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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.
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:
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,
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.
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.
- 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.
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,
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