The Diamond Market

[PinkDiamond]

The market for diamonds is changing rapidly, and it looks like recycled diamonds are going to be the next big thing.


Love for Resale: A Look Into the Recycled Diamond Industry

The recycled diamonds trade has become a huge, under-the-radar market. But how is it affecting the industry—and consumers who may get lowballed?
By Rob Bates, News Director - Posted on June 1, 2015

"The market for “recycled diamonds”—like the 4.47 ct. center stone shown here—is estimated to total as much as $2 billion.

In an oft-cited, frequently recycled 1982 Atlantic article, Edward Jay Epstein spoke of his troubles trying to unload a diamond on 47th Street. “Retail jewelers,” he declared, “prefer not to buy back diamonds from customers, because the offer they would make would most likely be considered ridiculously low.”

Four decades later, he’d have far less of a problem. The gold-buying boom kept many retailers afloat during the recession. But now that the price of gold has fallen and trade-in fever has cooled, it doesn’t take much for jewelers to add “and diamonds” to those “we buy gold” signs.

The result is a massive market for secondhand diamonds that has largely operated under the radar. There are now thousands of places for consumers to trade in their old gems—including companies like Circa, White Pine, and Worthy as well as websites like eBay, Craigslist, and I Do Now I Don’t, which specializes in jewelry from relationship breakups. Analysts estimate overall sales of so-called “recycled diamonds”—within the trade and to consumers—at about $1.5 billion to $2 billion a year, out of $81 billion in diamonds sold globally at retail. And that may be lowballing it.

“This is a cottage industry that has developed into a sizable part of the diamond trade,” says Andrew Brown, president and chief financial officer of White Pine Trading LLC. “Sotheby’s and Christie’s do over a billion dollars a year.”

The Boomers’ Baubles

Consumers can now sell their old jewels at a number of companies that have sprung up to cater to the secondhand market.

How much this is affecting the wholesale market is unclear. Every time retailers (or even consumers) buy a recycled diamond, they are passing up the chance to buy a “new” one. “We know retail clients of ours who don’t even buy diamonds anymore,” says Evert Botha, whose company, Embee Diamonds, recuts trade-ins for jewelers. “They are getting a steady supply off the street.”

Veteran analyst Ben Janowski says “there is no question it’s a factor” in the market. “It’s definitely hurting wholesale sales,” he adds. “I have seen retailers with stacks of diamonds that they bought off the street. It’s a drumbeat that is just going to get louder and louder.”

Part of the reason, he says, is the aging of the baby boomers, who are just starting to unload all the treasures squirreled away in their safe deposit boxes.

Retailers accustomed to buying gold from the public have in recent years turned their attention to diamonds.

Jewelry is increasingly coming up in estate planning, according to Jeffrey Singer, cofounder and vice president of jewelry buyer Circa. “Unless you know a child covets a piece of jewelry, it’s best to sell it,” he says. “When the time comes, you can divide cash any way you want. You can’t cut up a bracelet three ways.

“A lot of people between the ages of 40 and 60 are inheriting jewelry from their parents, and they are frustrated,” Singer continues. “They are more interested in college tuition or remodeling the kitchen.”

When looking at how the recycled diamonds boom gathered steam, most people point to the big gold rush of 2008 and 2009, which took the idea of trading in jewelry from the pawnshop to the mainstream.

“Once gold started going crazy, people started bringing in their diamonds, too,” says Susan Eisen, owner of Susan Eisen Fine Jewelry & Watches in El Paso, Texas.

For a long time, though, diamonds were considered an afterthought, says Ezi Rapaport, director of global trading for the Rapaport Group.

Circa buys diamonds and jewels over the Web and at 13 offices around the world.

“When I started going to the pawnshop shows, they all said we don’t take the diamonds out of the gold,” Rapaport says. “They didn’t get a significant price for them, and taking them out of the piece took about a week and within that week the price of gold could drop. But once the pawnshops and retailers started getting high prices, they forced refiners to add the service. Now every one of them does it.”

