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From Rough to Polished to Consumer: Decisions Along the Value-Chain

Avatar345

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Ok this one's a bit different, but as my own personal diamond saga hopefully enters the final chapters (thank you for your support PriceScope!), I've found myself sucked into the world of diamonds more broadly. I saw a post Sledge started a while back that led to a discussion centering around the margins in the industry and trade-offs cutters need to make when establishing a plan/path for a diamond, and it fed into some of the things I've been fascinated/curious and already thinking about so far as it pertains to the industry on the whole. Obviously, industry participant contributions are very much appreciated, but I welcome any insights or thoughts from any of the prosumers and experts (or whoever) populating this place! :)

What I'm most curious about are the various steps/stages at which an individual/entity can step in to influence/direct a result, against what the usual course for a diamond is. To lay out an initial framework of the 'normal' path, based on my own incomplete understanding:

1) THE MINER: Here, mine operators do their thing collecting as many rough diamonds as yields will permit. The majority of said diamonds will be set aside and grouped into similar bundles (is that right?), based on size, clarity, color, etc (how accurate a read on color and clarity are miners able to get?). Many said bundles/inventory will be held back in reserve to meter/time their introduction into the market, but the normal chain of events will see these groups sold to processors and/or dealers of rough. I'll call this normal chain TRACK A. Singular/special finds will be set aside and dealt with on a per-item/auction basis, or likewise held back. I'm thinking about the 30ct vivid pinks or ye old 100ct clear D. That's TRACK Z, for being so special.

2) THE 'TRADERS': Here I'm sort of lumping in the acquirers of mass rough quantities that in turn set immediately to cutting/polishing, and the traders/wholesalers that acquire rough in different major diamond centers to in turn, then turn around and sell to smaller operations. What percentage of that "2nd stage" market does each represent... independent traders/wholesalers, vs straight up large corporate operations being fed directly via long-term contracts with the mines? Here I'm going to view the large corporate contracts as a continuation of TRACK A, and the smaller operators/independent traders that acquire and resell/wholesale rough as TRACK B.

3) THE CUTTERS: Ok so this is in a sense the most interesting part for me, and it was the aspect of Sledge's thread that launched me on this. So continuing on TRACK A and the large players/accounts, what does the mandate come down as typically as they send the diamonds off to be cut: maximize yield at all costs? Or is it more fine grained, like... "our end customers are seeing a rising demand in oval stones, let's up the percentage of ovals we produce." Do they target certain breakdowns like "let's shoot for 5% ideal cut and set them aside; the rest, maximize yield," or like, "we need some more 3ct polished stones at this time, irrespective of loss/waste," or... "produce 10% emerald cut, 10% marquis, and the rest brilliant round." And with the TRACK B players, ultimately when those stones get to the cutting table, is it independent operators more or less doing their own thing, cutting diamonds, and selling those stones loose via RapNet and other avenues, or are they to an extent also fulfilling broader orders, like... "gotta pump out those 1ct cushions whenever I have the chance!" How much of the production is speculative (ie forward-facing), vs secured (rearward-facing)?

4) THE RETAIL CHANNEL: From the above, the impression I have at present is that roughly 50% of diamonds get scooped up to go into fixed jewelry pieces (earrings, necklaces, rings, etc) and those items are held as physical inventory by the retailers. The other 50% is loose stones with physical jewelers having a nominal amount on hand, and the larger online players more or less keeping a virtual inventory, serving as an 'overlay' of sorts to their favored/partnered suppliers. But they handle all the consumer-facing operations, regardless. Does a James Allen, for example, give indications to its supplier-partners as to what they feel they need more of, and then the suppliers in turn work to fill that gap? Or do the suppliers more or less have free reign to generate that inventory per their own decision making, and James Allen determines how it will in turn market and/or position those stones? And what percentage of sellers of polished diamonds have their wares pre-committed to certain retailers, vs being able to freely sell their stones on the open market?

....alright so that's the general outline of the complete value-chain I have in my mind (ex-certification, etc)... people feel free to clarify and/or comment on any points! From the above though, the following questions...

Q1: Crafted by Infinity, as an example... here's a boutique/niche operator that focuses solely on super ideal cut diamonds. They cut their stones in-house, and I have to think that they source their rough from a number of traders on the TRACK B path between step #2 and step #3. It's nice to be in Antwerp! They then offer those stones through their retail partners, so they in fact themselves occupy a strange space between #3 and #4. But I also imagine they're a bit of an exception in that regard. Is this the case with most "branded" diamonds sold via retail partners (The Leo, Hearts on Fire, etc)?

