Famously, diamond prices have little or no relation to the cost of their extraction.
A diamond at your jewelry shop costs you about
$550 per carat. High class diamonds can cost up to $20,000 per carat.
But those diamonds are no more difficult or expensive to mine than any other industrial stone.
About $58-60 per carat. And that number has stayed remarkably stable over the past forty years.
These diamonds cost so much because of various supply cartels throughout history. Like OPEC,
they carefully manage supply - releasing just a few diamonds each year to maintain steady prices.
Good for them. But what happens to the market when you are suddenly able to
make your own gemstone quality diamonds? In this video, I want to talk a little about
how we made a good synthetic diamond and what it did to the jewelry market.
## Cartel
The interesting thing is that this diamond overpricing is not
a recent invention. For centuries, market entities have attempted to
control the supply of diamonds in the market to manipulate prices upwards.
Even back in the days of antiquity when the kings of India dominated diamond production,
prices far exceeded the cost of extraction.
For instance in the 1500s, the smallest available diamond - about half a
carat - cost the equivalent of 30,000 days of an average laborer’s wages.
In 1725, the Portuguese discovered diamonds in Brazil. A flood of new diamonds hit the market,
sending prices spiraling down 30-50%. The Portuguese crown quickly took control of
all the mines and limited supply to bring prices back into line.
## De Beers
Of course, the most famous supply cartel of them all was De Beers. In 1866, an 8-year old boy in
the Union of South Africa picked up a monstrously large 21.8 carat diamond - the Eureka Diamond.
The discovery set off a rush to mine South Africa's four open-cast diamond
mines - Kimberley, De Beers, and two others I will not try to pronounce.
Production rose from 100,000 carats in 1870 to 3 million carats in 1880.
Amidst this boom emerged Cecil Rhodes and his De Beers Mining Company. At the start,
the company was just one of many. But Rhodes ran his company well, mining
diamonds more efficiently than his competitors.
The company also benefitted from reducing labor costs and strictly
cracking down on theft. Their migrant workers were prisoners.
So the company built closed compounds - dormitories essentially - to house them
and keep them productive. Sold them food and clothes at cost,
and kept strict control on drunkenness and brawling.
This "investment" in labor - if you can call it that - reduced labor costs from
36% in 1883 to just over 26% in 1887 - giving the
company the financial strength to start buying out its competitors.
By 1888, Rhodes and De Beers consolidated the South Africa diamond mining industry and
imposed limits on production to stabilize prices.
## Sight
After Rhodes' death, Ernest Oppenheimer - founder
of the mining giant Anglo American - took over as Chairman of De Beers.
Under his leadership, the company set up agreements with other diamond
producers to sell all their raw production to the Central Selling
Organization or CSO. The CSO buys at a fixed price, which guarantees a profit.
The CSO then resells the diamonds in one of 10 sales events - called "sights" - to
jewelry cutting factories - referred to as "sightholders".
According to a 1982 expose, it's a whole ritual. Before the sight,
the sightholder tells the CSO what stones they need and how many.
The CSO tries to fulfill that request. On the day of the sight,
the sightholder is escorted to a room where they are presented with a box with the diamonds inside.
The sightholder is not allowed to negotiate. They have to take the whole box, pay the whole price,
and cannot resell any of the rough diamonds they receive on the market.
Those who don't follow the rules are soon kicked out of the cabal.
## Marketing
The CSO also took over the industry's marketing operations. Famously,
in 1938 Harry Oppenheimer - Ernest's son - worked with N. W. Ayer of New York
to create a marketing campaign that tied together diamonds and romance.
The campaign combined influencer and content marketing with smart
advertising to build up the diamond brand.
Movie stars were given diamonds to wear in their movies. News articles were
planted on celebrities acquiring fine diamonds and likening it to fine art.
And of course, we have that famous 1949 advertising slogan - "A diamond is forever".
This marketing campaign succeeded beyond its wildest dreams. Diamonds
became the pinnacle of luxury and a fixture at weddings. A gemstone
above all the others. One that only the Earth can make. Right?
## Synthetic Beginnings
For centuries, people have wanted to make their own diamonds. In 1797,
Smithson Tennant demonstrated that diamonds were a form of
carbon by burning it in oxygen. What came out was carbon dioxide.
People immediately recognized that diamonds were denser than
other forms of carbon like charcoal. They put two and two together. So the initial
attempts to create diamonds took carbon and subjected it to high pressure and high heat.
The most famous scientists to try it were James Hannay and the Nobel
Prize-winning Ferdinand Frederic Henri Moissan in the late 1800s.
These two claimed to have succeeded,
but nobody has been able to replicate their results. Hannay's synthetic diamonds were
apparently natural ones - introduced by his assistant to "please the old man".
