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U.S. Diamond Statistics

Mar 3, 2005 2:41 PM   By Saul Singer
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There is a consensus among diamond industry analysts that the world’s dominant diamond and jewelry consuming market is a relatively stable market that has experienced solid mid-to-high single-digit growth rates over the past decade. Although we are well aware of the structural changes currently taking place in the world’s wholesale diamond markets, an analysis of the official U.S. diamond trade data provided by the U.S. International Trade Commission (ITC) and the Department of Commerce reveals some intriguing anomalies that contradict at least this writer’s understanding of the dynamics of U.S. trade in gem-quality diamonds. These anomalies can be rationalized in either one of two ways: either there are fundamental problems with official U.S. diamond import and export statistics or there is more going on within the U.S. diamond industry than meets the eye.

A review of the U.S. diamond import and export statistics reveals that an upward trend in the gem-quality diamond trade has persisted since the downturn experienced in 2001. During 2004, polished diamond imports into the U.S. increased 14 percent to $13.9 billion while net polished imports edged up only 2 percent to $7.3 billion as a result of a 32 percent jump in polished exports to $6.6 billion. The growth in polished imports was driven by a strong 18 percent increase to $11.2 billion of polished imports of diamonds larger than 0.5 carats. Israel, India and Belgium remain the major sources of U.S. polished imports, together contributing 92 percent of total polished imports into the U.S. in 2004.

Although rough diamond imports increased for the third consecutive year by 7 percent to $753 million, the relative insignificance of the U.S. diamond manufacturing activity is illustrated by the 6 percent decline in net rough imports — rough imports less rough exports — to only $485 million in 2004. Interestingly, at least according to the figures, South Africa has emerged as the major source of U.S. rough imports over the past five years, contributing 67 percent of total rough imports in 2004.

The average price per carat of diamond imports and exports increased in 2004 for both polished and rough diamonds. Polished imports rose 19 percent to $754 per carat and polished exports increased 10 percent to $334 per carat. These rises were predominantly driven by the rise in the price per carat of diamonds above 0.5 carats with a 10 percent increase to $1,810 per carat for imports and 21 percent to $3,304 per carat for exports.

Anomaly: U.S. IS A NET EXPORTER OF DIAMONDS

Although alluded to by the rising values in both polished and rough exports, it is only after examining the flow of diamonds into and out of the U.S. in terms of volume that the anomalies start to appear.

It is quite bewildering why the world’s largest diamond-consuming economy had a net outflow of diamonds of some 3 million carats in 2004 — diamond exports from the U.S. exceeded diamond imports into the U.S. by 3 million carats. What is even more baffling is that it seems that this net outflow of diamonds is being spurred by the export of smaller (under 0.5 carats) polished diamonds back to the world’s major diamond-trading centers of India, Israel and Belgium. Why does India — which essentially specializes in small polished diamond manufacturing and has billions of dollars worth of inventory overhang — need to import small polished diamonds from the U.S.?

Although 2004 marked the first year in which there was an actual net outflow of diamonds from the U.S., there has been a steady decline in the U.S. net diamond account — i.e. net polished imports plus U.S. net rough imports — since 2000. Throughout the 1990s, there was a steady annual rise in the net inflow of diamonds to the U.S. from 5 million carats in 1990 to a peak level of 17.7 million carats in 1999. Then without any apparent reason, the net diamond account plunged 70 percent to 5.2 million carats. And then between 2002 and 2004, the net diamond account plummeted, culminating in a net outflow of diamonds in 2004.

This trend reversal is even more bewildering considering that as the volume of U.S. diamond manufacturing activity is minimal, one would have expected the rise in U.S. diamond exports over the past four years to be underpinned by a simultaneous rise in diamond imports. This has not, however, been the case, as the levels of both rough and polished imports have remained relatively flat over this period. Moreover, as mentioned earlier, it appears that this trend reversal is a direct result of an exceptional rise in the exports of polished diamonds under 0.5 carats to the world’s major diamond-trading centers. All these factors lead to the underlying question: where are these diamonds coming from?

There are two possible answers to this question. The first being that perhaps the ITC or the Department of Commerce implemented some changes to its classification system of diamond imports and exports. However, after speaking to both these bodies it seems that there have not been any reclassifications of diamond statistics.

The second possibility is that from a rational perspective, the only actual source of these diamond exports must be from inventory or even stockpiles. Nonetheless, this possibility is mitigated by the seeming absurdity of the U.S. diamond market building up an inventory of smaller polished diamonds during the 1990s that were then sold or exported to trading-center markets such as India in a relatively weak diamond-trading environment. The stockpile sell-down option is negated by the fact that at least, according to this writer, the only diamond stockpile in the U.S. is part of the Defense National Stockpile, which holds only industrial diamonds of which approximately 400,000 carats are offered for sale annually.

Perhaps the reason for this anomaly lies somewhere between a marked increase in the flow of diamonds within the wholesale market — either between dealers or even between different geographic offices of the same multinational diamond company — and the possibility that these diamond import and export statistics do not fully represent the extent of the U.S. diamond trade activity.
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Tags: Belgium, Economy, India, Israel, Jewelry, Manufacturing, South Africa
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