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Price List - Help or Hindrance
Price lists have grown to become an increasingly important part of the diamond market over the past 25 years. But do they, and can they, provide an accurate indication of diamond prices, and are they out-of-date the moment they are published? With thousands of categories of diamonds being traded around the world in vastly differing conditions, diamantaires believe that all they can really provide is a rough estimate of price levels.
By: Diamond World News Service
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Aug 22 2012 11:09AM
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Reference: 7185  

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The decision by leading diamond industry figure, Martin Rapaport, not to update prices for fancy cut diamonds for a long time and, in July, to cut them, has put the spotlight back on the issue of the list and its prominent role in the global diamond business. The price list, which has become a fixture in the diamond industry, has long been a source of heated debate.

For, as with any other product, shouldn’t the market alone decide what the price of any given diamond should be? Try explaining to someone who doesn’t work in the diamond industry, why the price of a certain diamond is ‘Rap -15 percent’ and you’ll get an idea of just how bizarre it sounds. And although other price lists also exist, they have not convincingly managed to win the support and patronage of the diamond trade.

Rapaport came out with his now well-known and widely used Rapaport price list in 1978. For many in the industry, the automatic reflex action when looking to check a diamond price is to look at the Rapaport list, which has become a sort of Bible for many diamantaires. But the list is not without its critics, and when Rapaport recently cut prices of fancy cuts he touched off a debate on a long-standing and contentious issue in the diamond industry. Many in the industry believe that not only did the decision regarding fancy prices not reflect what is really happening in the market, but also has a more profound impact. And this is not first time that the Rapaport list has sparked anger in the diamond industry. In 2006, members of the Belgian and Israeli diamond exchanges reacted vehemently when the Rapaport list published an average reduction of 5 percent in the prices of diamonds in the 10 to 90 point range despite what they said was strong demand at the time for VVS and SI stones. An emergency meeting was held at the Rapaport office, attended by leading diamantaires who handed a petition over to Rapaport.

And in 2008, just before the JCK Show in Las Vegas, the Rapaport list raised some prices by 25 per cent, along with smaller increases and some decreases. Members of the diamond industry heatedly questioned Rapaport at his annual breakfast meeting. Rapaport explained that the new levels included premiums that the industry was paying for goods, and advised diamantaires to recalculate their discounts against the new list.

And again in late 2008, the Belgian Polished Diamond Traders Association (BVGD) criticised a decision to raise diamond prices broadly. The BVGD said the Rapaport list was inaccurate since the market at the time was characterised by falling prices.

The decision by Martin Rapaport over prices of fancy cut diamonds, and then in July to cut them not only does not mirror what is actually happening in the market, say some diamantaires, but also has a more profound impact. If the industry is looking at a price list where prices have not risen – even though in reality they have – then manufacturers say to themselves: 'Why should I bother manufacturing those prices. It simply is not worthwhile, never mind profitable because I won't be able to secure the price I need.'

All this at a time when margins are razor thin at best, and when many manufacturers are even, according to reports, producing goods at a loss just to keep their operations working. Reports indicate that the price of rough is rising higher than the price of polished, thus reducing profitability for manufacturers even more. Many manufacturers, who are keeping expensive stock and trying to protect paltry margins, have now been told that their goods are worth less than their profit margin.

Manufacturers are likely then to decide that if the profitability only comes from making rounds then they will take rough goods that would normally be polished into fancy shapes and make round-shaped goods. This has several implications: firstly, it is creating more rounds for a market that already has a surfeit of them. But those rounds are being made at a higher cost because manufacturers are losing more yields making them into rounds than they would do if they were creating fancy shapes. As a result, the price of rounds rises.

Secondly, it reduces the number of fancy shapes on the market and may serve to persuade consumers that they should buy jewellery set with rounds because there is a larger selection of such diamonds. Thirdly, it creates problems for the manufacturers' clients – wholesalers, jewellery makers and retailers – who may seek to stop doing business with them, saying that they are not receiving a wide enough selection of diamond shapes. Lower-cost fancy shapes give them an extra option to offer their customers, but this alternative is now lost.

And, fourthly, it creates problems for manufacturers with their banks who will now decide that the stock held by the diamond polishers is worth less, according to the price lists, and may therefore be less willing to extend further credit.

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