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The diamond-industry, pre- and post-coronavirus

Paul-Antwerp

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Greetings from Antwerp. I wanted to share some significant developments of the past weeks. I fear the below may read more like an article than a post and hope you will bear with me.

Preamble

Depending on which country you live in, or which state, the world went on pause at some time in the past weeks. Whether that pause came too late, too early or just in time, the future will probably tell.

And now, again depending on where you live, the world seems to be slowly re-starting. Again, whether that re-start comes too late, too early or just in time, the future will tell.

But the weird point of our reality is that the world did not really pause or re-start. A famous Belgian politician once said: “Crises are challenges.” And the reality is that the world is changing rapidly. That is quite the opposite from a pause.

Specific to the diamond-industry, a lot of change seems to be going on and I would like to provide insight about that. Decade-old habits are being questioned and possibly changed. It really is interesting to follow this process with attention.

1. Rapaport, the Rap-sheet, Rapnet and their influence

For decades, the Rapaport-group has had a very tight grip on how diamonds were traded, B2B. The company operated the largest B2B-online-channel, tried to be the main industry-reporting-source and on a weekly basis produced a price-sheet which was used worldwide to establish and communicate diamond-pricing.

These activities were so closely interconnected that Rapaport ‘reporting’ a price-change through the price-sheet on a given Friday immediately caused automatic price-changes on their B2B-listings, because prices there are entered compared to the price-sheet. So, the reporting of a price-change existing caused a price-change. For some this was considered a dangerous, self-fulfilling situation.

March 20, 2020, was an important day in industry history. Worldwide, the B2B-trade of diamonds had virtually paused. There were no direct indications of price-levels changing much (more on this later). Still, Rapaport surprised us all by suddenly publishing a price-sheet with an overall price-reduction of approximately 8%. It took the industry by shock.

For some days there was protest against the Rapaport-company for making this mistake. But then, the realization sank in that the crisis offered an opportunity the industry started to react.

  • Many traders and cutting-houses removed their diamonds from Rapnet, reducing the total of diamonds listed on Rapnet by approximately 80%.
  • Simultaneously, listings on the competing B2B-network IDEX exploded. IDEX had close to an extra 1,000 subscribing companies early April and communicated now listing over 1 million diamonds earlier this week.
  • A big part of the industry has simply rejected the Rapaport price-sheet of March 20, and have instead continues using the March 13 price-sheet as the basis for their pricing.
  • Now you have multiple organizations working to create transparent pricing guidelines to replace Rapaport’s historic sheet for trading diamonds B2B. In addition to IDEX there is the World Federation of Diamond Bourses.
If these initiatives persist and most of the industry follows them, it may become hard times for the Rapaport-company. Companies will wonder if taking another subscription really is worth it when their yearly subscription needs to be renewed. And given the 1000’s of new subscriptions elsewhere, it could mean millions in lost revenue for Rapaport.

How does this relate to diamond-pricing? I suggest that you check out this link to IDEX’ price-index: http://www.idexonline.com/diamond_prices_index

As you see, compared to a level around 120-121, there was a small decrease from the start of February, probably related to reduced activity in China, due to the corona-outbreak. On March 20, the index reached a level of 117.94, roughly 1.5% lower than at the start of the year.

That was the date (March 20,2020) Rapaport reported that prices overall had decreased about 8%. And because a change in the Rap-sheet creates some automatic price-changes, you then see the IDEX-index also decreasing further, to a low of 116.26 on March,25. Mind you, even with the influence of Rap, this is still only max 3% under the start-of-year-level.

From then you see a continuous rise of the index, and it is now clearly above the situation on March, 20. I think that these figures clearly show that indeed, Rapaport’s reporting in its March-20-price-sheet did not actually report conditions in the real world. They created an artificial drop.

It will be interesting to see how this pans out in the next months. But it could well be that we will talk about a diamond-trading-system before Corona-virus, and a new one after Corona-virus.

2. World diamond supply

Now, we already touched prices briefly, but why do prices not really plummet while diamond-consumption at the very least must have been paused in most of the world?

Many follow the logic that declining demand automatically causes downward pressure on prices. But that doesn’t consider how suppliers react to reduced demand.

