it’s a bit like the mother in the sourdough bread. You 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.

Katie Martin
And the cool thing is, name your size, name your colour, name your cut. Like, whatever. Like, you can get whatever you like.

Alan Livsey
Yeah. I know, I guess there’s a limit. I mean, I’m not sure everybody wants to be walking around with an 8-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. It 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, you know, probably be a fraction of what you would pay.

Katie Martin
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 of these things? Is there any difference?

Alan Livsey
I think there is. I’m sure this is, you know, 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 it probably may only get the price of the metal itself. Whereas I think with a real diamond there will be some residual value. You may pay up. You know, there will 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.

Katie Martin
Yeah. 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? Like, which companies are affected by this rise in lab-grown?

Alan Livsey
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 diamondmaker. 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 Alrosa. So there is a supply issue. It leaks into India, those diamonds from Russia, where a lot of the cutting and polishing takes place.

Katie Martin
Yeah, it’s geopolitics and everything, man. So to the naked eye, right, you haven’t got one of those kind of . . . 

Alan Livsey
Loupes.

Katie Martin
You know, you haven’t got a thing on your eye 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 not if it’s on a ring?

Alan Livsey
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 . . . 

Katie Martin
You’re gonna get emails, Alan, from diamond nerds. Trust me, people email me for the podcast.

Alan Livsey
They will.

Katie Martin
alan.livsey@ft.com

Alan Livsey
Forgive me, forgive me, diamond experts. But as far as I know, you can’t tell just by the naked eye. You would need an expert.

Katie Martin
Yeah. But so what do you reckon? Is it all over for natural stones? Are we gonna look back on a time when people used to like go down into the ground to find diamonds and think, what the hell was all that about?

Alan Livsey
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 gonna buy them. Or synthetic diamonds — there’s too many of them. They’re falling in price. People won’t want them. They’ve been saying these for years.

Katie Martin
Right. It’s probably gonna stumble along like this.

Alan Livsey
I’m afraid so. It’s a problem for the natural diamond industry, right?

Katie Martin
But soon they’re gonna be so cheap. Diamonds for everybody. Have no excuse for not buying diamonds for your wife on a more regular basis. She’s gonna listen to this now and you’re gonna be in trouble when you get home. (Both laugh)

Alan Livsey
Maybe I will go home and demand a diamond from her.

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Katie Martin
OK. Well, absolutely. Let me know how that works out for you, Alan. This is gonna be a good one. (Laughter) We’re gonna be back in a sec with Long/Short.

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OK, it’s time for Long/Short, that part of the show where we go long a thing we love, short a 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?

Alan Livsey
I’m long coloured gemstones like sapphires in funny colours 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, but the music, it wasn’t good. And the audience’s reaction sort of said it all. No encore. No encore at all.

Katie Marti
Yikes. That does sound unusual for PJ Harvey.

Alan Livsey
Yeah. I felt for her. Sorry.

Katie Martin
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 with it.

Alan Livsey
So you’re long on down coats.

Katie Martin
Long coats. I’m short of weather trying to kill my seedlings. I’ve got tomato plants to think about here.

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It’s like seriously worrying. So, enough. We need some spring.

Alan Livsey
Short of heat.

Katie Martin
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.

Unhedged is produced by Jake Harper and edited by Bryant Urstadt. Our executive producer is Jacob Goldstein. We had additional help from Topher Forhecz. Cheryl Brumley is the FT’s global head of audio. Special thanks to Laura Clarke, Alastair Mackie, Gretta 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/unhedgedoffer. I’m Katie Martin. Thanks for listening.

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