The reality is that what it actually took to create synthetic diamonds was
far beyond what the technology of their era was capable of.
## Making the Map
In these early days, people experimented with all the science of grilling a rack of
pork ribs. A more scientific approach was needed.
In 1915, Gilbert Lewis and his collaborator Merle Randall made a big breakthrough in showing that at
10,000 atmospheres, diamond and graphite were in equilibrium.
With much effort, people were able to draw out the state in
which carbon presents itself for a particular temperature and pressure.
For instance, if you heat carbon to 4,000 degrees Celsius at ordinary pressures it
presents itself as graphite. After which, it turns into a liquid melt.
So based on this diagram, manifesting carbon as diamond not only requires 2,000 degrees Celsius,
but also over a million pounds per square inch of pressure.
Perhaps less if a metal catalyst or solvent is introduced to accelerate the process.
Now people had a roadmap of what conditions they needed to achieve to make a diamond. Just got to
achieve it. Where is the Hydraulic Press Channel when you need them?
## ASEA
In February 1953, researchers at the General Swedish Electrical
Limited Company or ASEA produced the first synthetic diamond.
They built a complicated, difficult-to-describe device. It looks like a sealed, hollow cube
with a core inside it surrounded by six anvils. You used hydraulic force
to push the six anvils together and apply pressure onto the core.
To add the heat, they ignited thermite with an electric filament. This heats
up an inner core of graphite to 2,000 degrees Celsius for about 1.5 minutes.
Initial experiments still failed to create diamonds. So the team added
a solvent - iron. Inside the core they inserted a
mixture of cementite (Fe3C) and graphite surrounded by the aforementioned thermite.
Since having thermite and iron together presents a possible explosion risk,
the team wrapped the core in platinum and tantalum as well. Just in case.
This worked. After being subjected to conditions of about
80,000 bar or 1.2 million pounds per square inch and 2,000 degrees Celsius, a few small
diamond crystals about 0.1 millimeters across were found inside the apparatus.
ASEA didn’t immediately publicize nor patent their work. Their lawyers told
them that while the high pressure equipment itself could be patented.
The diamonds themselves could not. So this Swedish industrial victory
would be overshadowed by GE's later success.
## GE
In 1951, GE formed a group to study how to produce a synthetic diamond. At the time,
the company was probably the world's largest diamond consumer - using 100
million carats or 20 tons of it in the form of grit.
Most of these diamonds came from abroad. Their diamond synthesis
efforts stemmed from supply chain concerns about being so reliant on oversea sources.
They collaborated with the Nobel Prize winning physicist P. W. Bridgman.
The team modified one of Bridgman's designs to create a "belt" apparatus capable of
exerting 3 million pounds per square inch (200,000 bars) at 3,400 degrees Celsius.
This device is made up of two cone-shaped anvils that act
like pistons. They press down on a single small pressure chamber from
above and below. Surrounding that pressure chamber is a binding ring.
At these temperatures and pressures, there is no need for an additional solvent or catalyst.
Graphite - or any other form of carbon really - will transition directly into
diamond. What you end up with are a bunch of small crystals about 1 millimeter wide.
## Synthetics
The news of GE's synthetic diamond success temporarily threatened customers' beliefs
that their expensive, gemstone diamonds were unique, one-of-a-kind pieces.
But eventually it came out that these small synthetic diamonds were very small - just
about 1 millimeter wide. This was no threat to De Beers - which dealt in larger sized diamonds.
Researchers later discovered that if you used a small seed diamond and kept very
close control of the heat and pressure, you could grow them as large as 3 carats.
However, those diamonds were dark colored and of
low quality - exhibiting an onion-like structure that was not aesthetically
pleasing. They were more suited for grit and industrial saws than your fiancee's finger.
De Beers was able to breathe a sigh of relief. However,
man-made diamonds were just one of the many major challenges De Beers faced at that time.
Throughout the 1950s and 1960s, the company had to
deal with holding together its cartel control despite revolutionary politics
in Africa and several monumental new diamond discoveries in Siberia.
De Beers' market power survived these events - with the cartel even reaching
a semi-secret agreement with the Soviet Union. Despite mining just 25-40% of supply itself,
the company still marketed and sold 80% of global output.
## Finding a Gem
It was not until 1970 that scientists were able to create a large sized,
gem-quality crystals. The secret to doing so was to give it a great deal of time.
It takes about a week to grow a 1 carat diamond about 5 millimeters
across. Attempts to speed up the process will cause flaws to develop within the crystal.
This long cook time was of course economically infeasible. Furthermore,
the crystals were usually yellow and can be easily distinguished
from their natural peers using ultraviolet fluorescence or absorption spectroscopy.
