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The Special Rough Market

Editorial

Mar 14, 2014 1:39 AM   By Avi Krawitz
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RAPAPORT... Rough diamond demand and prices don’t always follow trends in the polished market – much to the dismay of diamond manufacturers who often complain about the disconnection between the two markets. The exception is in exceptional diamonds. Demand for very large and special diamonds on the dealer market continues to rise in 2014, as it did in 2013, for both rough and polished.

The simple reason is that there is insatiable consumer demand for these goods. People want things that are special and unusual and that will set them apart in a crowded luxury marketplace. As a result, the industry tends to enjoy its most positive press when a celebrity buys a special pink, or exceptionally large diamond ring, or when such a piece sells at auction.

Buyers are motivated by the uniqueness of the piece as well as the investment value of these diamonds. Dealers are prepared to hold them in order to get their desired price and they tend to navigate any cycles of market fluctuation and emerge relatively unscathed.

Very rarely do these diamonds remain unsold and they continue to set record prices. Auction houses enjoyed a bumper year in 2013 with a number of special polished diamonds fetching record prices, and competition to procure such diamonds for auction remains fierce. Therefore, Sotheby’s should hardly be concerned that the 59.60-carat, fancy vivid pink, internally flawless, type IIa diamond it sold for $83.2 million in November was recently returned when the buyer defaulted. The auction house will surely hold onto the piece and sell it for an even higher price when the time is right – possibly in the near future.

A definite encouraging sign (for Sotheby’s) is that rough stones that are suitable to be cut into such exceptional polished continue to garner strong prices. Last month, Petra Diamonds sold a 29.62-carat blue rough diamond recovered from the Cullinan mine in South Africa for $25.6 million, or $864,865 per carat. Also in February, Gem Diamonds sold a 162.06-carat, type II rough diamond recovered at the Letšeng mine in Lesotho for $11.1 million, or $68,687 per carat.

Such prices are considered reasonable given that these stones are genuinely rare, forming a very small portion of a mine’s production – and not every mine can consistently produce them. In addition, as noted already, they’re considered a good investment and they are always in demand. Simply put, demand outstrips supply in ratios not seen elsewhere in the diamond market.

The fact that the overall rough market has been strong so far this year further boosts the large-stone market. After all, these goods have been robust throughout 2013 and before that, bucking the volatile trend of smaller commercial goods.

Therefore, reports about strong demand for very large sizes and fancy colors at the various auctions that took place in Israel this week should hardly be surprising. Perhaps more revealing is Israel’s command in this niche in the rough diamond market.

The country’s position was highlighted at the inaugural International Rough Diamond Week that took place at the Israel Diamond Exchange (IDE) this past week. De Beers, ALROSA, Rio Tinto, Tzoffey’s and I. Hennig each showed goods during the five-day event with numerous company representatives noting Israel’s strength in the large stone and fancy color rough market.


For the IDE and its members, the rough diamond week was an opportunity to position the country as an important rough trading center, where it faces stern competition from Antwerp, Dubai, Botswana, Mumbai and Hong Kong.

The diamond week concept illustrated that while buyers go wherever the rough is, sellers also gravitate toward quality buyers. The now-regular auctions of De Beers, ALROSA and Rio Tinto goods in Israel are testament to Israel’s diamond industry even as each company is showing their goods in other centers as well – Rio Tinto in Antwerp; ALROSA in Moscow, Antwerp and Hong Kong; and De Beers with additional viewings in Antwerp, Dubai and Hong Kong.

Some are hoping that such events will subsequently help rejuvenate Israel’s once vast diamond manufacturing sector, as Israel lost much of its manufacturing market share to India in the past decade or two.

Not everyone is convinced that it is viable to create large-scale manufacturing in Israel, given its higher labor costs relative to other centers such as India and China. However, proponents argue that Israel’s opportunity lies in manufacturing diamonds larger than 0.50 carats, since the labor costs involved in cutting those goods is negligible.

For now, the bulk of Israel’s manufacturing is in niche products such as large diamonds, fancy colored diamonds, better-quality fancy shapes and re-cutting existing polished. Those are pretty good areas to be in and should provide a steady foundation for a strategy to grow Israel’s diamond industry in the long term.

For the global market, the International Rough Diamond Week signaled continued momentum in the overall rough market ahead of the De Beers sight scheduled for the end of March. Preliminary feedback from the various auctions suggested that prices of rough below 5 carats increased slightly, while 5 to 10-carat goods were stable and special larger goods were firm.

There is some concern that rough prices will rise further this month, taking its cue from last week’s positive Hong Kong show. Israeli dealers certainly brought that motivation to the market this week and rough demand remains strong in March. Many, including this column, question whether rough prices are sustainable at current levels and expect a slowdown toward the second half of the year. But while demand for commercial goods will likely cool, there is an overriding sense that the market for special large and fancy colored diamonds – both rough and polished – will remain hot throughout 2014. 

The writer can be contacted at avi@diamonds.net.

Follow Avi on Twitter: @AviKrawitz and on LinkedIn.

This article is an excerpt from a market report that is sent to Rapaport members on a weekly basis. To subscribe, go to www.diamonds.net/weeklyreport/ or contact your local Rapaport office.


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Disclaimer: This Editorial is provided solely for your personal reading pleasure. Nothing published by The Rapaport Group of Companies and contained in this report should be deemed to be considered personalized industry or market advice. Any investment or purchase decisions should only be made after obtaining expert advice. All opinions and estimates contained in this report constitute Rapaport`s considered judgment as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. Thank you for respecting our intellectual property rights.
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Tags: Alrosa, Avi Krawitz, De Beers, diamonds, Israel, Rapaport, Rio Tinto
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