Rapaport on the State of the Diamond Industry

[pricescope]

In his presentation "The State of the Diamond Industry", June 7, 2004, Martin Rapaport outlined the following trends.

• Rough shortage in large, white and clean goods will lead to higher prices.
• Supplier of Choice initiative will lead to more middlemen to be cut out. Saved money should be used in advertising and marketing
• Upstreaming. Companies like Tiffany and Wal-Mart want to have their own sources of rough
• Downstreaming. De Beers and some sight holders (e.g. Rosy Blue) open their own stores and sell their brand.
• Wholesalers are reaching to the consumers, Internet...
• Marketing and Branding warfare.

Rapaport outlined the situation as "Fundamental changes" in the diamond industry. New direction and no way back. New ways of distribution will affect everybody.

• Diamonds are natural resources. Polish and rough demand increases. Excess of inventories is narrowing. Prices are going up.
• Chinese, Indian and Far East demand increases. De Beers won’t be able to control the market.
• Mining companies are trying to control distribution by selecting their clients by how they advertise and how much they sell.

Supplier of choice (SoC) - distribution market power.

• They want their clients to increase added value, marketing and advertising.
• Control distribution to eliminate competition from middle markets and increase profits.
• Get rid of the little guys to stop their suffering. (Rapaport called it a human action. If you cannot make money in diamond business maybe you can do better elsewhere).
• ADD VALUE - with added value you are the king.
• Potential problem: after they eliminate a middle guy, De Beers might want to get rid of sight holders.
• Monopolization of polished diamonds distribution and prices.

Rapaport senses 1978...

• SoC is good for competition with other luxury goods
• SoC is bad because of monopolization of the polished goods - an opportunity for a class action lawsuit.

Mr. Rapaport believes in ADDING VALUE and FREE MARKET.

• Middlemen are not going to disappear. They will go downstream = more competition.
• Get rid of retailers who do not add value.
• Commoditization.
• Internet retailing
• It used to be jewelers give away settings to sell diamonds. Now they have to give away diamonds to sell the settings

Public interests are better served if there is a variety of choices and healthy competition.

• Let the free diamond market rule.
• Is educated consumer your nightmare? If so go out of business.
• Consumers won't get less educated.
• Free market competition - don't be afraid of it. Add value.

 

[Daniela]

Great information! Leonid, what do you mean by "giving away diamonds to sell settings?" I'm confused.

Daniela

 

[Hest88]

Wonderful synopsis, Leonid.

Daniela, I think he means that diamond markups will be so low that the profit will come in selling the settings. As a result, there will probably be numerous marketing techniques using the diamond as an incentive to buy the setting. Sort of like car dealers telling you they'll throw in free floormats if you buy the car, except in this case the setting is the car and the diamond will be the floormats!

 

[CaptAubrey]

in other words, using bridal diamonds (what used to be the bread-and-butter of any jewelry store) as loss leaders.




the times are certainly changing.

 

[Rank Amateur]

It seems odd to me that they want to let the free market act at the retail level but keep a stranglehold on prices and which "Suppliers of Choice" get the privilege of paying those prices.

 

[scotch]

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On 6/9/2004 7:19:26 PM Hest88 wrote:

Wonderful synopsis, Leonid.

Daniela, I think he means that diamond markups will be so low that the profit will come in selling the settings. As a result, there will probably be numerous marketing techniques using the diamond as an incentive to buy the setting. Sort of like car dealers telling you they'll throw in free floormats if you buy the car, except in this case the setting is the car and the diamond will be the floormats!----------------

More expensive rough, more competition for the retailer - you do the math.

Scotch

 

[oldminer]

Leonid:

Great synopsis of the present and future of the diamond business. I believe there is going to be a lot of painful transition and change for most of the players as this prediction becomes reality.

Increasing demand for diamonds in many rapidly developing parts of the world are going to have an effect on the supply of stones. Economies in some third world places are undergoing some huge positive changes which could make us pay more for stones and make what we want harder to locate.