Just like the corona-outbreak caused a pause in diamond-consuming countries, it caused a similar pause in countries where diamonds are mined. Many mines went into care and maintenance mode, not producing any new rough diamonds. Even more significantly, the most important sellers of rough diamonds took further measures:

  • De Beers’ allowed their clients to defer purchases in their February-sight, canceled the March-sight entirely and again permitted 100% deferral of purchases for the April-sight. In practice, that means an automatic yearly reduction of their supply (3 out of 10 sights in a year), with a small possibility of future sights becoming a bit larger.
  • Alrosa has taken similar measures and this week announced that at least two mines will remain under prolonged care and maintenance.
But there are other events happening as well:

  • Dominion Diamond has requested and received creditor-protection. It remains to be seen whether they will re-start their Ekati-mine in Canada and whether they will find the necessary capital needed to lengthen the life-span of that mine.
  • Petra Diamonds, whose South-African mines have re-started at 50% and whose Tanzanian mine has been put on indefinite care and maintenance, is postponing a debt repayment, while negotiating its debt.
It’s clear that, combined with reduced demand (possibly temporary), we are also seeing reduced supply (also possibly temporary). The resulting equilibrium may underscore the stable pricing, as per IDEX’ price-index.

3. The industry strikes back

Finally, one industry sector is creating a window of opportunity due to the corona-crisis. In most diamond-cutting countries, production has stopped for several weeks. Because of its importance in value, India is the one to watch here. There, production facilities are slowly re-opening.

While the selling industry has found some strength in jointly seeking an alternative to Rapaport, the cutting industry now seems to jointly use similar strength in another direction.

The GJEPC, the governing Indian diamond-industry body has requested their government to issue a month-long import-ban on rough diamonds. And there are important voices in the industry, pleading to extend that to a 3-month ban. Let me repeat that: Indian diamond-producers have asked their own government to ban rough diamond imports.

Why do this? In that way, they count upon time to reduce diamond-inventories and company debt-levels, making the entire segment of diamond-cutting and wholesaling stronger and more profitable again. If that succeeds, it will bring a prolonged period of reduced supply, with hardly any new material entering, and hopefully consumption resuming at a reasonable level.

Logically, this is costing miners the most. Yesterday De Beers’ CEO Bruce Cleaver sent out an open letter pleading for sales of rough to resume freely as soon as possible.

This was the poetic answer of a major Indian diamond-trader: “Can't an overflowing river upstream cause a lot of damage, from the midstream all the way up to the delta? As the crops along the overflown river's path would be washed out, wouldn't this cause a lot of famine for an unwanted period of time? Shouldn't the flow be controlled before such a scenario happens? Sometimes, man-made dams are necessary with some pains in the near future, but fertile and fruitful in the long run."

Summary

As I said when starting this overview, only the future will tell how this pans out. But the remarkable story here is that forces within the traditional industry are working to create change in an industry that has historically resisted and even defeated such change.

There is a chance that when it comes to diamond pricing, both B2B and toward consumers, and even in the relationship of diamond-miners with the rest of the industry, we may wind up referring to a time pre-corona and one post-corona.

For sure, these are interesting times. The diamond-industry is not in a pause. To the contrary, it may be in a period of enormous change.

Live long,
 

Karl_K

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Interesting times for sure. Thanks Paul.
 

Garry H (Cut Nut)

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sunandsky

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Fascinating, thank you ... v helpful to have this excellent synthesis - I don’t normally have access to or consume all this info, and now with 100 things going on I’m even less informed. Thank you.
 

psadmin

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Serg

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The GJEPC, the governing Indian diamond-industry body has requested their government to issue a month-long import-ban on rough diamonds. And there are important voices in the industry, pleading to extend that to a 3-month ban. Let me repeat that: Indian diamond-producers have asked their own government to ban rough diamond imports.
Not all big Surat diamond -producers asked the ban. There are big Surat diamond producers with good finances and without huge rough, polished stocks . They do not like the rough ban idea.
 

Garry H (Cut Nut)

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Not all big Surat diamond -producers asked the ban. There are big Surat diamond producers with good finances and without huge rough, polished stocks . They do not like the rough ban idea.
From Rapaport News: Eight production units in Surat, the country’s diamond-cutting hub, have begun operations at the city’s Special Economic Zone, the Gem & Jewellery Export Promotion Council (GJEPC) reported Thursday. Ten shipments of diamonds were exported from the Surat Hira Bourse to Hong Kong last Wednesday

 

Paul-Antwerp

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From Rapaport News: Eight production units in Surat, the country’s diamond-cutting hub, have begun operations at the city’s Special Economic Zone, the Gem & Jewellery Export Promotion Council (GJEPC) reported Thursday. Ten shipments of diamonds were exported from the Surat Hira Bourse to Hong Kong last Wednesday

Thank you, Serg and Garry, for that extra info.

A potential import-ban on rough diamonds into India indeed does not mean that everybody in the country is supporting or cheering for that request.
And the ban as such does not mean either that factories cannot resume cutting on the rough, already in their factories, albeit at a maximum of 33% capacity for now.

Fact is that GJEPC indeed requested for at least such one-month-ban, to start after lockdown-restrictions are lifted. And current expectation is that the current lockdown-measures will be extended until end of May.