Q2: On the retail side, for in-house designed/created, branded/super ideal or unique cuts, is it more typical that... A) they source diamonds from cutters they know/trust in the 3rd stage, and they ask those individuals to keep them apprised of appropriate stones/opportunities? Or... B) would they also track/purchase eligible roughs, and then source those out to partnered cutters to produce the final product? Like, if I had a diamond store focusing on a certain cut, would it be more typical for me to purchase appropriate rough at Stage #2 for any gaps in inventory I wanted to fill, and then put it in the hands of my cutters/partners (in house or otherwise)? Or would it be more the case to have partnered cutters at stage #3 that I rely on, and they let me know anytime a qualifying stone falls into their lap to cut to see if I want dibs on it (since my cutting choices might be different accordingly)?

Q3: Do smaller (or larger) independent cutting operations ever proactively reach out to entities further down the chain when they think they may have something interesting, or is it more typical that they simply put it up on whatever exchange and let market forces take their course if that's what they had intended from the start?

Q4: Storied/established players in the industry such as a Tiffany's... do they usually source at the rough stage and have their own cutters? Or do they source at the cur stage, and have instead their steady supply of polished diamonds? Clearly they have access to diamonds pretty far up the chain when they choose to exercise that, and they act ahead of and independently of the standard certification process (which would exist between stages 3 and 4).

Q5: TRACK Z and the show-stopping, auction house diamonds that come to market... what is the decision making process like for what shapes and cuts ultimately get targeted? I can't even imagine the responsibility that goes with cutting a $15M+ diamond, but is the fashion amongst the billionaire set for pear-shaped diamonds? Seems like! ;-) Anyway curious as to how that process evolves, who's consulted, targeted, and... how these final pieces would fare under the ASET!

(Yes I've lost my mind...)
 

Karl_K

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If you could find someone who knew all that it would take a book to answer and they would not tell you most of it.

The simple answer is from the mine rough is sold based on the expected polished from the rough.
A gia ex steep deep cutter can pay more for rough as it has in many cases the highest selling price for a given peice of rough once polished..
 

Avatar345

Shiny_Rock
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If you could find someone who knew all that it would take a book to answer and they would not tell you most of it.

The simple answer is from the mine rough is sold based on the expected polished from the rough.
A gia ex steep deep cutter can pay more for rough as it has in many cases the highest selling price for a given peice of rough once polished..

LOL I've never thought about what the passengers on the Hiddenderg felt like *before* the fire broke out but I imagine it's akin to this sensation right now :razz:

Nevertheless, now I've got my quest to seek out the answers to the above. Prepare to read that book one day! :cool2:

In the interim though a more focused/targeted question, related to that original thread I alluded to up top vis a vis cut decisions....

In that other thread, the discussion related to a warped 34.5/40.8 stone. What I'm wondering, is what's the logic of the cutter in that situation? Is it knowing that stones fitting that profile sell quickly, and they're trying to game the system? Well i guess of course it's in part that... but the rough would have lent itself to a stone of a similar profile to begin with for them should they choose to pursue that track, correct?

I can understand the cutters trying to clear 1.0ct at whatever compromise to 'cut,' but I don't quite understand the cutters trying to target the ideal cut market when they could in fact be better served simply creating an actual well-performing diamond at a lower weight. The same people that scan for 34.5/40.8 stones are the same people that don't care as much about carat weights as an end-all be-all and the same people that would be happy to pay a premium if you cut it well, got it graded by AGS to confirm it, and put it on up for sale at a premium to what an equivalently weighted stone would cost.

Granted when running a 'trap' so to speak that logic and effort doesn't necessarily factor in, but in that thread the discussion focused on margins at xyz weight. Given that a premium *can* be charged if the product you offer actually is certified to deliver a certain result, is it a lack of awareness on the part of independent cutters out there about that sub-market, a lack of size/demand in that sub-market, or what would you attribute that decision making process to in that case and others where that choice might be faced?
 
