Jeweller: The Great Diamond Debate - Round II

DIAMOND AUTHORITY
Don’t blame synthetic diamonds
for the natural industry’s woes
GARRY HOLLOWAY’S KEY POINTS:
Market changes in India and China have had significant impacts on the natural diamond market
From a technical perspective, both CVD and HPHT synthetic diamonds have qualities that make them attractive
Synthetic diamonds offer benefits to cutters and retailers – but consumers prefer natural diamonds for engagements and anniversaries
There is a popular theory that synthetic
diamonds are killing the natural, mined
diamond business. That’s fake news! The
natural diamond industry is doing a better
job at harming itself than the manufactured
diamond industry could ever hope to do.
20.0%
10.0%
0.0%
0.30 CT
0.50 CT
1.00 CT
3.00 CT
It’s economics 101: liquidity crisis.
Most diamond cutters (they liked to be called
manufacturers, but now ‘manufacturers’ refers to
growers of synthetics) require bank finance for their
rough diamond buying.
For far too long, Indian companies have been
hooked on government-subsidised interest rates to
promote skilled export-oriented employment.
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Oct 18 Nov Dec Jan 19 Feb Mar Apr May Jun Jul Aug Sep Oct
PRICE TRENDS FOR 0.30–3-CARAT DIAMONDS, OCTOBER 2018 TO OCTOBER 2019. SOURCE: RAPAPORT
This has led to ‘round-robin IMPEX’: import a parcel
of rough, get a low interest loan, smuggle the goods
out of the country, re-import the parcel, get a new
loan, and repeat over and over.
It’s commonly believed that much of the
money sourced this way has funded Mumbai
property developments.
Finally, after 20 years, the government and banks are
clamping down. In Antwerp, ABN Amro – a major
lender to the rough diamond sector – has scaled
back its financing.
How can diamond dealers pay back their loans?
Firstly, they can stop buying very expensive high
colour and clarity large natural rough diamonds
because, as the Rapaport price graph shows, other
companies are dumping theirs.
Secondly, sell off your natural stock that is high
value and slow selling. Thirdly, start polishing high
demand rough, like D-J VS2-SI1.
Finally, if you are polishing manufactured diamonds,
get rid of your highly paid rough planning team
because factory-grown rough does not need
hi-tech planning.
Why polish grainy, cheap twinned rough that needs
planning to avoid inclusions, when you have a
simpler and more predictable option?
Note to self: sell my Sarine shares!
ANSWERS IN THE DIAMOND PRICE
When observing the diamond price trends over the
past 12 months, it becomes clear that the two big
falls reflect larger, high colour and clarity stones sold
off cheap to gain cash flow – presumably, in order to
pay back dodgy loans.
The smaller stones are ‘Chinese goods’; 30–50
pointers for engagement rings.
Like all new Asian diamond markets, Chinese
jewellers thought average consumers would buy
the same quality stones that the wealthy buy.
Wrong! Chinese jewellers stocked more than 10,000
stores with third-carat D-F VVS goods for the new
engagement ring market.
However, just like Japan and Korea, consumers
could not see the difference between a G SI1 and a
twice-the-cost D VVS.
To meet this new demand the GIA has reduced
the carat weight they grade from 0.50-carat to
0.15-carat. Cutters have moved a lot of their
production to meet the new Chinese demand,
cutting away SI and VS inclusions.
Now, they no longer need as many engineers
or advanced rough planning equipment.
The market has, simply, changed. Argyle is closing
at the right time. At around $US10 per carat, most
of their off-white output ends up in cheap
promotional jewellery.
That means lab-grown diamonds that look
far better to the naked eye will have a much
December 2019 Jeweller 37