For Eisen, buying off the street has become a major part of her business model. “You get a better price, more variety,” Eisen says. “You don’t have to deal with invoices and accounts payable and go through 10 different steps to pay the bills. You write a check and it’s done.”

Buying recycled diamonds also “brings new people in and you can make them your customers,” she adds. Still, she cautions that retailers have to budget for the buying.
A Threat to the “Diamond Dream”?

Consumers are often disappointed by the selling price for their secondhand diamonds; many expect prices comparable to retail.

Meanwhile, De Beers has expressed concern about the problem Epstein wrote about: lowball offers. Unlike gold, there is no standardized pricing for diamonds. Prices vary, sometimes wildly. While some consumers discover to their delight that their decades-old piece has appreciated, not everyone walks away happy. Eisen has talked to customers who got nothing for their diamonds—the jeweler only gave them money for the surrounding piece’s “melt value.”

At JCK Las Vegas in 2014, De Beers CEO Philippe Mellier dubbed the trade-in experience “awful,” and worried it hurts perception of the product. De Beers senior vice president of strategic initiatives Tom Montgomery says the company found some unsettling things when it examined the trade-in market. “I did some mystery selling where I went down to 47th Street,” he says. “I had a really nice 75-pointer. A quarter of the players would not offer me anything. The average price was 15 to 20 cents of the retail dollar.”

A tennis bracelet lined with round-cut diamonds would need to be dismantled to calculate its trade-in value, say retailers.

Of course, even retailers with the best intentions generally offer less than wholesale; the diamond may not be something they can sell immediately, and if they’re going to buy wholesale, they’d rather buy from a vendor who can give them exactly what they want. Mounted trade-ins get discounted even more, because the stone can’t be probed for potential flaws. But consumers don’t always understand that; many expect prices comparable to retail, never mind wholesale.

“Consumers [who get lowballed are] not going to feel good about diamonds as a store of value,” Montgomery says. “That hurts potential demand. We all know a negative experience is worth far more than a positive experience.”

Recycling stones can make retailers uncomfortable as well. “A retailer’s job is to sell the diamond dream,” Montgomery says. “It’s an unnerving experience if the diamond comes back to them. It has cash flow implications. A retailer might not be able to manage the cost. And even if he pays cash, he may not be able to move it for a year or two.”
De Beers on the Scene

Baby boomers are starting to unload the treasures they’ve been storing for safekeeping—like this riviera necklace.

So De Beers decided there was a need for a better mousetrap—namely, the International Institute of Diamond Valuation (IIDV), a service that buys diamonds for retailers, promising to offer the “highest possible price…on the secondary, wholesale market.” The company has recruited five retailers for the pilot program; it will soon add more.

Diamond sellers are offered two options. The first involves contacting the IIDV for a quick price quote; the second involves sending the diamond to the lab’s New York City office for a thorough two- or three-day examination out of its mounting. (The quicker offer brings a lower price.)

One of the participating retailers, Manhasset, N.Y.–based London Jewelers, says about 75 percent of customers choose the multiday option. “Most legitimate sellers want to be methodical about it,” says chief operating officer Tim Claire.


Trade-in diamonds are big business for Susan Eisen, owner of Susan Eisen Fine Jewelry & Watches in El Paso, Texas.

But it depends on the area, Montgomery says. One retailer in a crowded market with lots of pawnshops and tourists says most customers don’t want to wait. In addition to buying the diamond, the IIDV pays the retailer a commission based on the cost. For now, the program is only a test. Montgomery says he is just getting around to thinking about a salesperson to move the inventory. “We are focused on the consumer right now,” he says. “We buy everything, even if it’s a one-pointer in a belt buckle. Our lowest offer was $30. And I’m proud of that.”

De Beers is far from the only player eyeing this market. New York City–based Circa, backed by venture capital, buys diamonds over the Web and at 13 offices throughout the world and also provides buying services for jewelers. “Jewelry is something that a lot of people look at as the great unknown,” Singer says. “We try to make it easy and comfortable.”

White Pine Trading buys from the trade and from consumers via websites and sells at auctions, through a wholesale ­service, and on services like Polygon. It traded more than $100 million in diamonds in 2014, according to its website.