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Karl_K

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If your making steep deeps and they are not moving as fast as diamonds with 40.8 pavilions and your greedy.
So you take a steep deep and apply the process control you learned cutting ideal cuts and advancements in tooling and planning then cheat.
On paper they have the criteria to move faster while retaining the weight retention of the steep deep.
It all comes back to rough is sold based on the expected value of the polished.
Much of it is now sold by auction and a cutter cutting steep deeps or cheated stones can out bid someone cutting ideal cuts.
 

Avatar345

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If your making steep deeps and they are not moving as fast as diamonds with 40.8 pavilions and your greedy.
So you take a steep deep and apply the process control you learned cutting ideal cuts and advancements in tooling and planning then cheat.
On paper they have the criteria to move faster while retaining the weight retention of the steep deep.
It all comes back to rough is sold based on the expected value of the polished.
Much of it is now sold by auction and a cutter cutting steep deeps or cheated stones can out bid someone cutting ideal cuts.

Gotchaaaa... ok that makes a lot of sense; it's a matter of the winner of the auction, in this case often/predominantly those cutters that work steep-deep angles (figuratively and literally), then working with what they've won to maximize $/ct results in a sort-of cynical way.

Is that part of why we see certain super ideal diamonds frequently show up in 'off' sizes like 1.92ct or 2.08ct vs holding closer to the round ct marks? Because closer in to those milestone markers on theoretically accomodating roughs they're simply outbid by others?
 

John Pollard

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The simple answer is from the mine rough is sold based on the expected polished from the rough.
A gia ex steep deep cutter can pay more for rough as it has in many cases the highest selling price for a given peice of rough once polished..
This is key. Now consider that the miners sell based only on 3Cs.

A mining company has no reason to care about cut. A mining company extracts and sells rough, natural diamond crystals pulled from the earth. Those rough crystals get classified, sorted into parcels and – most importantly – priced for sale based on raw carat weight, color and clarity. Whomever bids highest wins the crystals, so whomever plans to yield the most finished carat weight has an advantage.

This story from the 1900s, still true today, may be interesting: https://www.pricescope.com/education/diamond-4cs#Basics-3

3) THE CUTTERS: Ok so this is in a sense the most interesting part for me, and it was the aspect of Sledge's thread that launched me on this. So continuing on TRACK A and the large players/accounts, what does the mandate come down as typically as they send the diamonds off to be cut: maximize yield at all costs? Or is it more fine grained, like... "our end customers are seeing a rising demand in oval stones, let's up the percentage of ovals we produce." Do they target certain breakdowns like "let's shoot for 5% ideal cut and set them aside; the rest, maximize yield," or like, "we need some more 3ct polished stones at this time, irrespective of loss/waste," or... "produce 10% emerald cut, 10% marquis, and the rest brilliant round." And with the TRACK B players, ultimately when those stones get to the cutting table, is it independent operators more or less doing their own thing, cutting diamonds, and selling those stones loose via RapNet and other avenues, or are they to an extent also fulfilling broader orders, like... "gotta pump out those 1ct cushions whenever I have the chance!" How much of the production is speculative (ie forward-facing), vs secured (rearward-facing)?
This is a sophisticated question (beware the rabbit hole, haha).

The short answer is maximizing yield. The numbers don't lie.
https://www.pricescope.com/education/diamond-certification/diamond-ratings#Chart

You're spot on when you intuit that producers are aware of trends. Take the marquise shape in the 1980s as well as princess, cushions and ovals in ensuing years. Rough diamond crystals take a number of forms. The most common is the octahedron, with eight triangular faces. In pristine form it's best suited to shapes with depth (ie Steep Deep round brilliants). The dodecahedron contains 12 facet faces, formed by resorption of the edges of an octahedron. They're also suited for depth. Then you have oddball rough; cleaved or split during its billions-years journey to market, flat macles best suited for shallow shapes, makeables, splittables, etc.

Ultimately, the shape of the raw crystal is the main arbiter of what it shall become. Market logic also plays a part in those decisions. Certain producers know there is an audience for hearts and arrows and super ideal makes, but it's not the industry's bread and butter.
https://www.pricescope.com/education/diamond-cut#Planning
 

Karl_K

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Gotchaaaa... ok that makes a lot of sense; it's a matter of the winner of the auction, in this case often/predominantly those cutters that work steep-deep angles (figuratively and literally), then working with what they've won to maximize $/ct results in a sort-of cynical way.

