What else makes a diamond so expensive?

[EncikG]

http://www.idexonline.com/FullArticle?Id=44601

Miner sells 1220 carets of rough at average $308/caret.
When it reaches the stores, I’m sure I dun need to talk about the price u are paying for a 1caret stone.
Even with an expectation of 50% of rough lost, there’s still a big price difference.
Just trying to understand cost structure and who else has a cut along the way?

 

[Karl_K]

The $308 per ct number is meaningless when talking about the rough for 1ct stone.
The higher priced large rough is off set by piles of smaller rough where it takes multiple stones to make a ct resulting in a low average.

 

[Bron357]

Firstly, not much of mined diamond rough actually converts into saleable faceted diamonds.
The price per carat is an average, there could many carats worth of tiny pieces of rough, not suitable for jewellery. Maybe only useable for industrial purposes.
Aside from that the cost of converting a diamond rough into a diamond at the jewellers is multistepped and a long process.
Just like how much a pumpkin seed is worth at the start compared to the pumpkin frittata it finally ends up as sold at a top restaurant.

 

[EncikG]

Thks for the replies.
I guess then the next obvious question would be how much would a jewellery grade rough cost.
Seeing that the cutters/polishers in Surat, India, are paid peanuts for their labour. I was curious where else cost comes in...

 

[OoohShiny]

Thks for the replies.
I guess then the next obvious question would be how much would a jewellery grade rough cost.
Seeing that the cutters/polishers in Surat, India, are paid peanuts for their labour. I was curious where else cost comes in...

Are you tilting at the classic "Diamonds are exhorbitantly expensive, someone must be making a shedload of profit" argument?

I don't think we'll ever have top-to-bottom transparency on that front!

 

[EncikG]

Are you tilting at the classic "Diamonds are exhorbitantly expensive, someone must be making a shedload of profit" argument?

I don't think we'll ever have top-to-bottom transparency on that front!

Well not really. I understand that it’s a huge investment digging it up. A huge amount of skill needed to cut it. And I’m all for fair wages.
In fact Paul has previously commented in past post that the moneys with the miner and all we are paying is for him to trim away the excess. So just trying to understand the cost structure of the industry.

Say if we paid $x amount of dollars for a stone, I was just curious if we could generalise it to e.g 40% to the miners, 30% to the cutter and maybe 30% to retail? I’m sure it’s not that simple

 

[Johnbt]

Someone is paying interest on the money they borrowed to buy the rough. Or they are losing interest/earning power on their cash while it is tied up getting the rough to the cutters and waiting on the cutters and then sending it to the wholesalers, etc. The opportunity cost and risk, etc.

Then there are the lawyers, bankers, tax accountants, guards, transportation costs, etc. And that's at every step of the process I'd imagine.

And eventually we get to the retail end of the business. Have you checked the cost per square foot of retail space at the mall? Heat and AC, lighting, workman's compensation fees, insurance, business tax, inventory tax, corporate income tax, etc. It's no wonder retailers mark things up 100% or 200% or so.

People won't tie up their money for long periods of time without a healthy markup on the goods. And some of the inventory sits there for weeks and months. Or until the next going out of business sale.

Sometimes it's just easier to invest your money in the stock market and U.S. government bonds and go fishing.

 

[Paul-Antwerp]

Hi Encik,

You already got a lot of good answers. These are based upon the reality that 'rough' diamonds, just like polished diamonds are not a standardized commodity. Under the umbrella of rough diamonds and its average cost, there are thousands of categories ranging from the most basic, industrial-quality rough of 0.10$/Ct to the finest quality, big size (let's not mention fancy color) in the tens-of-thousand (sometimes hundreds-of thousand) per carat.

But more in depth, as for the cost-structure at consumer-level of a diamond, here is some more insight. In general, the industry quotes it as the first meters and the last three feet of a diamond's voyage towards the consumer costing the most. Now, of course, costing should be paraphrased to as adding-value.

As for the last three feet, this refers to the retail-action, where a diamond goes from a retailer to a consumer, passing (in old style) the last three feet of the retail-counter. Selling each diamond, one by one, with a lot of personal interaction with the consumer, is a very costly effort. And a successful retailer thus adds a lot of value by performing this service. Depending on where you buy, this retail-service is a higher or lower percentage of your purchase-price.

On the other end, the first meters, as in mining, is a major source of added-value. The miners need to recoup giant investments, to start with. Also, they have the power to put upwards pressure on prices. For instance, if a D costs far more than an E, it is because of this pricing-pressure of miners. The somewhat exaggerated detail in lab-grades is entirely in favor of the miners, while it offers limited benefit to the consumer, in my eyes. Looking at wholesale-cost to retailers, depending on size of the diamonds, the rough-cost amounts to 65% up to 90% of the total wholesale-cost. For bigger, more valuable stones, the labor-aspect is a smaller percentage, thus the percentage of rough-cost is higher. For smaller sizes, like melees, the labor-aspect is a higher percentage, and the rough-cost thus is a lower percentage.

Hope that this offered you some insight.

