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THE WHOLESALE DIAMOND MARKET

 

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DIAMONDS’ TRUE FREE MARKET: A PROFILE OF THE WHOLESALE TRADE

A hallmark of the business world today is the massive involvement of sophisticated technology, not only in product development and manufacturing, but in the marketing and sales process as well. In the diamond trade this was not a foregone conclusion, for many believed that with valuable merchandise, where often subtle variations in carat, clarity, color and cut can have substantial effects on value, buyers would be reluctant for forgo the traditional physical examination of the stone.

While the term “wholesale diamond market” is often bandied about in the media, only few outside the industry understand what it is, and appreciate the role it plays in the greater jewelry business. In part, this is because access to this sector is largely restricted, sometimes by law, although that is changing with the growing prominence of Internet trading. But the primary reason is because, for most consumers, diamonds are bought after they have been set in jewelry, whereas in the wholesale market the trade is exclusively in loose diamonds.

The wholesale market is located in what today is referred to as the midstream of the diamond pipeline, the figurative pathway along which a diamond travels from the depths of the earth, as a rough stone, to a polished one set in an item of jewelry. Along the journey it accumulates value, at rates that generally depend upon what stage of the pipeline the diamond is located.

The midstream is the section where rough diamonds are cut and polished, and then sold generally to jewelry manufacturers or retailers. It here that gem diamonds are traded essentially as a commodity, with prices governed by supply and demand according to the stones’ size and quality.

The bulk of goods are bought and sold in complexes anchored by diamond exchanges, of which the most prominent are Ramat Gan in Israel, Antwerp in Belgium, New York, Mumbai, Dubai and Hong Kong. Smaller, but also important trading centers include London, Los Angeles, Tokyo, Shanghai, Singapore, Johannesburg, Moscow and Istanbul.

According to Diamond Intelligence Briefs (DIB), the worldwide value of the loose polished diamond trade in 2016 was $18.7 billion, which was about 3 percent down from where it stood a year earlier. DIB’s economic models predict that in 2017, global polished sales will remain steady.

MID House of Diamonds - Wholesale Diamonds

It is important to appreciate the difference in value between the wholesale and diamond jewelry retail markets. DIB reported that, in 2016, global diamond jewelry retail sales equaled $74.3 billion, although De Beers estimated that it had passed the $80 billion mark. The average value of diamond content in the retail jewelry price was about 8 percent higher than its value at wholesale prices, and made up about 27 percent of the total value of the jewelry sold, noted DIB. Between 2010 and 2013, the newsletter estimates, the diamond content in jewelry was about 30 percent.

In many respects, the wholesale trade is the diamond business’ real free market. One is unlikely to get paid full value for a diamond in a pawnshop, in the same way that one would get paid for a solid gold item. But the same is not true in a wholesale diamond center, where tens and sometimes hundreds of thousands of carats of diamonds change hands every day.

The wholesale trade plays a critically important role in the geographically diverse jewelry market, which regularly consumes millions of carats per annum of gem-quality goods, in a dizzying variety of shapes, sizes and values, both in the standard and fancy color ranges.  The diamond wholesale trade has proven itself to be extremely efficient in matching suppliers to buyers.

It also is where the true value of a stone is most accurately reflected. Further on down the pipeline, at the jewelry manufacturing and

jewelry retail stages, elements like branding and marketing are more prevalent, and values fluctuate according to the location and setting in which the diamond is set and sold. Unsurprisingly, profit margins in the wholesale trade are the lowest in the entire pipeline.

And how are prices set? Price list operators are among the most powerful players in the wholesale polished trade, with the most well among them being the Rapaport Price List.

But as the Rapaport Group itself points out, these are unlikely to be the actual sales price, but rather “high-cash asking prices,” which it notes “may be substantially higher than actual transaction prices.”

Nonetheless, the price list is a relatively accurate yardstick of price movement. In the diamond wholesale trade, it is common to transact diamonds at a discount to the list price, although in certain cases diamonds that are in short supply or subject to speculative demand may trade at significant premiums. This is more likely to occur with higher quality goods.

MID House of Diamonds is one of the most important companies operating worldwide in the wholesale diamond market, with offices in Ramat Gan, Antwerp, New York, Los Angeles, Hong Kong, Shanghai, London and Tokyo, as well as an extensive online sales operation. Its massive inventory includes all shapes and sizes of loose polished diamonds from 0.10 carats to more than 10 carats in size, in both the standard and fancy color ranges. The company also offers its own lines of diamond-set jewelry.

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THE WHOLESALE DIAMOND MARKET
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THE WHOLESALE DIAMOND MARKET
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A hallmark of the business world today is the massive involvement of sophisticated technology, not only in product development and manufacturing, but in the marketing and sales process as well. In the diamond trade this was not a foregone conclusion, for many believed that with valuable merchandise, where often subtle variations in carat, clarity, color and cut can have substantial effects on value, buyers would be reluctant for forgo the traditional physical examination of the stone.
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MID House of diamonds
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