Is that part of why we see certain super ideal diamonds frequently show up in 'off' sizes like 1.92ct or 2.08ct vs holding closer to the round ct marks? Because closer in to those milestone markers on theoretically accomodating roughs they're simply outbid by others?
In general if a stone will cut a steep deep 2ct but only a 1.95ct ideal cut its going to get cut steep deep 2ct because it will sell for a lot more.
If it will make a 2.08 ideal cut or a 2.17 steep deep it can sometimes be economically cut into an ideal cut.
 

Avatar345

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This is key. Now consider that the miners sell based only on 3Cs.

A mining company has no reason to care about cut. A mining company extracts and sells rough, natural diamond crystals pulled from the earth. Those rough crystals get classified, sorted into parcels and – most importantly – priced for sale based on raw carat weight, color and clarity. Whomever bids highest wins the crystals, so whomever plans to yield the most finished carat weight has an advantage.

This story from the 1900s, still true today, may be interesting: https://www.pricescope.com/education/diamond-4cs#Basics-3


This is a sophisticated question (beware the rabbit hole, haha).

The short answer is maximizing yield. The numbers don't lie.
https://www.pricescope.com/education/diamond-certification/diamond-ratings#Chart

You're spot on when you intuit that producers are aware of trends. Take the marquise shape in the 1980s as well as princess, cushions and ovals in ensuing years. Rough diamond crystals take a number of forms. The most common is the octahedron, with eight triangular faces. In pristine form it's best suited to shapes with depth (ie Steep Deep round brilliants). The dodecahedron contains 12 facet faces, formed by resorption of the edges of an octahedron. They're also suited for depth. Then you have oddball rough; cleaved or split during its billions-years journey to market, flat macles best suited for shallow shapes, makeables, splittables, etc.

Ultimately, the shape of the raw crystal is the main arbiter of what it shall become. Market logic also plays a part in those decisions. Certain producers know there is an audience for hearts and arrows and super ideal makes, but it's not the industry's bread and butter.
https://www.pricescope.com/education/diamond-cut#Planning

John thank you so much for weighing in, and providing those links - that was awesome!! :cool2:

With respect to the original rough stones, is there usually a pretty clear grasp of where all the inclusions are before they're auctioned off, or are cutters sometimes "surprised" by unexpected inclusions?

And then demand-based trends notwithstanding, are there ever any times when a cutter gets a stone and will simply be: "nope, it's not happening as a round... this one's gotta be a princess." Or... rather, have the cutters bidding already determined in advance how they would play the stone before they bid, with fancy shape considerations already considered and/or rejected?
 
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Karl_K

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And then demand-based trends notwithstanding, are there ever any times when a cutter gets a stone and will simply be: "nope, it's not happening as a round... this one's gotta be a princess." Or... rather, have the cutters bidding already determined in advance how they would play the stone before they bid, with fancy shape considerations already considered and/or rejected?
You better know what your going to do with it before you bid or your going to be broke.
But:
Often times in a lot will be a bunch of stones you want and some that are say only profitable as fancies.
The miners want to sell everything so you have to buy some less desired rough to get what you want at times.
If you bid right you can sometimes pass the rough on to a cutter of fancies instead of cutting it.
The time frame to make the decision is often very small.

The sightholder that de beers sell to up until covid didn't have a choice they bought what was offered at the price offered.
Even de beers is selling more and more of its rough at auction rather than to sightholders these days.
 

Avatar345

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You better know what your going to do with it before you bid or your going to be broke.
But:
Often times in a lot will be a bunch of stones you want and some that are say only profitable as fancies.
The miners want to sell everything so you have to buy some less desired rough to get what you want at times.
If you bid right you can sometimes pass the rough on to a cutter of fancies instead of cutting it.
The time frame to make the decision is often very small.

The sightholder that de beers sell to up until covid didn't have a choice they bought what was offered at the price offered.
Even de beers is selling more and more of its rough at auction rather than to sightholders these days.

Interesting point in terms of the bundled stones; do auction winners of multi-stone lots usually have a game plan for every stone, or are they already planning in some cases to unload certain stones to other players/parties? I guess derivative of that, are cutters of fancy shapes usually different people and/or operations than the cutters of brilliant rounds?
 