Live long,

 

[EncikG]

Thanks @Paul-Antwerp for that reply and glimpse into the industry

 

[OoohShiny]

On the other end, the first meters, as in mining, is a major source of added-value. The miners need to recoup giant investments, to start with.

I was reading 'Diamonds' by Marijan Dundek the other day (https://www.amazon.co.uk/gp/product/0953788431/) and IIRC the wording says that it can take 100 to 250 tons of ore to produce a single 1ct diamond.

Is that really the case?

That seems a phenomenal amount of material to sift through for a small shiny thing (although I assume that said material will be yielding higher numbers of smaller rough stones in the process) so I can kind of appreciate the fact that it takes a lot of investment to get a high amount of return.

 

[AV_]

if a D costs far more than an E ... somewhat exaggerated detail in lab-grades is entirely in favor of the miners

The word-named (as opposed to letter-named) categories (Colourless DE(a)F - Near Colourless GHI - Faint JKL into Fancy then Deep & Dark) seem almost common sense...

 

[Paul-Antwerp]

The word-named (as opposed to letter-named) categories (Colourless DE(a)F - Near Colourless GHI - Faint JKL into Fancy then Deep & Dark) seem almost common sense...

From a consumer-level, I think they do, AV_. In reality, aside from a potential mind-clean thing, how many consumers are going to see a difference between D and E? while it represents a price-difference of 10 to 15%. Many professionals will even argue to death about stones on the borderline, with one 200% sure that it is a D, the other one 300% sure it is an E, and GIA (or whatever lab) the one day 'deciding' D, the other day E.

Live long,

 

[Karl_K]

Tons of material per ct is another by itself near meaningless term.
It changes with the life of the mine.
When a mine is young they are removing a lot of overburden (covering dirt) so the tons per ct is very high.
They dont even bother immediately processing a lot of it, just put it in a tailings pile for later processing.
Then they get into the sweet spot of the pipe where tons per ct goes down.
Then eventually the ct per ton goes up again as the pipe narrows and they go underground rather than open pit or they just close the mine.

 

[denverappraiser]

Averaging a ton of crap that sells for $100/ct with a single 10-gram stunner (that’s 50 carats) that sells for $10M produces some funny results. In one sense, the average stone in that is worth $100.01/ct. In another, it’s worth $2,100/ct. Reporting that the 'average' miner gets $308/ct is hugely deceptive.

 

[Karl_K]

Tons of material per ct is another by itself near meaningless term.
It changes with the life of the mine.
When a mine is young they are removing a lot of overburden (covering dirt) so the tons per ct is very high.
They dont even bother immediately processing a lot of it, just put it in a tailings pile for later processing.
Then they get into the sweet spot of the pipe where tons per ct goes down.
Then eventually the tons per ct goes up again as the pipe narrows and they go underground rather than open pit or they just close the mine.

See change above.
Then eventually the tons per ct goes up again as the pipe narrows and they go underground rather than open pit or they just close the mine.

I read it six times and it was still not right lol.

 

[AV_]

how many consumers are going to see a difference between D and E?

It is fun to try once.

What I recall from such play, is that D-X range reminded light temperature over times of day & seasons & such - some happier than others; it is poetry...

 

[Menlikediamondstoo]

I’m going to tune in with a question for the experts because I have been wondering this for a LONG l.

I bought my 2 carat from a dealer friend (I know, it seems everyone has one of thoes. We searched rapnet together and I chose the stones I wanted him to bring in. The wholesale price of the one I ended up buying was 17,500. I was there when he opened the stone and saw HIS receipt for that amount plus $85 shipping. So he made a $415 profit.

My question is that if 17,500 was the wholesale price- who actually gets that large chunk of cash? The mine? The cutter? Even if I bought the stone from an online vendor and paid 19-20 the mark up still isn’t what I would have ever expected.

 

[Karl_K]

I

My question is that if 17,500 was the wholesale price- who actually gets that large chunk of cash? The mine? The cutter? Even if I bought the stone from an online vendor and paid 19-20 the mark up still isn’t what I would have ever expected.

Welcome to the world of diamonds.
Retail margins online are not high and just a bit more generally for B&M if they buy inventory. If they are getting stock on memo it may be lower than online.
Old timers have a saying, whats the difference between wholesale and retail prices? "What difference."
The days of 100% margins on anything but maybe some melee are long gone, even Tiffany isn't getting it.
Many online dealers would kill for a 30% margin.

As to who got the money more than likely it was a wholesaler who may or may not work for the cutter.
The days of a diamond going through multiple hands are pretty much gone, the pipeline has been streamlined.
edit:
The normal these days is miner-cutter-wholesaler-jeweler.

 

[mrs-b]

Depending on which country you're in, there's always tax and the government's cut.

 

[Menlikediamondstoo]

Welcome to the world of diamonds.
Retail margins online are not high and just a bit more generally for B&M if they buy inventory. If they are getting stock on memo it may be lower than online.
Old timers have a saying, whats the difference between wholesale and retail prices? "What difference."
The days of 100% margins on anything but maybe some melee are long gone, even Tiffany isn't getting it.
Many online dealers would kill for a 30% margin.

