The Business End of Cutting Well-Cut vs Poor-Cut Diamonds

[phildominator]

We''ve seen many 2.0 ct diamonds with what PSers deem as horrible proportions. We''ve also seen <1.0 ct diamonds with ideal proportions. We can debate what''s horrible and ideal...

...However, the end result is not debatable as these 2.0 ct diamonds are cheaper than the <1.0 ct diamonds.

This got me thinking...

Do rough diamonds cost differently, if they are of the same size, color and clarity?

What''s the reason for a cutter to cut a diamond of ''horrible proportions''?

I imagine that from the rough diamond, the cutter could have easily cut a better proportioned diamond. By cutting a ''horrible proportion'' diamond, they fail to maximize their revenue/profits because the diamond is sold at a lower price.

Is it because the cutter flat out screwed up?

Example...say a rough diamond cost a cutter ''x'' amount of money. That cutter can cut an excellent diamond and sell it for ''10x'' dollars. On the other hand, the poorly cut diamond can only be sold for ''3x'' dollars. Isn''t this screwing their own investment on return?

I must be missing something here...

 

[Lillers]

I am not an expert by any means, but there are certain carat weights a cutter tries to hit (1.0, 1.5, 1.75, etc) if they are looking to get to a certain price point. I''m guessing they take the rough diamond and try to squeeze out that prime weight, and end up with a less desirable cut grade. This is hedging on the bet that many consumers aren''t aware of the importance of cut and focus on carat weight instead.

 

[YoungPapa]

Phil,

It isn''t the cost of the rough, it''s the cost to produce. Ford and Ferrari pay the same amount for steel, but produce completely different products. It''s fun to be the Ferrari, but you''ll get a larger Wikipedia entry and 10,000 times the sales if you''re Ford.

 

[phildominator]

Date: 3/10/2009 11:33:11 PM
Author: Lillers
I am not an expert by any means, but there are certain carat weights a cutter tries to hit (1.0, 1.5, 1.75, etc) if they are looking to get to a certain price point. I''m guessing they take the rough diamond and try to squeeze out that prime weight, and end up with a less desirable cut grade. This is hedging on the bet that many consumers aren''t aware of the importance of cut and focus on carat weight instead.

I was thinking that, but the sell price tells me otherwise. If all 2ct diamonds were more expensive than 1ct diamonds...I''d agree...maximize the size, sacrifice the quality but diamond is more expensive.

However, fact is fact and we''ve seen much smaller stones sell for higher prices than the larger stone.

You''d think that the cutter should have just cut the larger stone better and smaller...and the diamond would sell for more money!

Again, I''m assuming that you can cut a poor-proportioned AND ideal-proportioned stone from the same rough.

Possibly, you can''t cut ideal-proportioned stones from every rough...

 

[phildominator]

Date: 3/10/2009 11:55:28 PM
Author: James Allen Schultz
Phil,


It isn''t the cost of the rough, it''s the cost to produce.

That makes sense. Thanks.

What''s involved in the cost to produce -- just the labor hours of the cutter or is the cutter just one of many levels?

Out of curiousity, what''s the ballpark difference in cutter hours between cutting a poor-proportioned stone and a AGS0 stone?

I read somewhere that H&A takes 4x as long as a regular AGS0 stone.

 

[strmrdr]

yield and labor
Sometimes the cut bonus is bigger than the size bonus sometimes not.
There are sophisticated machines and computer software that calculate this down to the penny.


Check this thread:
https://www.pricescope.com/community/threads/hca-interpreting-ags-ideal-candidates-range.108816/

"What it boils down to is pavilion depth is free and crown material can be recovered in a second diamond.
So for max price out of the rough you go for the deepest pavilion you can and then balance the selling price of a higher crown main and a smaller 2nd stone against the selling price of a lower crown main and a larger second diamond.
Most of time the higher crown heavier main stone wins so it comes out steep/deep. The cut premiums put a check on it however.
The added selling price of a AGS0 helps some and has to be factored into it and brings the crown back down some.
Then you factor with the GIA EX addition which allows the crown to go back up some and pick the one that brings in the most money.
Or you cut to the steep/deep edge of AGS0 and if you miss you get the gia EX for max recover and profit from the rough on average over a large run.