Karl_K

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Interesting point in terms of the bundled stones; do auction winners of multi-stone lots usually have a game plan for every stone, or are they already planning in some cases to unload certain stones to other players/parties? I guess derivative of that, are cutters of fancy shapes usually different people and/or operations than the cutters of brilliant rounds?
Yes they have a very good idea before they bid, while it might change some in the planning process once the rough is scanned and mapped. Basically what is bid is based on the likely outcome if once in a while they can beat that they are going to.
The expert fancy cutters are generally separate, but a larger mrb cutter may have a small group of cutters cutting fancies led by an expert.
Others may have a formula or guideline they use variations of to cut fancies.
You will see this in emerald cuts recently, a bunch cut of the same basic formula. Sometimes it works well, sometimes not so much because of the variations.
 

Karl_K

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Let me ask you something lets say you can cut a 2ct mrb of good make from a rough or a 2.5ct pear.
Lets say f/vs2 for both
You can sell the round with in 2 months but the pear may take 1 year to sell.
Which do you cut?
 

sledge

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You better know what your going to do with it before you bid or your going to be broke.
But:
Often times in a lot will be a bunch of stones you want and some that are say only profitable as fancies.
The miners want to sell everything so you have to buy some less desired rough to get what you want at times.
If you bid right you can sometimes pass the rough on to a cutter of fancies instead of cutting it.
The time frame to make the decision is often very small.

What Karl is really trying to say.

 

Avatar345

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Let me ask you something lets say you can cut a 2ct mrb of good make from a rough or a 2.5ct pear.
Lets say f/vs2 for both
You can sell the round with in 2 months but the pear may take 1 year to sell.
Which do you cut?

See that is exactly the sort of insight I was looking for when launching this thread... and like in any business I'm sure the cutter/carrier of the diamond is then further exposed to market gyrations in the interim pending the liquidation of that stone. So what *does* the cutter do in that situation? And is that part of what plays into the relative discounting for fancy shapes vs round stones?

And related to what you just wrote: have you noticed that cutters have become more risk averse to 'holding' inventory since Covid? Or is it more the case that those that have survived are more able to cut and hold and plan for any number of market conditions now?

But yes given a situation where you've got the 2ct round and the 2.5ct pear, and the price of each may ultimately in fact be similar, you go round.

Are the majority of fancy cut stones then 'forced' by the rough on a per case basis usually (created on an almost incidental basis), or like with the question John had started to answer, are there times when buyers/retail partners will pay specifically to have a certain gap of fancy cuts filled, maybe offering more than they normally would for such polished stones?
 

Karl_K

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But yes given a situation where you've got the 2ct round and the 2.5ct pear, and the price of each may ultimately in fact be similar, you go round.
3ct emerald cut vs 2ct round from the same rough, same time frames.
Which do you cut?
 

Karl_K

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And related to what you just wrote: have you noticed that cutters have become more risk averse to 'holding' inventory since Covid? Or is it more the case that those that have survived are more able to cut and hold and plan for any number of market conditions now?
The entire chain has never wanted to hold on to goods other than DeBeers and the Russians at certain times to control the downstream market.
The business survives on turn over.
 

Karl_K

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Are the majority of fancy cut stones then 'forced' by the rough on a per case basis usually
Generally yes its forced by the rough but its not absolute.
At times rough more suitable for another shape will be cut into a rb because that is what the rough owner can move quickly.
 

sledge

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3ct emerald cut vs 2ct round from the same rough, same time frames.
Which do you cut?

Easy. Whichever yields the most margin in the shortest amount of time. To better understand true margin, you need to dive deeper and analyze fixed & variable costs together.

More times than not quick money is the answer as cash flow keeps businesses alive.

In my business I front load profit on early completion items so that at a certain point the buyer finances his own project and further reduces the burden & expense of available capital.
 

Karl_K

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like with the question John had started to answer, are there times when buyers/retail partners will pay specifically to have a certain gap of fancy cuts filled, maybe offering more than they normally would for such polished stones?
Lets put it this way Tiffany had to buy into a mine to insure they could get rough for what they sell.

When your buying in the million dollar range a month on contract the buyer has some leverage, smaller sellers not so much.
 

sledge

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Lets put it this way Tiffany had to buy into a mine to insure they could get rough for what they sell.

When your buying in the million dollar range a month on contract the buyer has some leverage, smaller sellers not so much.

My wife and I started a similar conversation about 6 months ago regarding Walmart, local farmers and vegetables. Her point was it wasn’t fair that Walmart leveraged (or in her terms, bullied) the farmers into selling at such a low price.

