➤ Mined diamonds will likely continue to hold a premium against manufactured diamonds and other substitutes.

➤ Consumers often justify purchases of cheaper synthetic diamonds as being more environmentally friendly, but this may not be true.

➤ Naturally occurring diamonds are a marketed luxury product, and their uniqueness is a key factor.

Paul Zimnisky, an independent diamond industry analyst and consultant. Source: Paul Zimnisky Diamond Analytics

The popularity of synthetic diamonds is growing, and some retailers are pushing sales of the lower-priced, laboratory-grown gems over the mined equivalent. Paul Zimnisky, an independent diamond industry analyst and consultant, expects natural stones to hold a premium against synthetics, with higher-end buyers opting for something many still see as more special.

S&P Global Market Intelligence: Jewelry vendor Pandora A/S recently made the decision to only sell lab-made diamonds, eschewing mined diamonds. But you have noted that it is not a zero-sum game between the two types of diamonds. Why is that?

Paul Zimnisky: Right. I think you need to understand the way the jewelry industry functions. You have high-end jewelry, and it's typically going to have a higher price point. I would use a cutoff somewhere around $500 to $1,000 an item. And then you look at fashion jewelry. It's going to a place like Pandora, and [people are] buying a couple of charms that are maybe $20, or $40, or $50 apiece. Historically, you would go to a jewelry store to buy higher-end jewelry, but you might go to a mall or a department store to buy fashion jewelry, which is maybe something you're going to wear every day.

Now we're in the early stages of this transition to, kind of, a new product that has been around for decades that's newly available to the masses, as far as gem-quality and jewelry-quality lab diamonds. A lot of these companies that are selling the man-made diamond are trying to market it as an equivalent but lower-price option to a natural diamond. But the fundamentals of the jewelry are actually completely different. One is a manufactured product, the other one is naturally occurring.

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The only thing you could really do [to understand how buyers may act] is look at other versions of this in the jewelry industry. We saw man-made rubies, emeralds and sapphires, which have been on the market now for decades. And the price is dramatically different. A one-carat ruby at your local jewelry store that's man-made goes for under $100. But that equivalent ruby, natural, is going to be thousands of dollars. So the price differential has gotten so wide with some of these other man-made gems that it's clearly perceived as a completely different product to consumers. I think you'll see some of that with the diamond space as well.

Do you get questions from diamond miners over concerns that lab-made diamonds will erode mined-diamond market share or the premium therein?

The big takeaway here is you have to look at jewelry as a luxury product. It's not practical. People buy jewelry because they like the way it makes them feel. But it's not a practical purchase to go out and spend thousands of dollars for a piece of jewelry. That's going to ultimately be the saving grace for the natural diamond jewelry industry.

If you look at industrial diamonds, it's almost impossible to beat the synthetics because they're so much cheaper. And the actual quality of the diamond is very, very similar to the natural form. About 99% of that market is synthetic, and almost all of it is produced in China. And it's been that way for decades because practicality matters.

But with jewelry, it's about the emotion and building a strong brand. There's been other options for jewelry buyers for years now with other stones, like moissanite. Arguably, it has more brilliance than diamonds. It's kind of brighter and reflects light even better. And it's almost as hard as a diamond. But it's like a fraction of the price. So why do consumers keep buying diamonds? And again, I think it gets back to the whole marketing thing, that it's a luxury item. You could ask, "Why do people want a $25,000 Birkin bag from Hermès? It's not practical at all." But Hermès can sell as many as they want.

Diamond miners have touted their product as socially just and environmentally friendly, for example by taking part in initiatives to avoid mining and trading of conflict gems. But consumers may see laboratory-grown diamonds as superior in that respect. What do you think?

Here's what I see, which is kind of funny. At the end of the day — and I follow this very, very closely — the large majority of consumers that are opting for a man-made diamond over a natural stone are doing so because of the lower price point. But then they're justifying it by saying, "I want something more environmentally friendly." And I guess if you're proposing with an $800 diamond versus a $6,000 diamond, maybe it sounds a little bit better if you say the reason I got this is because it's better for the environment. But when you look at man-made diamonds, more than half are produced in China using coal-fired power plants.