How this will pan out remains to be seen. These sure are interesting times, with a constant flow of twists to the story.

For instance, on Dominion Diamond, it became public this morning that their total debt to creditors is $820M. Pretty high for a company making total sales of $528M in 2019. And that total debt does not include what Dominion owes to the Diavik-mine, now having defaulted on a payment of $11.5M in order to keep the partnership-mine operating.

Rio Tinto, 60% partner in that mine with Dominion owning the other 40%, has communicated that they will cover for the non-payment of Dominion for now, while holding on to their partner's share of the output, but also alerted that further payment-default will put the mine's further operation at risk.

Live long,
 

Rockdiamond

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Great info and analysis all!
My perspective is admittedly limited. It's been years since I needed to go overseas, and I've been able to find pretty much any stone I've needed right here.
Even today, NYC is still an incredibly vital and vibrant wholesale market.

Yes, there was a major league "freak out" when Rap lowered prices. And yes, there's been a backlash.
But it seems to me that there's a great possibility that the hate for Rap will die down.
Rappaport has been in direct contact with some of the largest players in NY and many have agreed not to pull their goods- or to relist them if they had pulled them. The alternate platforms really do have a ways to go to equal the facility of Rap ( IMO)

What will prices do in the short/medium and long term?
This, to me, is one of the most interesting and least possible to guess aspects.
Right now, if you want a stone, the supply is extremely limited.
Of course, so is demand as compared to "normal" times.
From what I see: companies that are open, and able to trade are not heavily discounting the goods compared to the prices a few months back. Or even discounting at all, depending on the sort of diamond it is.
So maybe the lack of goods is allowing prices to remain fairly stable in the "real world" of trading.

Time will tell. We sure do live in "interesting times"
 

Mlh

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Great info and analysis all!
My perspective is admittedly limited. It's been years since I needed to go overseas, and I've been able to find pretty much any stone I've needed right here.
Even today, NYC is still an incredibly vital and vibrant wholesale market.

Yes, there was a major league "freak out" when Rap lowered prices. And yes, there's been a backlash.
But it seems to me that there's a great possibility that the hate for Rap will die down.
Rappaport has been in direct contact with some of the largest players in NY and many have agreed not to pull their goods- or to relist them if they had pulled them. The alternate platforms really do have a ways to go to equal the facility of Rap ( IMO)

What will prices do in the short/medium and long term?
This, to me, is one of the most interesting and least possible to guess aspects.
Right now, if you want a stone, the supply is extremely limited.
Of course, so is demand as compared to "normal" times.
From what I see: companies that are open, and able to trade are not heavily discounting the goods compared to the prices a few months back. Or even discounting at all, depending on the sort of diamond it is.
So maybe the lack of goods is allowing prices to remain fairly stable in the "real world" of trading.

Time will tell. We sure do live in "interesting times"
Thought this could be relevant:
 

Rockdiamond

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Absolutely @Mlh !
The point is...Rap is not simply "laying down"....from discussions I've had with some major polished sellers here, it seems that Martin is reaching out personally with a heavy sales pitch to keep the players on board. They have enough resources that I'm not surprised if Rap extends his reach however possible right now
 
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WillyDiamond

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As a consumer, am I happy prices on the Rap report went down 8%? Is the Pope Catholic? For years I have been ranting on this forum how the prices are not reflective of supply and demand but are dictated by few. This Corona Virus is awful. I am not unhappy about prices dropping. You might say it’s about time.

What will prices look like in a few months compared to previous months? No one knows, just speculation now. My thoughts are though it seems that the supply will tighten because mines may not open, if you believe that, at the same time Demand by the good old consumer will dry up. With the large number of unemployed and bankrupt companies, fewer people will have disposable monies for a luxury item.
 

Karl_K

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As a consumer, am I happy prices on the Rap report went down 8%? Is the Pope Catholic? For years I have been ranting on this forum how the prices are not reflective of supply and demand but are dictated by few. This Corona Virus is awful. I am not unhappy about prices dropping. You might say it’s about time.
That is the whole issue, prices did not drop.
They were not willing to sell their diamonds at the lower price.
Just the Rap listed price dropped.
 
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WillyDiamond

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They did not drop prices? With what is going on now, let me offer to them a fork, knife, salt and pepper.
 

Paul-Antwerp

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They did not drop prices? With what is going on now, let me offer to them a fork, knife, salt and pepper.
I talked to an Antwerp-dealer this morning. This is what he said: "It is relatively quiet, yes, but I do get inquiries for diamonds. And most other options are stuck in India right now. So, on these sales, I can even get a slightly better price. And why shouldn't I?"

And with cases of the virus still rising in India, expectations are now that a full lockdown will be issued there.

Live long,
 

Rockdiamond

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New York dealers who are open And selling are thankfully not gouging. I’m finding prices a bit softer than two months back- but only slightly.
 