While I dislike Walmart, my logic was at the end of the day they still have to sell a product for the lowest market price (as they have established their dominance in low pricing) while maintaining their required profit margins.

The farmer may not like selling so low but it’s volume that feeds his fixed costs and ultimately keeps him in survival mode. His smaller buyers are likely where he makes a modest margin.

In a sense they both need one another but the farmer needs Walmart a little more creating a leverage scenario that Walmart exploits for their own benefit.
 

John Pollard

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John thank you so much for weighing in, and providing those links - that was awesome!! :cool2:

With respect to the original rough stones, is there usually a pretty clear grasp of where all the inclusions are before they're auctioned off, or are cutters sometimes "surprised" by unexpected inclusions?

You're welcome. Regarding rough stones, it's a twofold answer. Sightholders (preferred rough buyers) purchase in pretty stout volumes and use technology solutions like Helium and Galaxy to optimize production. The advantage of being a Sightholder is being in a position to cut what you like on your own factory floor, and/or sell to secondary rough buyers at tenders.

The secondary buyers, especially small cutting operations, need to have some Jedi level skills at those tenders: Numerous buyers make appointments to analyze the same parcels of pre-packaged rough. They all submit bids based on their analysis. If your bid is too high you win the parcel, but lose money, if you know what I mean.

Incidentally, rough diamond sales got even more sophisticated during the pandemic:

In October 2019 Alrosa teamed up with Sarine Technologies to provide digital-scans, assessments and calculated polishing solutions for rough diamonds to their customers. This was originally intended to facilitate analysis and pre-selection of choices prior to a traditional rough tender.

When the world stopped in 2020 most miners started canceling sights/tenders entirely but Alrosa pivoted. “Specials” are larger rough diamonds weighing over 10.8 carats apiece. Instead of canceling those sales, they launched a digital tender. Buyers got to view and download 3D models of each special generated from scans. The external shape and internal inclusions were fully mapped, along with spin-videos and gemological details regarding color and fluorescence. It was so successful that they offered over 1,500 rough diamonds in the 5.00 to 10.00 carat range to customers in May and June, again via digital tender.
 

Avatar345

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3ct emerald cut vs 2ct round from the same rough, same time frames.
Which do you cut?

LOL now wait a minute, I started this thread for you to tell me the answer to that question, not the other way around!! :razz:

But in that situation let me ask you this: given the *potential* for that rough to yield a 3ct emerald, would the owner/cutter perhaps be best served by simply flipping the stone for a nominal profit to a different cutter/operation that might have a customer already lined up for that 3ct emerald?
 

John Pollard

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Lets put it this way Tiffany had to buy into a mine to insure they could get rough for what they sell. When your buying in the million dollar range a month on contract the buyer has some leverage, smaller sellers not so much.

That's a good Tiffany segue for one of @Avatar345's original questions:

Q4: Storied/established players in the industry such as a Tiffany's... do they usually source at the rough stage and have their own cutters? Or do they source at the cur stage, and have instead their steady supply of polished diamonds? Clearly they have access to diamonds pretty far up the chain when they choose to exercise that, and they act ahead of and independently of the standard certification process (which would exist between stages 3 and 4).

Tiffany has done a good job of vertical integration. Laurelton, Belgium, is their rough buying and trading arm, and an Alrosa and DeBeers' Sightholder. Of course Tiffany consumes only high value color, clarity, non-fluo goods, so Laurelton gets to resell the goods Tiffany doesn't use.

Adding to Karl's point, the establishment of Laurelton Botswana permitted Tiffany to launch their traceability program last October.
 

Avatar345

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You're welcome. Regarding rough stones, it's a twofold answer. Sightholders (preferred rough buyers) purchase in pretty stout volumes and use technology solutions like Helium and Galaxy to optimize production. The advantage of being a Sightholder is being in a position to cut what you like on your own factory floor, and/or sell to secondary rough buyers at tenders.

The secondary buyers, especially small cutting operations, need to have some Jedi level skills at those tenders: Numerous buyers make appointments to analyze the same parcels of pre-packaged rough. They all submit bids based on their analysis. If your bid is too high you win the parcel, but lose money, if you know what I mean.

Incidentally, rough diamond sales got even more sophisticated during the pandemic:

In October 2019 Alrosa teamed up with Sarine Technologies to provide digital-scans, assessments and calculated polishing solutions for rough diamonds to their customers. This was originally intended to facilitate analysis and pre-selection of choices prior to a traditional rough tender.