The ACA, Infinity, GOG super-ideal and others like them only exist because there is a premium for very well cut diamonds.
Otherwise there wouldn''t be enough profit in them to get rough."

 

[strmrdr]

link to one such machine:
http://www.octonus.com/oct/products/helium/rough/

 

[strmrdr]

double post
60 mile an hour winds are messing up my inet connection.

 

[Paul-Antwerp]

Hi Phil,

I have re-read your question ten times before starting this answer. At first, I did not get it, but I think that you are saying the following:

''I have seen many ''badly-cut'' diamonds of more than 2Cts and compared their pricing with well-cut diamonds of lower than 2Cts (You stated below 1Ct, which confused me). Then, why do cutters not cut the more valuable well-cut diamond?''

If that is your question, perhaps noone has yet addressed it. Jim Schultz gave a plausible cause, but the cost of cutting is a minor factor in the sales-price of a diamond, and as you will see below, the cost of rough cannot be compared to the cost of steel for car-manufacturers.

There are many more factors influencing what you seem to observe.

1. Are you comparing diamonds from the same vendor? Different vendors also means different supply-channels with different expenses attached. Even different cut-qualities from the same vendor might mean different supply-channels. Some supply-channels are exclusive, much more the case in well-cut stones because there is no intrinsic need to sell poorly-cut stones in an exclusive manner.

2. Rough in theory costs the same for everybody, but some are more equal than others. Mass-manufacturers generally have better relations with mining houses and will buy cheaper. And most poorly-cut production comes from mass-manufacturers. An elite cutting-facility will have to pay more for the rough simply because their total take-in is less.

3. When comparing finished stones, nobody knows from what rough they come. You might have a horrible 2.10 Ct-stone, having been cut from a rough stone of 4.58 Cts, that was part of a business of 3- and 4-carat rough stones, selling for an average price of 2,000 USD/Ct. (prices are meant as an illustration, and not to be considered actual). And you might have a well-cut 1.88 Ct-stone, having been cut from a rough stone of 5.32 Cts, that was part of a business of 5-carat rough stones, selling for an average price of 3,000 USD/Ct. Two completely different situations, as you can see.

Live long,

 

[denverappraiser]

Like all businesses, the diamond cutting trade comes down to being about money. The first key to understanding any business is to be sure everyone agrees on the objectives. The ‘best’ cut, from a business standpoint is the one that results in the most money after it actually sells and after expenses are deducted. This may seem obvious but it’s importantly different from what people here are generally calling the best.

I think it’s fair to assume that most cutters are pretty savvy folks and are aware of the various tradeoffs and although errors, problems and bad luck occur, it’s not that they didn’t know any better. What is seen as a cutting defect here was usually done for a reason. Often it has to do with retaining the most weight and occasionally it has to do with increasing clarity (by cutting out an inclusion) or reducing cutting time. That is to say, the cutter made a decision that instead of cutting an ideal 1.74 that he/she could sell for a premium because of the cutting, they chose to make a 2.25 cut like a turnip that they could sell for a premium because of the weight.

Even this becomes a complicated problem because not all cutters are selling through the same channels and to the same marketplaces. One cutter may be able to move the above mentioned turnip the day it's ready and others may end up holding it ‘til they die because it doesn’t suit their clients. An important piece of the cutting business is that merchandise needs to move quickly. Diamonds are expensive and even on the cheap the costs of supporting all of the work in progress is considerable. An inventory at the back end waiting for the right customer to come along to buy comes with some serious financing and other costs that can wipe out a company. The solution is for a cutter to plan in advance to make the kind of goods that their particular customers want so that things sell quickly upon completion. If VG or even G polish will be acceptable they can bring down the price because it takes less time and they don’t need to be on the bleeding edge of equipment. If VG or G cuts will be acceptable than they can bring up the weight for the same price and/or they can give a stone a bigger spread. Some buyers, like most of the people here, will refuse to buy such stones but others seek them out. It's a big world out there and the super-premium cutting marketplace is a relatively small one.

