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Commotion in the diamond world: new sightholders

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Paul-Antwerp

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Hi all,

I feel the need to inform you about a new era in the diamond world. During the last months, De Beers'' has conducted a length exercise reviewing the pros and cons of their existing customers and checking new applicants to obtain sightholder-status.

Lately, it also became clear that the stock of De Beers'' has decreased seriously over the last years, and that they cannot fulfill or guarantee the demands of their customers in certain areas of rough.

Last week, existing customers received notification whether they remained sightholder or not, and applicants were informed whether they are sightholders from July onwards.

The new list of sightholders is not officially released, but in such a small community, it is clear who are the winners and who are the losers.

The surprise in Antwerp is mostly in the list of companies who have lost their sight. A high number of them are very dedicated companies, with a good marketing program, some of them even with innovating cuts. In the past, these very companies were lauded for their cutting-expertise, and it is clear that they combine excellence in both cutting as in marketing.

This is why it is surprising that these companies lost their sightholder-status, and many Antwerp diamond-people are clearly disappointed about this.

It is too soon to say which effect this will have in the retail-market, but this change has the magnitude of an earthquake, and it will for sure have effects.

I will try to keep you informed about this.

Live long,

Paul
 

coarchitect

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I am so confused (big surprise)! Does this mean I may never get my Royal Asscher?!? How sad.
 

Hest88

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Hm. I see De Beers further losing its traditional stranglehold on the diamond market.
 

mdx

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Paul
While I am sure there is much trepidation in Hoveniersstraat at the moment, some of the new sightholders are certainly interesting companies.
A quick peak at those that have announced to clients that they enjoy Supplier of Choice Status seems to indicate that “The Company” is giving some preference to factories that produce better quality goods.and not over reliant on the short supply material.
One thing that is evident is that it’s no longer an “old boys club”

Wayne
Melbourne Diamond Exchange Ltd.
 

Garry H (Cut Nut)

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Rapaport presentation yesterday - he said he believes De Beers ahve a 4x stock turn now - down from .5 a few years back.
So they have the same stuff coming out of the graound - but people will get more of what they show they can add value too.
Adding value is defined as consumer market appeal.
Just being able to turn rough into jewellers inventory is not counted any more.
I applaud De beers for these changes.
 

Paul-Antwerp

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I will try to put some figures on this, in order to put everything more into perspective.

The estimation is that of the 150-ish existing sightholders, 50 of them lost their status, and about 10 new ones were added to the list. I estimate the intake of each of these 50 at about 2 million$ per sight, which brings us at 10 million$ per year, or a total of 1 billion$.

On give or take a yearly turnover by De Beers of 4 billion$, this is a serious number. I estimate the new sightholders as smaller players in specialty segments of rough, and they will certainly not take in the 1 billion, which the old ones are leaving behind.

What we see, is that a high number of the ex-sightholders are specialised in high quality-high colour and high clarity-cuts.

Inside information from De Beers teaches me that the average clarity of their rough is SI3-I1. Analysts of the diamond business estimate that De Beers has run into a serious shortage of high colour-high clarity goods over 2 Cts (rough weight). So, they are not able to supply the market with what we (as a Pricescope-community) are most interested in.

The cutters, who were specialised in high quality were ditched. The ones that have both high quality and low quality goods will get more goods. Typical examples of such 'winners' are the big Indian companies. Take for instance 'Hearts On Fire', which is a small subsidiary of one of the biggest Indian companies. They will get more interesting rough, because they also take the rough which De Beers has most of (average I1).

So you think that other producers will fill the gap. Unfortunately, diamonds need to be mined, and mines do take some time before they start producing, and even then, we need to await which quality and size comes out. The ex-sightholders will clearly have difficulties to obtain sufficient rough from other sources to keep their workers at work. I foresee that a lot of experience will be lost for the whole of the diamond business.

In the retail market, it will take longer before we see the effects. For now, this market is still struggling with an oversupply, caused by cutters overproducing the last 1.5 year in order to become or remain sightholders.

I think we will see less competition for high quality-goods, and more and more promotion for lower-quality diamonds.

We will see,

Paul
 

pqcollectibles

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I hope I am not asking an utterly stupid question here.

Why don't the Russian's, produce and sell more??? Siberia is home to the world's largest diamond mine. An open pit mine, so large it can be seen from the moon. Is it not good rough?? Politics?? De Beers' foot/strangle hold on the market?? Just curious.
 

Garry H (Cut Nut)

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PQ everyone digs a mine as fast as they can.
Remember that 10's of tons are sorted to find each decent diamond.

Paul thanks for the good wrap up.
It is a big change, and change can hurt some more than the gain for others.
But many of those cutters are hardly getting any profit, let alone ROI. Maybe some are better off out.
I have long thought the middle diamond is where the value is. High colour combined with high clarity has been over priced for 20 years.
I have told customers to buy D-H VS2 SI1 for a long time.
The marketing of low value goods is very successful in todays consumer driven life.
 

Paul-Antwerp

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Well, with Russia for instance, there are also strategic issues. First, De Beers has a contract in which they buy 80% of the Russian exported rough. It might be that European competition-regulation will change this contract, but that is not yet the case.

Also, Russian law gives a serious advantage to the local cutting industry. A big part of the rough is not allowed to be exported, and must be cut locally, sometimes even limited to the Russian republic of Yakutia.

A similar approach is seen in Canada, where the local cutters need to be supplied before the mines are allowed to export the remaining. Similar procedure in South-Africa, where the export limitations are essentially becoming even stricter.

With these advantages for local production (sometimes with a price advantage of up to 20%), the nicest rough does not go to the most efficient cutters, but to the best located.

