Diamond prices: how it works
The following article details how the diamond market works from the mines to the consumer and how the price of diamonds is determined in each segment of the market.
Diamond market from mining to retail consumers:
1. GOVERNMENTAL AND PRIVATE MINES
Almost all of the rough diamonds found in the world today are controlled by a relatively small number of governments and private mine owners and conglomerates. There are some smugglers who steal from the concessions of those who control the gross from government and private mines. However, as a percentage of total world production, their numbers have little effect on the overall market.
2. ROUGH BUYERS AND DIAMOND MANUFACTURERS
Traditionally, rough diamonds were only purchased by diamond manufacturers for their own supply and for the supply of smaller cutting houses. Today, there are funds that buy raw for investment. Most of these companies do not manufacture polished diamonds. Rather, they store the products and most monetize the gross for liquidity.
3. WHOLESALERS AND EXPORT AND IMPORT BROKERS
Once the rough is polished, it is graded and listed for sale to export and import wholesalers and diamond brokers. India is the largest trade center by weight. However, it is difficult for Indian manufacturers to find the largest gross needed to supply large diamonds to the world market, as DeBeers limits the large gross to India to protect the other cutting centers from the labor cost advantage of India.
Most of the larger and more expensive products are made in Israel, Antwerp, and New York. There are cut products in Russia and South Africa and several other countries. Israel, Antwerp and New York remain the world’s leading centers for the largest diamonds. It is at these centers that wholesalers and brokers find polished diamonds for their customers in their home countries.
4. RETAIL AND INTERNET DISCOUNT
Today, due to the change in the way consumers are prepared to compare and buy, discount retailers and Internet stores have become the main users of diamonds. With few exceptions, they buy in the country of their business from wholesalers and brokers. Most of these companies lack the time, skills, and assets to buy directly into the world’s top scholarships.
5. FULL SERVICE RETAIL STORES
The consumer buys most imported diamonds from high-end stores (Tiffany, Cartier, etc.), high-volume chain stores (Zales, Sterling, Fred Meyer, etc.), or from independent jewelers. Like discount and Internet stores, with few exceptions, these retailers buy in the country of their business from wholesalers and brokers. Most of these companies lack the time, skills, and assets to buy directly into the world’s top scholarships.
I have given the flow of diamonds from rough to consumer to better illustrate how diamonds are priced at each level of the market and what the average profit is at the various levels.
The price of the rough depends as much on the time, place, skill, desire and need of the parties involved as it does on the shape, size, color and clarity of the stones in any rough plot. There are tenders that create fixed prices for attractions in Russia, South Africa and from DeBeers and other suppliers. However, these prices vary enough to say that, in reality, no two packages will ever be the same price and some providers will buy better than others. To earn mining profits, you can search for companies whose information is in the public domain.
Still, there is a price range for all goods and the gross will rarely exceed or be less than the range it falls into. All things being equal, the range is usually within 10% either way.
For a diamond manufacturer to stay in business, they must make a gross profit of 30-40% from rough to polished stone. The net profit in the industry is 5-8%.
If a rough piece retails for $100, you must be able to sell the stone for $130 or more or you will soon go out of business. Obviously, some stones will yield less and others more. The difference is a combination of skill and luck.
The importer-exporter-wholesaler-broker group purchases polished diamonds from manufacturers to sell to other importers-exporters-wholesalers-brokers and retail establishments. When the importer-exporter-wholesaler-broker sells to other importer-exporter-wholesalers-brokers, their profit margin is 1% to 15% depending on the factors described in the gross purchase. The average selling profit “on the trade” is about 5%.
When the importer-exporter-wholesaler-broker sells to jewelers, their profit is typically 10% to 30%, again depending on the above combination of factors. The average is around 20%.
Internet and discount retailers supply the public with diamonds and will make a profit of around 25% to 40% gross. There are exceptions, of course, but most consumers shy away from these companies when the diamond costs more than $15,000. They rarely sell important stones.
Full retail stores have a cost markup of 1.6 to 3.0 times, depending on store policy for credit availability and diamond cost. Smaller diamonds under $1,000 will retail for $2,000-$3,000 or more. The larger and more expensive the diamond, the lower the margin. It is rare for most chains and independents to sell major stones over $50,000 at retail.
The carriage trade is a completely different animal. They are blessed with fame, name and are well financed. Because of this, they have learned that they don’t have to be shy about their earnings structures. Few companies have their ability and fame and, due to lack of competition, they generally have higher margins.
This brings us to the price premiums these companies enjoy for larger goods. In general, high-end parts don’t have high margins because the total dollar profits are so large. If they pay $1,000,000 for a diamond they will sell it for $1,600,000 to $2,000,000 depending on the availability of the diamond and the customer’s negotiating skills. On high rarity diamonds, they can sell them at a higher profit margin. If the competition can’t find another stone to compete with, they will of course take advantage of the situation.
In order for the customer to feel comfortable with their purchase price and for the requirements of the insurance company, the appraisal was created. The stores themselves do appraisals and there are laboratories that do independent appraisals. Appraisal is an approximation used primarily for insurance purposes. Many stones are easy to evaluate because there are many comparable stones available. This is especially true when similar diamonds are listed on RAPNET, the industry’s wholesale price list.