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Diamonds from thin air: the search for a carbon-neutral jewel

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They are among the world’s most valuable objects, formed billions of years ago deep beneath the earth’s surface then thrust hundreds of kilometres to its crust by volcanic eruptions before their eventual extraction.

But Dale Vince wants to make diamonds out of thin air.

“Mined diamonds I think are very time-limited now — the industry will come to an end, it’s a question of when,” said Vince. “We no longer need to mine the earth to make diamonds, because we can mine the sky.”

Vince, a UK entrepreneur who founded green energy group Ecotricity, is one of a growing number of producers of lab-grown diamonds. 

Identical in composition to their naturally formed counterparts, manufactured stones are cheaper, posing a challenge to the diamond mining industry led by De Beers and Russia’s Alrosa. They are sold by leading jewellery retailers from Swarovski to Warren Buffett’s Borsheims. 

The traditional extraction of diamonds and the lengthy, energy-intensive process of manufacturing can both leave a significant carbon footprint — something Vince wants to address to appeal to a growing number of environmentally conscious consumers.

Lab-grown stones are made either by mimicking natural formation using high pressure and heat or by a process known as chemical vapour deposition. With CVD a single-crystal diamond seed is placed in a chamber filled with hydrogen and a carbon-containing gas such as methane, then heated up to 1,200C. The carbon from the gas builds on the seed, forming diamond crystals.

Vince is unusual in that he even creates his own methane, a greenhouse gas that is a compound of carbon and hydrogen, by splitting hydrogen from water using electrolysis and taking carbon from the atmosphere.

Bar chart of Total gem-quality production (million carats) showing Lab-grown diamond capacity is increasing

Production of lab-grown diamonds has risen from about 2m carats in 2018 to 6m to 7m carats last year, according to consultancy Bain. That compares with mined production of 111m carats last year. 

The increased scale has helped push down prices, with a polished one carat lab-grown stone roughly a third cheaper than a polished mined diamond, according to Bain.

But while producers such as Diamond Foundry, a San Francisco start-up backed by film star Leonardo DiCaprio, use renewable energy such as hydropower, a growing number of rivals in countries such as India and China do not, say analysts.

Last year 50 per cent to 60 per cent of the world’s lab-grown diamonds were made in China, according to Bain.

UK entrepreneur Dale Vince is one of a growing number of producers of lab-grown diamonds © Jeff Moore

“The challenge in the synthetic stone sector has not been revealing where their energy is coming from,” said Saleem Ali of the University of Delaware, who is working on a new standard to measure the environmental and social performance of diamonds.

At the same time, the mined diamond industry has moved to burnish its own green credentials. De Beers, a subsidiary of FTSE 100 mining group Anglo American, says it will move to using hydrogen-powered trucks and replace “nearly all” its fossil-fuelled electricity by developing dedicated wind and solar power plants.

The company is looking at removing its remaining carbon emissions by injecting carbon dioxide into old diamond mines to take advantage of the natural propensity of the kimberlite rock in which the stones are found to absorb carbon. It is also considering starting projects to support forest growth and looking at farming practices that help soils absorb more carbon on its large landholdings.

Diamond production has been decreasing since it peaked in 2017

“The carbon footprint is starting to become an issue of interest for people that buy diamonds,” said Kirsten Hund, head of carbon neutrality at De Beers.

Alrosa, the world’s largest diamond miner, says it will spend $466m on improving its environmental footprint by 2024, including using lower-emission mining machines and managing waste. Eighty-six per cent of its electricity comes from renewable sources, it says.

Among the biggest challenges for lab-growers is that they lack the financial firepower of the miners when it comes to selling their products to consumers. “Marketing spend, by not only the man-made diamond industry but also the natural diamond industry, is likely what will ultimately determine the success in the long run,” said Paul Zimnisky, a New York-based diamond analyst.

Vince aims to set a single price for his diamonds of about $1,000 a carat because of their environmental credentials. His process uses 40 kilowatt-hours of energy to produce one carat, or four days’ worth of the average UK household’s energy use.

But Zimnisky said charging a premium for greener lab-grown diamonds could prove tricky because while consumers want a sustainable product they are not necessarily willing to pay more for it.

“If you’re trying to be the lowest-cost producer you don’t care about using hydropower as you aren’t going to get a premium for it,” he said. “You need to be able to sell it at a premium or build it as a brand.”

