Worldwide Flow of Diamonds & Future Price Consequences

[perry]

I have run across some interesting information on how the worldwide diamond business has changed - and continues to change. Implications on world wide diamond pricing and sales.

In 1960 Debeers controlled almost 100% of the worldwide diamond rough.

Debeers now controls about 65% of the worldwide diamond rough. Thus, DeBeers is starting to loose its ability to control diamond prices - and if the trend continues may loose primary control in the next several decades (but the diamond brokers may still act as an Oligoploy).

80% of the worldwide diamond rough gets sold through Antwerp.

90% of the worldwidel diamond rough is now cut and polished in India (up from almost nothing several dacades ago). The remaining 10%, the largest and best diamonds, are largly cut and polished in Antwerp, Isreal, and New York (Antwerps, Isreal''s, and New York''s cutting and polishing industries have been decimated in the last several decades).

50% of all cut and polished jewlery diamonds are sold through New York brokers predominantly to US customers (USA currently buys 50% the worldwide supply of jewelry diamonds).

Other countries, predominantly in the far east, are now beginning to adopt the idea of "Diamonds are a girls best freind" that had previously created the US diamond market.

Thus with an expanding world wide market, and a relatively fixed supply, diamond prices can be expected to continue to go up indefinetely. (( Unless of course some really good "lab created" diamonds can flood the market in the future )).

Most of this information (but not all) comes from a 2005, 65 page PDF file with the following name: I have married other bits of information I have from other sources to infomation in this paper.

"How Community Institutions Create
Economic Advantage: Jewish Diamond
Merchants in New York" By: Barak D. Richman

The link is (I hope this works):

http://law.bepress.com/cgi/viewcontent.cgi?article=1491&context=alea

This is also a wonderful read if you want to understand why the worldwide diamond market has so far been dominated by one religious sect, and why Ansterdam, Isreal, and New York became the diamond centers they are, and why India had become the diamond center it now is.

I thought that this would be interesting for those who wonder what drives world wide diamond flow and prices.

Perry

 

[RockDoc]

Perry


Very interesting link, but I believe the last few pages are more inidicitive to what''s happening as there is rapid change going on currently.

Thanks for posting this, it certainly was an interesting treatise by the author and extremely researched. Nice to see academic based opinion written and posted for others.

Rockdoc

 

[Garry H (Cut Nut)]

most of those #'s are a few years old Perry.

And India polishes 50% by value and 90% by quantity - kinda different slant on the same stats.

De beers mine about 40% in owned and Joint venture mines and market a total of about 55% of rough - so about 50% of rough is sold through London - so 90% in antwerp is way off.

They should torture and shoot journo's that re write the same garbage over and over. take the synthetic diamond stories for example.

 

[valeria101]

Date: 7/3/2005 10:49:45 AM
Author:perry

...the diamond brokers may still act as an Oligoploy.

I didn''t get to read through the paper, but this bit cited above rings true even with the numbers tweacked one way or another. Some time ago an article in The Economist went along the same line in their un-rigurous, story-telling way. At this point, it may be interesting to ask how much room for fragmentation is there (or if having an entity at the helm of price controll is necesary after all). With a stable price schedule, there should be allot less need for handson controll than one might think looking at current market shares. And that''s a good think, I guess

Just a thought...

Thank you for the paper !

 

[Garry H (Cut Nut)]

3 flaws in your assumption Ana

1. that there will be much of a wholsale trade left after the B2B sites and industry consolidation become the norm (tendency to make more efficient dis-intermediatized markets with less middle men)

2. De beers Supplier of Choice plan where manufacturers sell directly to jewellery manufacturers and retailers, and increasingly - direct to consumers.

3. Greed. Wholesalers are contributing to a slightly false shortage at the moment by holding back goods that are in short supply because they think they will make a killing at Xmas. But the same thinking causes even bigger runs on pricing if they think it is time to unload because they heard there is a dark cloud coming.

 

[valeria101]

Date: 7/4/2005 8:01:28 AM
Author: Garry H (Cut Nut)


there will be [NOT] much of a wholsale trade left after the B2B sites and industry consolidation become the norm

My picture is not as precise, of course. For some reason, I thought wholesale structure depends on the natural consolidation of mining. This statement has little to do with styled monopolies (siteholders).