As to who got the money more than likely it was a wholesaler who may or may not work for the cutter.
The days of a diamond going through multiple hands are pretty much gone, the pipeline has been streamlined.
edit:
The normal these days is miner-cutter-wholesaler-jeweler.

Thank you for the clarification. I guess craftmenship and honesty is really all that’s left.

 

[denverappraiser]

I’m going to tune in with a question for the experts because I have been wondering this for a LONG l.

I bought my 2 carat from a dealer friend (I know, it seems everyone has one of thoes. We searched rapnet together and I chose the stones I wanted him to bring in. The wholesale price of the one I ended up buying was 17,500. I was there when he opened the stone and saw HIS receipt for that amount plus $85 shipping. So he made a $415 profit.

My question is that if 17,500 was the wholesale price- who actually gets that large chunk of cash? The mine? The cutter? Even if I bought the stone from an online vendor and paid 19-20 the mark up still isn’t what I would have ever expected.

What profit?

The business model of mines has become a hunt for large, very expensive stones. I’m talking about things with 8-digit price tags. Few of these come up, but it just takes one to pay for the entire mine operations for years. It used to be the opposite. Once upon a time, industrial grit was the bread and butter product for the mines and those big things were problems because the only customer was the Queen, and she was notoriously cheap. How many scepters does she need after all?

Averaging grit with crowns makes no sense.

Averaging grit with 2 caraters makes no sense. The mine is selling 100% of their product and are pricing based on what the market will bear. Every stone. They do get sold in parcels but at that level there are something like 1200 grades that contribute to the pricing formula.

 

[Karl_K]

What profit?

The business model of mines has become a hunt for large, very expensive stones. I’m talking about things with 8-digit price tags.

That is the business model for the near played out SA ex De Beers mines but its my understanding the Canadian and other newer mines are still in the business model of overall rough production??

 

[Menlikediamondstoo]

It is fastening that something sold for $20,000 can have such a small profit. Dealers aside, the typical jewelry store doesn’t even have a 2 carat stone in stock to show. I guess changing watch batteries is more profitable at the end of the day.

I would have “thought” that a 20k sale = 10k profit.

 

[Dancing Fire]

I would have “thought” that a 20k sale = 10k profit.

Not these days. Maybe like 25 yrs ago before the internet days.

 

[Menlikediamondstoo]

Not these days. Maybe like 25 yrs ago before the internet days.

Soo you literally have to invest hundreds of thousands if not millions to make thousands. It just blows my mind. Yet when you go to sell a stone you get offered such a small amount. I know for sure my 18,000 stone is probably worth 10!

 

[Dancing Fire]

Soo you literally have to invest hundreds of thousands if not millions to make thousands. It just blows my mind. Yet when you go to sell a stone you get offered such a small amount. I know for sure my 18,000 stone is probably worth 10!

When/where did you buy the stone?

 

[Menlikediamondstoo]

Last year through a friend who is a private dealer (doesn’t sell retail). I know if I were to go to him wanting to upgrade it would be possible (in this case)- (I never plan to sell this particular stone as it is sentimental).

What I’m getting at is that in general, if I walked into any random jewelry store and “tried” to sell it, I wouldn’t expect to ever see that 18k (or close to it) again. Yet the price for them on that particular stone wholsale would be 17.5k

 

[denverappraiser]

Last year through a friend who is a private dealer (doesn’t sell retail). I know if I were to go to him wanting to upgrade it would be possible (in this case)- (I never plan to sell this particular stone as it is sentimental).

What I’m getting at is that in general, if I walked into any random jewelry store and “tried” to sell it, I wouldn’t expect to ever see that 18k (or close to it) again. Yet the price for them on that particular stone wholesale would be 17.5k

Be careful about confusing value, retail, wholesale, and an assortment of other words that get tossed around in this industry rather lightly. For example, you're friend offered to sell you, presumably an individual, a single diamond for your own use. I'm not slamming your friend but that's the definition of 'retail'. A few posts above, someone used the word Rapnet as a synonym for wholesale and people often use a pricing grid by the same company called Rapaport for this. That's not the way it works. The price a consumer can expect on resale is none of these. I'm not going to dig into exactly why at the moment but I've got an article in the journal section about it if you want to look.

Difficulty in reselling is not always a function of the stone. For example, here in Denver, any dealer who buys from the public is required to fill out forms and sit on it for 30 days while the Sheriff searches the serial number against records of stolen merchandise. Cool, right? It helps catch bad guys. It does, but that means that any purchase involves tying up their money for 30 days and, if the Sheriff gets a hit, guess who gets burned? That's their business model and they're doing it with eyes open so I'm shedding no tears for them, but the offset to this is that the offers go down. The 'value' of a stone in the hands of a random customer who walks in the door is LESS than that exact same stone from a dealer who will take a return if it doesn't sell and who will give 30 days to pay the bill if it does. In any case, that's not a valid metric for deciding if the 'retail' jeweler is charging a good price.