Gary, from your reply, I think that you regard GH-SI1 as medium quality. Well, in the world of rough, this is relatively high quality.

For another background article, check this out: http://www.polishedprices.com/columns/default.asp?id=1000000598&newstypeid=4

Live long,

Paul
 

Garry H (Cut Nut)

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We are just going to have to teach cutters to make bigger better looking stones out of whatever rough they can get.
It is called adding value.
Again according to Martin Rap, $10B of rough had only $4B added after cutting.
That is crazy considering that Indians often double or triple the value of small low quality goods (ie labour and processing and profits make up most of the costs, and rough is neither here nor there relatively speaking).

So that brings me back to my hobby horse and goal - to improve the cut of all diamonds. It is time something was done, and I hope that is part of the deal with De beers new plan


PS most of the new cuts I see about the place are not the answer!!

Boarding for Rome
 

Paul-Antwerp

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Give me a clue, Gary,

On how to improve a brown or R-colour stone, with spread out I-2 inclusions into a better quality stone.

It is not the cutters who need to be taught, it is the customers who need to buy. The stone, that gets the highest price, is the one that is going to be produced.

Are you flying now already?

Have a good trip.

Paul
 

rbjd

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Feb 4, 2003
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Let's see how fast I can come up with this.

It's the new DTC marketing campaign:

"A brown diamond is still forever."

Somebody should pay me for this stuff.
 

Cassandra

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>> On how to improve a brown or R-colour stone, with spread out I-2 inclusions into a better quality stone. <<

Paul, are you saying that this is the only quality left? That stinks.


When that news officially hits the market, do you think that the prices of good quality stones will skyrocket? And, do you have a time frame in which you think they'll make that announcement (for those of us still scrambling to find our diamonds)?
 

pqcollectibles

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Thank You Paul and FurtherMore, for you explanations of Russian mining policies. I appreciated the enlightenment! My college Russian Poli-Sci class didn't really get detailed into industry specific economics. But, then again, much has changed in Russian Politics since I took that class. (We won't say when that was!)


FurtherMore, I especially liked the pic you posted. "Mother Russia" seems to be floating in the sky!
 

Garry H (Cut Nut)

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Furthermore you forgot to drill and fracture fill!!!

Paul I am in heaven!!!!
Orvieto, just north of Rome.
Arrived at 7am, drove for 1.5 hours.
Did a Museum full of Etruscan burial treasures followed by lunch of duck pasta washed down with a beautiful red and followed by cuppaccino and biscotti dipped in local sherry.

I had the worst esspresso coffee at Vegas airport Cinnabon that I could ever imagine.

America you have the money, you have the power, but you know nothing about style or life!
And I had to line up for everything - even in the airport business lounge!
 

stonecold

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Hey Now...


You hardly can judge America's sense of style and zest for life by the wretched hive of scum and villainy that is Las Vegas. I'll spare everyone by not writing a treatise on how America has countless culturally rich, stylish enclaves in which the people and places are brimming with a taste for, and appreciation of, life's finer pleasures and virtues.

And after all, I would never knock Australia, especially having spent a semester at Queensland Uni (Brisbane). For 6 months I swam the warm waters, sailed the Northern reefs, explored the Caves and Wineries of Perth, hopped the Islands off the Gold Coast, climbed Ayer's Rock, gambled in its casinos, crawled the local pubs and clubs, and, oh yeah, did a just a little bit of studying. Of course, I culd point out several instances of perceived Australian shortcomings, cultural or otherwise, but I choose not to judge that great country on a few isolated incidents.

The moral: avoid airport cappuccinos!

no hard feelings Garry.


Stonecold, Stylish American with Exceptional Taste
 

fire&ice

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Garry, airport food, etc are notoriously BAD in the USA. I think they make a sport out of "how bad can it get". Or better yet, "how overpriced we can make it".

I'm sure each & everyone of us could come up with their own slice of heaven in the good ol' USA. I don't think the tourists get to see that.

Barbecued oysters & a fine microbrew on the Pacific coast highway.
 

pqcollectibles

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FurtherMore, just curious about an "old wives tale" so to speak. I've heard there are literally tons of diamonds stored under the Kremlin. Is it true? Do ya know?

Gary, I'm curious,... You kinda blew my question off. Did you know the Siberian Mine is sooooooo HUGE? Daughter of an old Coal Miner here, but that kind of mine, open pit, Companies would kill to have control of. Less work than conventional mining and easy to get the goods out of the ground.

Wonder why the Russians don't wise up and get more saavy about marketing??? Don't they realize they are literally sitting on a fortune??? Too bad they have the 80% export contract with De Beers.
 

Garry H (Cut Nut)

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A lot of those mines have a 1km or more spiral road down to the working face and back in huge trucks full of ore.
One has just started to go underground because it has become to deep I believe.

I saw the Kremlin diamonds last year = Russian version of crown Jewels - not for and should not be for sale.
 

pqcollectibles

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I too have seen the crown jewels of the Tsars. An awesome sight to behold. And, no they should not be sold. That is HISTORY! and should remain for the ages!

I heard a rumor of a "Ft. Knox" type vault under the Kremlin full of diamonds. But, hey, those are the same folk that pay huge bucks for used Levi's jeans! Maybe it's their homeland "Fairy Tale."
 

69gm

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hey cutnut!

airport food is mediocre at best in the best of places...even here in "paradise".


sippin' mah kona coffee here on oahu...
 

pqcollectibles

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LOLOL, FurtherMore! And a well kept secret it is! Ssshhhhhh! We won't tell anyone will we???
 
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