Do you like roller coasters? It could be quite a ride.

 

[pricescope]

Comparing to these fundamental shifts the Internet issue is just a tip of an iceberg. Availability and prices will be very serious problems for the industry pretty soon.

 

[verticalhorizon]

'Pretty soon' is pretty vague. I don't expect anyone here to predict the future, but I think it may scare a lot of new PS members who are shopping into a rush decision.

Is it more like 6-12 months? 1-3 years? Next week?

I certainly was afraid of waiting any longer having seen platinum prices rise right before my eyes.

 

[pricescope]

----------------
'Pretty soon' is pretty vague. I don't expect anyone here to predict the future, but I think it may scare a lot of new PS members who are shopping into a rush decision.
----------------

Don't want to start any panic, folks, but from my conversation with several vendors, there is shortage of white and clean goods on the market from 2ct and up already. Vendors have problems with replacing the goods. Price for these categories can go higher.

 

[Pair0Ducks]

I am a cynic at heart, but I have got to believe that any shortage is still almost purely artificial rather than the idea that the world is "running out of diamonds"...

What do people in the business think about being trapped in a system which is only tolerated because diamonds are not a necessity? If Ford had a similar position in "cars" do you think the world would stand for it?

Maybe my notions are obsolete. De Beers doesn't have the hold they once did. But I still think they control enough of the puppet strings (or the other players are willing to go along) that it is more likely a "shortage" represents withholding diamonds rather than a natural depletion...

 

[verticalhorizon]

That is a likely possibility Ducks, a tactic that DeBeers has done in the past.

So what if rough is in short supply over the 2ct mark? Could that also affect prices on rocks 2ct and down, where I would guess is the category most people fall into?

 

[pricescope]

I'm not a big fan of monopolization either. What Rapaport was explaining is that you cannot produce diamonds (not yet) as cars on conveyer. How often new diamond mine is discovered? Considering increasing world wide demand, some type of goods (namely large and higher quality) will be in lesser supply.

 

[StevL]

I have been selling diamonds for over 30 years and there has always been a shortage of 2+ carat white clean goods!

Same story on that side of the issue... now if they would just turn loose of those 2+ carat we wouldn't have the shortage, or the higher price

 

[de]

I am a first timer here. What will the cultured diamonds from Apollo and I think its's Gemsis do to the supply and pricing. Has anyone out there had any experience with these cultured diamonds? I saw some and they looked pretty incredible and at great prices. WHAT DO YOU PEOPLE THINK ? ARE THERE ANY INDUSTRY EXPERTS TO SHARE THEIR COMMENTS?

 

[pricescope]

De, welcome. Check out these discussions:

Wired on Synthetic Diamonds
Another review of the Wired CVD synthetic article

 

[Nicrez]

Just a thought DE, but we have had (and will continue to find) Cubic Zirconia, Moissanite, Zircon, white sapphires, and many many other colorless stone that could almost double for diamonds, right...? So, diamonds prices should have dropped when Moissantie came on the market. No such luck.




Diamonds are NOT a commodity. They are not in the means of a food item, subject to regular supply/demand schedules. They are a luxury item that have a very impressive market, even during a low supply. They command prices that defy convention BECAUSE they are million years old, and took such energy and resources beyond our control to create. They are as old as the hills, and as mysterious to us, still...




Plus, DeBeers did a DAMNED good job of convincing the world that love = diamonds. Not Love = synthetic imitation of diamonds.




Yes, more people will buy the synthetic perhaps, but no one here will accept a synthetic as a substitute for the real thing. Even if no one else ever knows, you know that what you wear is real, made by the earth and unearthed and fashioned by man, just for you. It's the mystique that sells them, take that away and what are you selling?

 

[Pair0Ducks]

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On 6/10/2004 3:06:00 PM Nicrez wrote:


It's the mystique that sells them, take that away and what are you selling?