When the world stopped in 2020 most miners started canceling sights/tenders entirely but Alrosa pivoted. “Specials” are larger rough diamonds weighing over 10.8 carats apiece. Instead of canceling those sales, they launched a digital tender. Buyers got to view and download 3D models of each special generated from scans. The external shape and internal inclusions were fully mapped, along with spin-videos and gemological details regarding color and fluorescence. It was so successful that they offered over 1,500 rough diamonds in the 5.00 to 10.00 carat range to customers in May and June, again via digital tender.

I've heard of the De Beers sightholder program before; didn't know if it was a similar process for the other primary suppliers, but it sounds like the answer is both "yes" and that things are evolving. Are those secondary buyers/traders where an independent US retail operation would source their stones from, or would they generally wait further downstream, for the cutters they have relationships with to have acquired and cut said stones from those suppliers? Or is it really just a 'just-in-time' demand fulfillment model for the most part via for most smaller retailers via RapNet and the like?

As for the Alrosa tech that is pretty awesome actually... as the world 'normalizes' do you think the gravity will shift back to lots and bundles and sightholders, or is the sale of individual "high res" stones sort of where the future lies? I have to imagine that it becomes cost prohibitive for smaller stones at volume, so maybe a mix of the two...

(Does that further expose secondary buyers as the odds of larger 'good' stones being cherry-picked for primary use vs resale goes up?)

Speaking of those 'specials,' (which I am so so interested in!) with a 10ct rough stone what would the typical path be; whatever the largest single polished stone that can be produced for the boutique/high-end market, or a number of relatively large (but smaller) high carat stones for the upper end of the general retail channel? Like... two 3 ct stones and whatever else can be salvaged, vs one 5-6ct polished?
 
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Karl_K

Super_Ideal_Rock
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With specials its all about the big stone they will be scanned and all the inclusions plotted in 3d then planning software used to get the best return usualy largest main and as many large secondaries as possible.
They are sold by auction these days.

More and more rough is sold at auction these days and it would not shock me to see De Beers go auction and contract only and end the sightholder system at some point.
 

John Pollard

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I've heard of the De Beers sightholder program before; didn't know if it was a similar process for the other primary suppliers, but it sounds like the answer is both "yes" and that things are evolving. Are those secondary buyers/traders where an independent US retail operation would source their stones from, or would they generally wait further downstream, for the cutters they have relationships with to have acquired and cut said stones from those suppliers? Or is it really just a 'just-in-time' demand fulfillment model for the most part via for most smaller retailers via RapNet and the like?

Almost all cutting happens overseas. Volume buyers can make deals upstream or midstream, but standalone US retailers traditionally use domestic wholesales, mainly in NY and LA, at least one step downstream from cutting. Globalization has changed this somewhat. A number of Indian cutters have gone B2B, shipping to US retailers. And the world's largest retail jeweler, Chow Tai Fook in China, is a DeBeers' Sightholder themselves.

As for the Alrosa tech that is pretty awesome actually... as the world 'normalizes' do you think the gravity will shift back to lots and bundles and sightholders, or is the sale of individual "high res" stones sort of where the future lies? I have to imagine that it becomes cost prohibitive for smaller stones at volume, so maybe a mix of the two...
I believe the future will continue as a hybrid of analysis technology coupled with in-person viewing.

Speaking of those 'specials,' (which I am so so interested in!) with a 10ct rough stone what would the typical path be; whatever the largest single polished stone that can be produced for the boutique/high-end market, or a number of relatively large (but smaller) high carat stones for the upper end of the general retail channel? Like... two 3 ct stones and whatever else can be salvaged, vs one 5-6ct polished?
Specials are like snowflakes. The largest possible diamond is always desirable, given their rarity, but internal pique, strain and other considerations might make a multi-stone plan the best bet.

What would you do with these?

specials-osu.jpg
 

Avatar345

Shiny_Rock
Joined
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Messages
120
With specials its all about the big stone they will be scanned and all the inclusions plotted in 3d then planning software used to get the best return usualy largest main and as many large secondaries as possible.
They are sold by auction these days.

More and more rough is sold at auction these days and it would not shock me to see De Beers go auction and contract only and end the sightholder system at some point.