But Jessica Warch, co-founder of lab-grown jewellery retailer Kimai, said conscious consumers were not only concerned about the climate, and that the miners could not avoid the fact that they have to dig a big hole in the ground.

“From the perspective of sustainability it isn’t just being carbon neutral,” she said. “There’s much more to it. There’s the environmental and social perspective that’s rarely taken into account when people talk about carbon neutrality, which to us is the most important part.”

Lab-grown diamonds are identical in composition to their naturally formed counterparts © Gianluca De Girolamo

Kimai’s supplier of lab-grown diamonds, Israel-based Green Rocks Diamonds, is in the process of being certified by auditing company SCS Global Services for its sustainability footprint, according to its chief executive Leon Peres.

“It’s very confusing today, there are a lot of companies that are talking about sustainability and being carbon-neutral but they can’t really put proof to the claim,” Peres said. “When you see a new product coming into the market it’s kind of a free for all — there are no rules or regulations. But now you’re seeing consumers asking questions, the same questions they are asking about natural diamonds: what is the source?”

Amish Shah, of lab-grown producer ALTR Diamonds, believes the lab-grown industry will coalesce around new sustainability standards this year. He says his production facilities in India can easily move to using solar power and already use cow dung as the source of methane.

“I believe in the next 12 to 24 months we will see a major shift in consumer mindset which will force this industry to ensure that everything that is passing through is a low-carbon product,” he said. “And the lab-grown guys will push ahead.”

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European stocks stabilise ahead of US inflation data

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European equities stabilised on Wednesday after a US central banker soothed concerns about inflation and an eventual tightening of monetary policy that had driven global stock markets lower in the previous session.

The Stoxx 600 index gained 0.4 per cent and the UK’s FTSE 100 rose 0.6 per cent. Asian bourses mostly dropped, with Japan’s Nikkei 225 and South Korea’s Kospi 200 each losing more than 1.5 per cent for the second consecutive session.

The yield on the 10-year US Treasury bond, which has dropped in price this year as traders anticipated higher inflation that erodes the returns from the fixed interest securities, added 0.01 percentage points to 1.613 per cent.

Global markets had ended Tuesday in the red as concerns mounted that US inflation data released later on Wednesday could pressure the Federal Reserve to start reducing its $120bn of monthly bond purchases that have boosted asset prices throughout the Covid-19 pandemic.

Analysts expect headline consumer prices in the US to have risen 3.6 per cent in April over the same month last year, which would be the biggest increase since 2011. Core CPI is expected to advance 2.3 per cent. Data on Tuesday also showed Chinese factory gate prices rose at their strongest level in three years last month.

Late on Tuesday, however, Fed governor Lael Brainard stepped in to urge a “patient” approach that looks through price rises as economies emerge from lockdown restrictions.

The world’s most powerful central bank has regularly repeated that it will wait for several months or more of persistent inflation before withdrawing its monetary support programmes, which have been followed by most other major global rate setters since last March. Investors are increasingly speculating about when the Fed will step on the brake pedal.

“Markets are intensely focused on inflation because if it really does accelerate into this time near year, that will force central banks into removing accommodation,” said David Stubbs, global head of market strategy at JPMorgan Private Bank.

Stubbs added that investors should look more closely at the month-by-month inflation figure instead of the comparison with April last year, which was “distorted” by pandemic effects such as the price of international oil benchmark Brent crude falling briefly below zero. Brent on Wednesday gained 0.5 per cent to $69.06 a barrel.

“If you get two or three back-to-back inflation reports that are very high and above expectations” that would show “we are later into the economic recovery cycle,” said Emiel van den Heiligenberg, head of asset allocation at Legal & General Investment Management.

He added that the pandemic had sped up deflationary forces that would moderate cost pressures over time, such as the growth of online shopping that economists believe constrains retailers’ abilities to raise prices. Widespread working from home would also encourage more parents and carers into full-time work, he said, “increasing the labour supply” and keeping a lid on wage growth.

In currency markets on Wednesday, sterling was flat against the dollar, purchasing $1.141. The euro was also steady at $1.214. The dollar index, which measures the greenback against a group of trading partners’ currencies, dipped 0.1 per cent to stay around its lowest since late February.