How much arbitrage B2B links might allow is another Q I am not sure how to style asap, but would definitely like to give a thought

 

[perry]

The real question is not will internet marketing take over; but who will do the marketing.

1) Are the mines going to start selling directly to the cutters and industrial daimond dealers - or are brokerages still going to predominate.

2) Are the cutters going to sell cut diamonds directly to retail stores and/or consumers - or are brokers still going to be in the middle.

I see start of the second item now, how long before it becomes the dominant form is anyone''s guess.

I am not sure if there is much going on to change the first one, and I forsee for a long time that much of the jewelry business will be centered through London, with much of the jewel quality stones being sold by brokers largly based in Antwerp.

How do you eliminate the DeBeers sightholders?

Perry

 

[denverappraiser]

The article is a pretty interesting study of why so much of the worldwide diamond business is concentrated into a relatively small community (orthodox Jews). They present some interesting theories that I think have some merit. I’m not so sure that the predictions of the future are equally valid.

Mining is a very capital intensive sort of business. It requires big money to explore, develop and get product from a mine site. Most of the money is spent on things like equipment, labor, fuel, taxes and similar expenses that require immediate payment even the end consumption of the output (meaning the purchase by a consumer) may be years or even decades away. The mining companies are highly motivated to sell their output quickly so that they can pay their bills and produce more. Their stockholders are paying a great deal of attention to how this works. DeBeers is somewhat different from most of the mining companies in that they maintain an inventory in the hopes of controlling the downstream market but, under pressure from their competitors they are basically giving up this tactic. It’s just too expensive to maintain and their competitors have been eating their proverbial lunch. Notice the loss of market share that grows every year. They now hope to control their product flow through what they call the ‘supplier of choice’ program. This program is direct market pressure on their customers to sell in the way that DeBeers wants or they are threatened with losing their rights to participate. Not surprisingly, the siteholders are very upset about it and there have been major changes in this system within the last 5 years. Many have been dropped and many new ones have been added. It’s not over yet but they aren’t acting in a vacuum. The old DeBeers is already dead and the new DeBeers has some serious competition from the Russians, the Canadians and the Australians, among others.

Individual mines tend to produce large amounts of fairly similar product. Some mines produce lots of little, very white stones while others produce big yellow ones. As a mine owner, this makes it extremely difficult to market directly to consumers because you are effectively so specialized. A store that specializes large, moderately included yellowish diamonds is simply not a very good business model. It helps tremendously if they cooperate so that you have a store that sells diamonds and, when a client wants a particular variety, the store gets one from the appropriate source. Even better would be a store that sells all manner of gemstones and that caters to customers of sapphires, diamonds, peridot and whatever else their customers might find interesting.

Vertical integration is what it’s called when a company occupies a bigger and bigger piece of the supply chain. An example of this is when a beer company buys an aluminum plant so that they can get better prices on cans or when a farmers coop sells their own brand of butter to the grocery stores. Contrary to popular belief, this does not always work. In fact it usually fails. Making aluminum cans is very different from making beer and some of the differences are pretty subtle. The same is true of the diamond business. Retailing diamonds is a vastly different enterprise from mining diamonds. Cutting and wholesaling are as different as night and day. It is possible for a company like DeBeers to turn out to be good at several things but it’s far more common to find that they’ve seriously underestimated what’s required for success in the new activity. They quickly find that one divisions successes are masking the failures of another and the combination is worse than the sum of the parts instead of the hoped for synergy.
Historically, most cutting firms have been relatively small operations. This is because it requires some exotic skills that involve a lot of practice and training to develop and some fairly unusual tools. This is changing as new tools come onto the market that require less skill on the part of the operator. The result is large factories are starting to appear in low wage countries that are equipped with the very latest in equipment and techniques. This is roughly the same story as with many other manufactured goods ranging from automobiles to microchips. The old style cutting houses simply didn’t have the capital to expand into the retail and mining ends of the business but some of these new operations in India and China may hit the market pretty hard. This is the elephant under the carpet that has DeBeers worried. New and important players are appearing. If I were a betting man, I would put my money on Rosy Blue or Stuller before I invested a dime with DeBeers.

Neil Beaty
GG(GIA) ISA NAJA
Independent Appraisals in Denver