So the GE-inspired high pressure and heat method not only cost a lot of money but also
had serious limitations. Researchers wondered if it could be possible to
grow a diamond in a low pressure environment without needing all that expensive equipment.
## Low Pressure
From 1952 to 1953, researcher William Eversole of
the Union Carbide company ran a series of experiments in which he
heated some carbon-containing gas in the presence of a seed diamond.
The carbon atoms in the air then attached themselves to the diamond's surface,
adding to the diamond's mass without the need for high pressure.
This method is known as "Chemical Vapor Deposition",
and it is a procedure heavily used within the semiconductor industry.
Eversole's work was forgotten for a while as the
industry trended towards GE's high pressure, high temperature method.
But in 1963 Dr. John Angus of Case Western Reserve University in Cleveland,
Ohio formed a team to replicate and continue Eversole's work.
## Hydrogen
As it turns out, the key to successfully growing pure, gem-quality diamonds with
CVD was atomic hydrogen. During the CVD process, not all of the carbon attaches to
the diamond surface as diamond. A significant portion manifests as graphite, an impurity.
Originally, Angus's team had to run alternating growth and
cleaning cycles. The latter of which was to essentially
etch off the unwanted graphite using sulfuric acid. Again a very semiconductor-ish method.
One of his PhD students suggested using an atomic hydrogen stream from a tungsten
filament to do the cleaning step. This performed much better and allowed them
to do both the growth and cleaning steps in the same chamber, a big improvement.
Later in 1971, Angus presented his work at an academic meeting in the Soviet Union,
and mentioned in an aside how he was using atomic hydrogen. The
Soviets were intrigued, and took this back home.
That team pioneered a second critical breakthrough - using atomic hydrogen not only during the
cleaning phase but the growth phase as well. This not only helps suppress graphite formation - but
it also turns what graphite that did form into gas, carrying it away from the diamond.
Their findings caught the eye of another team at
the National Institute for Research in Inorganic Materials in Japan.
During the 1980s, this team used a hot filament or microwaves to activate a mix of hydrogen
and methane in order to accelerate growth to a few micrometers per hour.
## CVD Matures
One by one, the CVD industry overcame its limitations. By the 1990s, the industry
became capable of making single-crystal synthetic diamonds in a variety of colors.
And soon these gem-quality synthetics started showing up in the jewelry market.
In the 1990s, De Beers responded by investing in new ways to detect
synthetic diamonds. This included UV fluorescence,
X-rays and other advanced spectroscopy tools to measure the light these gems absorb.
This worked for a while, but the synthetics rapidly eliminated this weakness. It has
gotten to the point where such gems can only be identified in a lab with very advanced tools.
## The Market
This technical improvement came as De Beers and the
rest of the diamond industry underwent massive changes throughout the 1990s.
Japan's rise as a luxury jewelry market in the late 1980s helped the industry
reach new heights. But the fall of the Soviet Union and new deposits in
Australia enabled new competitors in the market - breaking apart the old cartel.
In the wake of the Soviet collapse, former De Beers customer Lev Leviev purchased a number
of diamond factories, struck agreements with the newly established Russian monopoly Alrosa,
and managed to build one of the first truly independent competitors to De Beers.
And then there was the Australian mining giant BHP. In possession of one of the world's biggest
ever diamond mines Argyle, the company stayed out of the cartel - taking share from De Beers.
De Beers retained formidable share. But by the turn of the century,
the company had to acknowledge that it no longer spoke for the entire industry.
So in 2000, De Beers restructured into more of a traditional luxury
company. They shifted their marketing to only promote De Beers-affiliated
dealers and partnered with Louis Vuitton to open their own branded retail ventures.
## Conclusion
In 2020, De Beers announced that they will start producing and selling their own synthetics.
This seems to be an attempt to lean into the synthetic
diamond industry’s technological advances and to benefit from it.
It harkens back to a market transition in another rare valuable good - the pearl.
Pearls used to be natural gems harvested from the wild.
But in the 1910s, Japan pioneered cultured pearl farming. And guess what? Consumers
liked these synthetic pearls more than the ones you found in the wild. They are rounder,
look better, and are more environmentally friendly.
The 1920s saw a difficult market transition but now every pearl you
find in the jewelry shop today is a cultured one.
So perhaps the same is to happen with modern gem-quality CVD synthetic diamonds. Far more
beautiful and ideal-looking. Far better for the environment. Far
less workers being exploited. Produced for far cheaper than any natural diamond can.
One can call it all-round better product. So in a way, synthetic diamonds are breaking
the diamond market. Just not in the way people wanted, perhaps. Where before you were paying a
pretty penny for the scarcity of the stone itself, now you are paying a pretty penny
for the scarcity of the De Beers luxury brand the same way as you might for a Louis Vuitton.