Rapaport and newcomer Hoover & Strong auction off their diamonds to the trade through twice-monthly sales; the latter lets retailers reject or accept the final bid.

There are no standards dictating the trade-in value of a diamond from Tiffany & Co.

All this activity is good, Rapaport says. “From a consumer confidence standpoint, it’s important that when it’s time to sell her diamonds or jewelry back to the store, Mrs. Schwartz gets fair market value and not pennies on the dollar.”

With all the jewelry—and aging Mrs. Schwartzes—out there, many believe the market is in its infancy. The biggest problem may be educating the public that those dust-gathering jewels can be a source of income.

In fact, given the expected shortfall of new mined diamonds in years to come, it’s possible that recycled diamonds will soon play an even greater role in the business. “If De Beers is getting into it, you know it’s a big market,” Botha says. “The biggest mine may be on the street.”

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[PinkDiamond]

Diamond Business Facing “Perfect Storm of Challenges,” Associations Say
By Rob Bates, News Director - Posted on June 19, 2015

The diamond industry is being battered by a “perfect storm” of problems, from decreased manufacturing profits to a tarnishing of the industry’s brand, attendees agreed at the biennial meeting of presidents of the major industry associations, held this week in Tel Aviv, Israel.

Ernie Blom, president of the World Federation of Diamond Bourses, one of the groups meeting at the conference, said, “I don’t think many of us can recall a time when there was this ‘perfect storm’ of challenges that has hit our industry.”

Falling manufacturer profitability was the biggest concern, Blom said.

“The diamond producers have a responsibility to take our concerns extremely seriously and act upon them,” he said.

But he added that some manufacturers had brought their problems upon themselves by paying for unprofitable goods, an action he called “irresponsible and unsustainable.”

He stressed the industry also needed to be on guard against illegal behavior, as consumers are becoming more knowledgeable about what they buy.

“If customers are checking where their fruit and vegetables and tea and coffee were grown, be sure that when they go to buy an item of diamond jewelry that costs thousands of times more than those everyday provisions, they will have done their homework thoroughly,” he said.

Maxim Shkadov, president of the International Diamond Manufacturers Association, the other group meeting in Israel, also called manufacturer profits a major concern, noting the fate of his members hangs “in the balance” if something isn’t done.

Israeli Diamond Exchange president Shmuel Schnitzer lamented that many banks have decided the diamond industry “no longer suited them,” due to stricter regulations and anti-money laundering laws. He dubbed this attitude “totally unjustified” and called on financial institutions to increase their financing of the industry.

He also pronounced the Rapaport Diamond Report, the widely used price guide for the industry, non-transparent, noting ..."

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[PinkDiamond]

Diamond Industry Crisis Worsens: De Beers Allowing Large Deferrals, India Sees Defaults, Suicides
By Rob Bates, News Director - Posted on July 27, 2015

"In an unprecedented move and a sign of the diamond industry’s deepening crisis, De Beers is letting sightholders put off buying up to 75 percent of their allocations at its August sight.

This comes amid several reports of defaults in the Indian industry, including reported problems at one substantial company, Godhani Gems. There are also reports of suicides committed by out-of-work diamond workers.

“If you walk down the street in Antwerp or Mumbai, people are really suffering,” says Guy Harari, president of online rough diamond broker Bluedax.

In announcing its first-half financial results, De Beers said that sales had fallen 21 percent, to $3 billion, from $3.8 billion the prior year. It noted that diamond demand in China has substantially decreased, and that U.S. demand dropped a bit in the first half, for “weather-related” reasons, it said.

Its new policy means that De Beers is bowing to the inevitable, as sightholders did not take an estimated 60 to 70 percent of the goods offered at its July sight. Those declines included deferrals, which lets the clients postpone their purchases for the next sight, or outright refusals of the goods.