Neil Beaty
GG(GIA) ICGA(AGS) NAJA
Professional Appraisals in Denver

 

[oldminer]

Cutters also decide what to cut based on what they know their customers want and what they are willing to buy from them. There are many cutters who have or had, large users for rather commercial cut merchandise. Not especially well cut, but merchandise which was showy and very well priced. The biggest amount of diamonds cut is only cut to "fair" grading standards. A tiny percentage is truly in the "fine" range as defined by what Pricescopers mostly hunt for. Internet shoppers require fine cutting because you can virtully buy it sight unseen. Ordinary cutting of diamonds leads one into not knowing enough about how a diamond looks to be skeptical about buying it on-line.

This current limits of communicating beauty and appearance has led many of us to seek new technology to better define appearance and performance. In this way, Internet vendors will be able to increase the size of their offering to a larger demographic population and also better represent a far wider quality of diamonds in a meaningful way.

 

[denverappraiser]

Another area that comes into play is the details of the rough. Diamonds start out as a rock and the miner gets whatever God put there. They aren’t all the same shape and they get what they get. Some are more conducive to cutting different shapes, some lend themselves to shallow or deep stones etc. Cutters have more flexibility than miners in that they choose their own material from what''s presented to them. Cutters tend to specialize in one particular sort of work be it inexpensive melee from difficult to cut rough, Ideal princesses, big stones or whatever, and they will arrange their buying habits to support their own needs. One cutter may be willing to pay extra for a particular type of rough while another cutter will be looking for completely different material. The mining houses are, of course, attuned to this and will try to create their parcels in a way that results in each cutter getting what they want and they themselves get maximum dollar for their whole production run.

Neil Beaty
GG(GIA) ICGA(AGS) NAJA
Professional Appraisals in Denver

 

[Paul-Antwerp]

Jim''s remark about Ford and Ferrari got me thinking, and I would like to put it in perspective. Maybe the fact that my father was a proud worker of Ford Motor Company until his retirement caused me to re-think this comparison.

If we would compare diamonds in car-talk, the comparison actually is not between Ford and Ferrari, I think. Being a European, and maybe somewhat biased, I think that especially the European Ford''s are great cars, and I am not that fond of Ferrari''s. But let us suppose for the sake of argument that the Ferrari is at the pinnacle of cars.

Most diamonds in car-talk range from Yugo to Chevrolet. There is a slight difference in price for the Chevrolet-brand compared to the Yugo, but in general pricing is based upon size of the car (carat weight), size of the engine (color) and the number and size of the wheels (clarity).

The Ferrari in this comparison will cost about 15% more than the Chevrolet with the same size, engine-size and number and size of wheels. And the Ferrari will have more room inside for the same outer-size, will get more horse-power out of the same engine-size and will handle the road much better with the same kind of wheels.

This price-comparison becomes really distorted if one considers different dealerships. The above is true for the Internet. But the Yugo of a mall store could well be more expensive than the Ferrari on the Internet.

And I also forgot this, you also have different institutions judging the size, engine and wheels of the cars. Some even give Ferrari-like quality-names to Chevrolets and hardly ever call out the Yugo-quality.

Just trying to put this comparison more in perspective.

Live long,

 

[phildominator]

The message I''m getting is that the size/shape of the rough has a significant role in dictating the resulting diamonds'' cut...

Am I wrong in thinking that it takes relatively the same amount of labor to cut an ASG0 as a lower ranked stone (like an ASG3)?

-- I come to this conclusion with the understanding that cutters will cut whatever is dictated/conducive by the rough... For example, if a rough''s dimensions makes it conducive to cut a steep/deep with minimal pavilion waste (and cutter''s time), the cutter will cut a steep/deep. This cutter will not take this "steep/deep rough" and expend considerably more hours (and incur more costs) to cut a stone with shallower pavilions, even if it produces better light performance.

Almost ''path of least resistance equals maximized profits'', no?

A sincere thanks to the very thoughtful responses...very eye-opening.

Karl...wanted to let you know that your link led me to a photo of Cary Elwes... Not exactly the pot of gold at the end of a rainbow....haha....but the info in those threads greatly complemented this thread.

 

[strmrdr]

To summarize
Each piece of rough is unique and when it comes time to cut it taking into account how much money and how soon the cutter can sell it will determine the outcome.
The other variable is the cutters ability to cut an ideal cut diamond in an efficiant manner.
If it costs more than the gain in value to cut to ideal proportions and ideal finish than it will not happen.