When it comes to large stones like that... let's say 5ct plus offerings (is that sort of the cutoff/level?)... would the cutter/operation potentially first make potential buyers aware of their purchase in order to see if anyone wants to commission a custom cut, or would they just set about to create the most valuable stone they can for the market and let market/auction forces play out after the process is complete?
 

Avatar345

Shiny_Rock
Joined
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Messages
120
Almost all cutting happens overseas. Volume buyers can make deals upstream or midstream, but standalone US retailers traditionally use domestic wholesales, mainly in NY and LA, at least one step downstream from cutting. Globalization has changed this somewhat. A number of Indian cutters have gone B2B, shipping to US retailers. And the world's largest retail jeweler, Chow Tai Fook in China, is a DeBeers' Sightholder themselves.


I believe the future will continue as a hybrid of analysis technology coupled with in-person viewing.


Specials are like snowflakes. The largest possible diamond is always desirable, given their rarity, but internal pique, strain and other considerations might make a multi-stone plan the best bet.

What would you do with these?

specials-osu.jpg

Thanks John for the insights on where most US retailers would find themselves on the chain - I was cognizant of say, the New York diamond district of course, but I never really thought in terms of there being a whole domestic mid-level ecosystem in place post-cutting overseas but pre-inventory at retail. Are players like Signet and Blue Nile etc located there on the chain as well (post overseas activity, post domestic importation), or is it wrong to even think of them in those terms since their online operations at least in part represent more of a consumer-facing overlay to stones held elsewhere?

As for what I'd do with those stones... let me ask you this: is there a market for collectors of large, uncut, unpolished stones? Like does a 50ct ugly-as-hell rough stone have more interest/appeal to a would-be collector as a rough stone vs what it could fetch cut up? Not the same fate a 20ct blue, 100ct D FL, or 20ct fancy pink would experience, obviously...
 

John Pollard

Rough_Rock
Staff member
Premium
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Thanks John for the insights on where most US retailers would find themselves on the chain - I was cognizant of say, the New York diamond district of course, but I never really thought in terms of there being a whole domestic mid-level ecosystem in place post-cutting overseas but pre-inventory at retail. Are players like Signet and Blue Nile etc located there on the chain as well (post overseas activity, post domestic importation), or is it wrong to even think of them in those terms since their online operations at least in part represent more of a consumer-facing overlay to stones held elsewhere?

Correct. They are different models. Signet can best serve their showroom chain stores by placing large orders upstream with producers/manufacturers to provide (example) 50,000 ctw of ABC diamonds mounted into 50,000 XYZ settings at a time. That's their jam - finished jewelry on display. As you intuited, eCommerce specialists like Blue Nile and the James Allen division of Signet have different needs. They aren't filling thousands of showroom counters with finished jewelry. They're offering loose diamonds, often with magnified images and video, and detailed loose diamond grading reports - which they hope get selected and paired with empty setting. eCommerce sellers also have upstream partners, but it's also in their interest to provide as many options possible for clients to consider, including loose diamonds located with the same US and overseas suppliers we discussed above.

Avatar345 said:
As for what I'd do with those stones... let me ask you this: is there a market for collectors of large, uncut, unpolished stones? Like does a 50ct ugly-as-hell rough stone have more interest/appeal to a would-be collector as a rough stone vs what it could fetch cut up? Not the same fate a 20ct blue, 100ct D FL, or 20ct fancy pink would experience, obviously...

I suppose. Just be prepared to outbid Louis Vuitton. :cool2:

 

Avatar345

Shiny_Rock
Joined
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Messages
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John Pollard said:
Correct. They are different models. Signet can best serve their showroom chain stores by placing large orders upstream with producers/manufacturers to provide (example) 50,000 ctw of ABC diamonds mounted into 50,000 XYZ settings at a time. That's their jam - finished jewelry on display.

With the Signet mass purchases aspect, would that upstream purchase/order normally be placed with a sightholder directly, or would it be with a manufacturer in India, for instance? Or do larger Indian cutting operations in turn have their own B2B facing partners in Europe, Dubai, and elsewhere that negotiate those deals/volumes as intermediaries?

I suppose. Just be prepared to outbid Louis Vuitton. :cool2:


Maybe it was widespread ridicule associated with this diamond purchase which set in motion LVMH's plan to purchase Tiffany's! :lol:

And... I am sure there will be some leveraging/synergies there, no doubt. :p
 
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