Traditionally, De Beers has only let a company defer a purchase one allocation before they are considered a refusal. Refusals can damage a company’s future standing ...'
http://www.jckonline.com/2015/07/27/dia ... -306540353

[PinkDiamond]

Rumors of De Beers Special Deals Roil Diamond Market
Rob Bates | October 21, 2015

"De Beers isn’t commenting on an online report, and persistent trade rumors, that it offered dramatic discounts on select boxes to a handful of clients at the last sight.

“I can’t comment on anything relating to commercial details of that last sight,” says spokesperson Lynette Gould. “It’s not unusual—we don’t comment on price or volume other than at results. We recognize it’s a challenging period for our industry, and we don’t discount the difficulties being faced—this is why we have done things like providing additional deferral options and [Intention to Offer] re-phasing, as well as making that major additional investment in fourth quarter marketing.”

Last week, Charles Wyndham of Polished Prices wrote that about half of the goods at the last sight were sold to a few clients after the main event, at what he called “substantial discount[s].”

His sourcing is unclear on this, though he says he talked to a sightholder who was offered a De Beers–discounted business from another client.

A couple of thoughts:

- While I appreciate De Beers’ long-standing policy of not commenting on pricing, this story suggests the development of a new pricing mechanism, which would be worthy of comment.

Further, these stories have damaged trade confidence, which already is quite wobbly. As one person told me, this is potentially more serious than when Rapaport lowers prices, as De Beers was long considered the industry’s backbone.

If these rumors are not true, De Beers needs to stamp them out—quick. (I made that argument to De Beers this morning. It is still not commenting.)

- If the stories are true, that raises potentially thorny questions. ..."
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[PinkDiamond]

Gosh, another one for this thread just this week.

The Diamond Selling System Is Broken. Can It Be Fixed?
Rob Bates | October 23, 2015

"Everyone agrees: The diamond market, and the way diamonds are sold, is a mess. The system has broken down. While producers continue to post strong profits, manufacturers’ margins have been whittled down to nothing, and the middle market’s woes have brought the industry to a crisis point.

On paper, the way miners sell rough has not changed for decades. Most producers still sell to a set list of clients, at a set number of sales, at prices that the producers determine. De Beers originated the “sight” system and most (but not all) of its competitors still follow its template. It is, in theory, a sensible model, offering consistent sales and supply to both producers and manufacturers.

What’s changed is pricing. In the cartel era, prices stayed mostly static, and De Beers announced increases every year or so. (Decreases were kept quieter.) But now rough pricing has become much more dynamic. In 2010, De Beers’ prices rose 27 percent. So far this year, it has said prices have dropped 7 percent, though the final tally will likely be far higher.

The price changes are seemingly driven by several factors, including the growing influence of tenders and increased pressure on miners from corporate parents and diamond-producing countries. Sometimes these factors converge. Botswana is now selling around 12 percent of its production through a new company, Okavango, via spot auctions and tenders. When those sales achieve high prices, how can De Beers explain to its longtime partner why its sight prices are lower?

On top of this, information now is more instantaneous, so producers have better and more accurate data about what’s happening with polished. So the question for miners becomes: What is an acceptable return for manufacturers?

For the last year, the producers’ answer has seemingly averaged in the single digits. That isn’t much, especially when you consider that manufacturers also incur costs, overhead, and interest on the financing required to pay upfront. While all cutters have different models, there is almost universal agreement that transforming diamonds is no longer profitable. And companies that don’t make money don’t stay in business. They also don’t receive bank financing. The current situation cannot continue.

If I had to sum up the industry consensus on how to escape the current mess, it is: First, demand needs to be increased, as that will boost polished prices. (Another, less long-term, way to firm up polished prices is by restricting supply or cutting production.) Second, miners must adopt a general policy of allowing manufacturers greater profits, which would possibly stabilize the market, grant cutters the ability to purchase during hard times, and win back the support of the banks.

Other ideas are more radical, involving fundamental changes to the current sales system. Here is a list of possible tweaks and alternate models, their pluses, minuses, and chance of adoption. It is by no means exhaustive, and I would be interested in comments.

- Cost plus ..."
There is much more by Rob Bates in this well thought and timely article. Read the rest of it with his solutions here:
http://www.jckonline.com/blogs/cutting- ... -306540353