ANALYST: DIAMOND RECYCLING COULD RE-BRAND NATURAL DIAMONDS

In his latest article, “Diamond Recycling Could Save the Natural Industry”, diamond industry analyst Paul Zimnisky argues that in contrast to conventional wisdom in the industry – that an increased rate of diamond recycling results in downward diamond price pressure due to the theoretical increase in supply – a more robust diamond recycling could, in fact, “be the natural diamond industry’s saving grace”.

Even Better than Lab-Grown

Zimnisky argues his point from several angles. First, he claims, the diamond industry could brand recycled diamonds as “green” or “environmentally friendly” to a rising generation of consumers “that perceive diamonds as environmentally and socially unscrupulous, not rare, and overpriced”. And, in contrast to lab-grown diamonds that still demand the use of “a significant amount of energy”, recycled natural diamonds are free from this issue.
Second, as recycled diamonds are cheaper, a competitive recycled market could “in effect support the market price of all natural diamonds, primary and secondary market”.

Bring Back the Rare

Third, natural diamonds – in contrast to lab-grown – are a non-renewable resource, limited in nature. This value, he says, is evident in in the secondary market for natural diamonds, as “most of the prominent C2B (consumer-to-business) buyers of diamonds tend to only buy natural”.

The recycled diamonds market is still small, and Zimnisky quotes reports that claim that it accounts for only 1-3% of natural diamond supply on an annual basis (2 to 4 million carats of rough equivalent) with an annual growth of 3-5%. The industry, he says, “should target a discount between the retail price of a natural diamond and the resale price, i.e. a ‘haircut’ that is less than the cost of an equivalent lab created diamond”. That, he claims, will make it more sensible for consumers to buy natural over lab-grown.

And, while industry push back is understandable concerning recycled diamonds, “the benefits of a more prevalent diamond recycling industry arguably outweigh the potential costs” – for miners, who could benefit from higher overall diamond prices; for manufacturers, who could enter the business of re-cutting recycled diamonds; and for wholesalers, who could deal in recycled diamonds as “traditional margins continue to be squeezed”.