Developments in the laboratory grown diamond industry, application of blockchain technology to diamonds and changes in the structures and systems for steady sourcing and financing of rough supply may shape the diamond industry over the future. These are the projections made by ABN AMRO in its latest Insight Report on the Diamond Sector outlook.

Terming the current phase of the industry as a period of contiinued uncertainty, the report says that there are “powerful forces that can push the diamond industry in a completely new direction” and influence how both the miners and manufacturers adapt and adjust their strategies to handle the change.

Key features of the current dynamic and uncertain enviroment include rough diamond prices outperforming polished prices, scarcer funding, the threat of lab-grown diamonds and the lack of sparkle in marketing of natural diamonds.

According to ABN AMRO, strategies adopted by the miners, especially De Beers, have encompassed seeking greater control over the pipeline through heightened compliance standards from their clients, including detailed data which can help determine exactly what rough price it can charge; as well as to profit indirectly from the threat of lab-grown diamonds by selling detection machines and enhancing grading services. The report adds that with its Element 6 programme, “De Beers is in a way prepared if demand for laboratory-grown diamonds would increase more rapidly than foreseen”.

The Insight Report however, cautions, that this scenario could change if lab-grown diamonds really take off, leading to downward pressure on prices for both natural and lab-grown gemstones.

The report also looks at strategies that rough diamond buyers could adopt, especially the various means they could choose to ensure a steady supply of rough and the means to finance it. Interestingly, the report posits that besides utilising own funds to bridge gaps in bank financing, other sources such as crowd funding or venture capital, revolving credit, or even receiving financing from mining companies could become more common.

There are two other significant parts to the report – an assessment of the relative social and environmental costs of mining natural diamonds as compared to lab-grown products, and a review of the possible challenges that could arise while boosting transparency through adoption of blockchain technology. Both are critical in reaching out to the millennials.

For the former, ABN AMRO hired True Price, an external expert to investigate the sustainability aspect of laboratory-grown diamonds, large-scale mined diamonds and artisanal-mined diamonds, including an assessment of various environmental and social costs. While accepting that there is scope for a margin of error in the findings, ABN AMRO says that while the gap on these counts between artisanally mined (which are only a small share of the total) natural diamonds and lab-grown diamonds is large, the difference of the true price on lab-grown diamonds and that extracted through modern, large-scale mining is not as substantial as many laboratory-grown producers have stated.

The report also points out that while blockchain could play a crucial role, implementing it in the diamond industry is complicated. Not only would every miner (big or small) have to register every single transaction on the blockchain, independent audit of the process would also be challenging. Perhaps, even more critical is the fact that any digital identifier/a chip or methodology to track the diamond needs to be small enough to be embedded and may not even be possible for the very small diamonds. This may also directly impact the value of the stone. Moreover, how this is carried forward when a single piece of rough yields multiple polished stones will be critical, ABN AMRO points out, concluding that a full blockchain (from mining to jewellery) at present may only be possible on relatively small scale.