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Potash/grains: prices out of sync with fundamentals

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The rising tide of commodity prices is lifting the ricketiest of boats. High prices for fertiliser mean that heavily indebted potash producer K+S was able to report an unusually strong first quarter on Tuesday. Some €60m has been added to the German group’s full year ebitda expectations to reach €600m. Its share price has gone back above pre-pandemic levels.

Demand for agricultural commodities has pushed prices for corn and soyabeans from decade lows to near decade highs in less than a year. Chinese grain consumption is at a record as the country rebuilds its pork herd. Meanwhile, the slowest Brazilian soyabean harvest in a decade, according to S&P Global, has led to supply disruptions. Fertiliser prices have risen sharply as a result.

But commodity traders have positioned themselves for the rally to continue for some time to come. Record speculative positions in agricultural commodities appear out of sync even with a bullish supply and demand outlook. US commodity traders have not held so much corn since at least 1994. There are $48bn worth of net speculative long positions in agricultural commodities, according to Saxo Bank.

Agricultural suppliers may continue to benefit in the short term but fundamentals for fertiliser producers suggest high product prices cannot last long. The debt overhang at K+S, almost eight times forward ebitda, has swelled in recent years after hefty capacity additions in 2017. Meanwhile, utilisation rates for potash producers are expected to fall towards 75 per cent over the next five years as new supply arrives, partly from Russia. 

Yet K+S’s debt swollen enterprise value is still nine times the most bullish analyst’s ebitda estimate, and 12 times consensus, this year. Both are a substantial premium to its North American rivals Mosaic and Nutrien, and OCI of the Netherlands, even after their own share prices have rallied.

Any further price rises in agricultural commodities will depend on the success of harvests being planted in the US and Europe. Beyond restocking there is little that supports sustained demand.

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Amazon sets records in $18.5bn bond issue

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Amazon set a record in the corporate bond market on Monday, getting closer to the level of interest paid by the US government than any US company has previously managed in a fundraising. 

The ecommerce group raised $18.5bn of debt across bonds of eight different maturities, ranging from two to 40 years, according to people familiar with the deal. On its $1bn two-year bond, it paid just 0.1 percentage points more than the yield on equivalent US Treasury debt, a record according to data from Refinitiv.

The additional yield above Treasuries paid by companies, or spread, is an indication of investors’ perception of the risk of lending to a company versus the supposedly risk-free rate on US government debt.

Amazon, one of the pandemic’s runaway winners, last week posted its second consecutive quarter of $100bn-plus revenue and said its net income tripled in the first quarter from the same period a year ago, to $8.1bn.

The company had $33.8bn in cash and cash equivalents on hand at the end of March, according to a recent filing, a high for the period.

“They don’t need the cash but money is cheap,” said Monica Erickson, head of the investment-grade corporate team at DoubleLine Capital in Los Angeles.

Spreads have fallen dramatically since the Federal Reserve stepped in to shore up the corporate bond market in the face of a severe sell-off caused by the pandemic, and now average levels below those from before coronavirus struck.

That means it is a very attractive time for companies to borrow cash from investors, even if they do not have an urgent need to.

Amazon also set a record for the lowest spread on a 20-year corporate bond, 0.7 percentage points, breaking through Alphabet’s borrowing cost record from last year, according to Refinitiv data. It also matched the 0.2 percentage point spread first paid by Apple for a three-year bond in 2013 and fell just shy of the 0.47 percentage points paid by Procter & Gamble for a 10-year bond last year.

Investor orders for Amazon’s fundraising fell just short of $50bn, according to the people, in a sign of the rampant demand from investors for US corporate debt, even as rising interest rates have eroded the value of higher-quality fixed-rate bonds.

Highly rated US corporate bonds still offer interest rates above much of the rest of the world.

Amazon’s two-year bond also carried a sustainability label that has become increasingly attractive to investors. The company said the money would be used to fund projects in five areas, including renewable energy, clean transport and sustainable housing. 

It listed a number of other potential uses for the rest of the debt including buying back stock, acquisitions and capital expenditure. 

In a recent investor call, Brian Olsavsky, chief financial officer, said the company would be “investing heavily” in the “middle mile” of delivery, which includes air cargo and road haulage, on top of expanding its “last mile” network of vans and home delivery drivers.



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