Rockdiamond

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And as it relates to Rapaport. I was talking with one of the “protesters” yesterday. He’s spitting mad at Rap for the 8% drop.
so I asked him- “When is the last time you actually paid- or sold for the Rap price for a stone?”
He never buys or sells at the actual list price. The point is that dealers have been adjusting their prices based on factors outside Rap forever.

I predict the challengers will make some ground- but Rap will maintain predominance.
 

Texas Leaguer

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Excellent overview @Paul-Antwerp . Thanks for posting.

We usually think of industry disruption being caused by some novel technology. In this case it took a novel virus!
 

Rockdiamond

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And most other options are stuck in India right now.
I would not count NY out just yet......there's still a massive amount of diamonds here- and to a lesser extent Los Angeles....
 
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ccuheartnurse

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Interesting read.

I’m curious, with the major grading labs being closed, what impact does this have on the diamonds that are cut already & the ones that open cutting factories complete. Will jewellers sell these stones without reports to consumers?
 

Garry H (Cut Nut)

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Interesting read.

I’m curious, with the major grading labs being closed, what impact does this have on the diamonds that are cut already & the ones that open cutting factories complete. Will jewellers sell these stones without reports to consumers?
Delivery out of india is a big issue right now - and that is where90% of those stones would be.
 

Rockdiamond

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My points about the diamonds already in the market- are more short term than Paul's longer-range outlook.
If production is halted for any amount of time, things will change.
How demand will change is just as much of a factor.
 

Texas Leaguer

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Interesting read.

I’m curious, with the major grading labs being closed, what impact does this have on the diamonds that are cut already & the ones that open cutting factories complete. Will jewellers sell these stones without reports to consumers?
For single stones of good quality, lab reports are pretty much an expectation these days. Therefore labs are an integral part of the supply chain. And as such, lab closures are part of the issue with availability.

We were just updated today that AGSL will begin a phased opening this coming Monday. They will be working through all the stones that arrived before the closure. Catching up essentially. They are not accepting any new stones during the initial reopening.

They expect to get into full swing starting on May 18.
 

diagem

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Interesting discussion and good overview by Paul. I would like to simply add to this discussion that we should also take into consideration that the industry "might" start feeling a strong flow of recycled jewelry/diamonds hitting the markets soon enough.
Such a possibility cant be disregarded.
 

WillyDiamond

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Mlh posts an article for all to read. I think the main points are:

Lucara expansion in Botswana on hold. Of course, no demand.

Russias Alrosa halted production due to “falling demand and sales for diamonds as the main reason”

DeBeers cancels its April sales event.

Canada’s Dominion Diamond Mines filed for insolvency in April.

South Africa’s Petra Diamonds skipped an interest payment because they needed the money to stay afloat. “We are concerned about oversupply of rough diamonds once the reopening of economies.“

If you think diamonds are going to hold their price, then you must also believe in the tooth fairy.

Am I upset that companies are folding and humans are losing jobs, affecting their family, can’t put food on the table and pay rent? You bet I am!

Am I upset about falling diamond prices? Not for a moment. I have bought in to this hysteria in the past and I have paid for diamonds. It is about time prices start to get in line with the model called “supply and demand”. We have been gouged by the select few price manipulators. Let that now stop.
 

diagem

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Mlh posts an article for all to read. I think the main points are:

Lucara expansion in Botswana on hold. Of course, no demand.

Russias Alrosa halted production due to “falling demand and sales for diamonds as the main reason”

DeBeers cancels its April sales event.

Canada’s Dominion Diamond Mines filed for insolvency in April.

South Africa’s Petra Diamonds skipped an interest payment because they needed the money to stay afloat. “We are concerned about oversupply of rough diamonds once the reopening of economies.“

If you think diamonds are going to hold their price, then you must also believe in the tooth fairy.

Am I upset that companies are folding and humans are losing jobs, affecting their family, can’t put food on the table and pay rent? You bet I am!

Am I upset about falling diamond prices? Not for a moment. I have bought in to this hysteria in the past and I have paid for diamonds. It is about time prices start to get in line with the model called “supply and demand”. We have been gouged by the select few price manipulators. Let that now stop.
Sounds like a rant on the wrong people and in the wrong forum...
One thing I have learned in my almost 40 years in this industry.., it follow no common economics.
Through out history diamonds have sparkled in the darkest moments.., plenty of literature on this unique subject.

All I can tell you (take it as you want), my last rough selection purchase which was about four days ago required an added premium because of current affairs.

Like I wrote on another thread, we all will be rediscovering diamond values, some segments will be hit bad but I can promise you some will appreciate very rapidly in value.

Which is which is the million dollar question, literally!
 
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