----------------

As Kramer stated once on Seinfeld, "You don't sell the steak, you sell the sizzle."

 

[de]

CULTURED DIAMONDS ARE REAL THEY ARE NOT CUBIC ZIRCONIA OR MOISSANITE. WHY WOULD I WANT TO PAY 3 TIMES MORE OR HAVE TO BUY A MUCH SMALLER DIAMOND JUST BECAUSE ITS NATURAL? NO ONE WOULD EVER KNOW AND ITS HIGHER QUALITY. THIS WORKED WELL FOR PEARLS DIDN'T IT?

 

[chialea]

----------------
On 6/10/2004 3:54:32 PM de wrote:

CULTURED DIAMONDS ARE REAL THEY ARE NOT CUBIC ZIRCONIA OR MOISSANITE. WHY WOULD I WANT TO PAY 3 TIMES MORE OR HAVE TO BUY A MUCH SMALLER DIAMOND JUST BECAUSE ITS NATURAL? NO ONE WOULD EVER KNOW AND ITS HIGHER QUALITY. THIS WORKED WELL FOR PEARLS DIDN'T IT?----------------

Look, I'm completely with you on this one. In fact, I'd prefer a lab-created diamond. However, they're just not being sold much (that I've been able to find) in white or blue, since the production's just not there. Please correct me if I'm wrong on this.

However, some people have an emotional connection to the whole age/dirt thing (I'm not trying to be flip or insulting, just trying to sum up

), which I don't have in that way -- I'd prefer to leave the earth where it is. It's something everyone gets to decide for themselves. And hey, if fewer people like the synthetics, then the prices might be lower for us, eh?

 

[pricescope]

Update for June 2004:

posted in Price hike a Hype?

 

[CaptAubrey]

colorless synthetics are still a ways from the market. apollo keeps pushing back their release date and even then their projected production is very small--maybe 5-10k ct/year. gemesis and chatham are producing some interesting colors now, though.




synthetics will sell but unless there are great changes in the way people view diamonds, they will be a niche product like synthetic rubies and sapphires have always been.




cultured pearls took over the market mainly because the production of naturals all but disappeared due to overharvesting and habitat destruction.

 

[chialea]

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On 6/10/2004 6:05:20 PM CaptAubrey wrote:


gemesis and chatham are producing some interesting colors now, though.

----------------[/quote]


... but in very, very small quantities, as far as I can tell. I've inquired and haven't been offered anything, so either they a) don't like me b) don't have any on hand or c) have really terrible customer service.

I believe blues, at least, are only being produced in small sizes for now. I have a necklace design that would be just lovely with four matched blues or greens in a small size and nice cut, though...

 

[CaptAubrey]

----------------
On 6/10/2004 6:09:46 PM chialea wrote:

----------------
On 6/10/2004 6:05:20 PM CaptAubrey wrote:





gemesis and chatham are producing some interesting colors now, though.


----------------

... but in very, very small quantities, as far as I can tell. I've inquired and haven't been offered anything, so either they a) don't like me b) don't have any on hand or c) have really terrible customer service.

----------------

i don't think either of them sell directly to the public. chatham was selling its stones in tucson (trade only) in february.

 

[strmrdr]

Part of what we will see and are seeing is DeBeers trying another route to controll the market.
Right now they controll somewhere between 50 and 60 percent of the available rough.
By further limiting who they will sell too they force the cutters that got cut off to go out and try too buy rough from the other suppliers.
This puts upward price pressure on the supply Debeers doesnt controll.
More people trying to get the same goods equals higher prices.
This allows them to raise prices of their own goods without worrying about the compitition undercutting them on price.
So far it is working very well.

 

[de]

Good thought, I like the idea of leaving nature alone and not buying diamonds that a child had to digout in slavery. I hope Apollo has the clear cultured diamonds out soon. 60 minutes II had aspecial a couple weeks ago and Gemesis said they are years away from growing clear stones but Apollo already is. We need Apollo to get their production ramped up .