In my last series of articles I took an in-depth look at our industry from the perspective of the specialty jewelry retailer. I examined in detail many of the issues facing diamond retailers today, and suggested steps that they might take to stand out in a crowded retail space and to keep diamonds relevant in the eyes of the consumer. I also looked at the industry from the perspective of the consumer, in which I explored how people across geographical and socio-economic divides perceive diamonds, and how these people make their respective decisions to buy diamonds and diamond jewelry.
In this onward journey through the diamond industry pipeline, I want to focus next on the midstream diamond manufacturers. I have written extensively about the midstream’s role as the gatekeepers of our industry and my view that they must approach pricing for rough diamonds more intelligently. The prices they are willing to pay must be based on the fundamental value of the diamond that allows everyone to generate adequate returns for their efforts and their capital. However, we need to take a close look at this crucial part of the diamond pipeline to better understand the mechanics of the midstream.
Here in the first article of this series, I will look at rough diamond manufacturing and the process that transforms a rough stone into a finished gem for use in the jewelry trade. Only by factoring in the production costs at each stage can the manufacturer assess the correct value of a rough stone or parcel of rough stones.
New technology has seen the process of turning a rough diamond into a finished gem leap forward in speed, assessment of rough diamonds, accuracy of work and finished yield. I will discuss some of our industry’s incredible technological innovations in a later article and will, for now, suffice by a simple survey.
Rough Diamond Planning
Every diamond undergoes a series of manufacturing steps that are frequently performed by various skilled craftsmen in something of an assembly line. Perhaps the most important step is the preliminary planning, which is often a synthesis of art and science. The planner must evaluate the rough stone and determine the myriad potential outcomes upon polishing, and assign a value to each of those possible outcomes. This is a very complex series of calculations, which in some circumstances is based entirely on planners’ professional judgment. They must be aware of price trends, market demand, and the value of different diamond cuts, as well as how to optimize clarity and color.
This was once a manual process performed by skilled technicians or “markers.” Markers are still important to the trade, but technology has developed that allows manufacturing to be planned by computers that can perform complex calculations to optimize the value of the polished diamond from each piece of rough. These machines render three-dimensional images of the diamond and can check the stone internally for flaws and inclusions. This technology is often reserved for slightly larger stones, and human planners (markers as they are called in the industry)are generally still called upon to plan smaller stones.
Source: _Courtesy of Oz Cohen
One of the most important factors that a planner must take into consideration is the diamond’s model. A diamond model refers to its overall exterior shape, which dictates whether the stone will first be sawn into two, whether one larger stone can be made from the rough piece, or whether it will be cleaved into two or more smaller pieces. These three principal classifications are known in the industry as:
• Sawables (to be sawn),
• Makeables (to be made), and
• Cleavage (to be cleaved).
Sawable diamonds usually have a more crystalline shape, much like a diamond shape on a deck of playing cards. It is usually more profitable to saw these stones into two smaller pieces that will each produce one polished diamond (two from the total piece of rough). A sawable diamond usually produces a higher polished yield upon manufacture as the shape lends itself to less loss of material.
A good model of sawable diamond usually produces yields of 45% - 50%, and can exceed 65% in ideal circumstances or even above 70% when cutting square stones. Usually the value of the two diamonds will be higher than the value of one diamond from an irregular shaped stone. This is why sawable diamonds command a price premium in the rough and are the most sought after diamond models.
The actual process of sawing the diamond must be closely controlled to avoid damaging the stone or the equipment. In the past, this was done using copper saw blades impregnated with diamond tips that would spin at high speed as the stone was gently applied at the correct angle. Now the sawing process is almost entirely done by sophisticated laser cutting machines that reduce the loss of diamond material and can complete the task much faster than before. This method can, occasionally, saw through internal inclusions in the diamond that can be polished away at a later stage.
Source: Courtesy of GTD
Makeable diamonds get their name because they are “made” into a single polished gem. These stones tend to be more irregular in shape. While this often results in a larger finished stone, all else being equal, it also results in greater loss of material, which lowers the final yield of the rough stone. Size becomes a principal consideration in planning, which means that any inclusions in the rough stone are often left in the finished gem in order to maximize size. Makeable stones tend to produce polished yields in the 28% - 42% range and tend to be priced below sawables.
Unfortunately, not all diamonds are created equal. Nature endowed many diamonds with imperfections and inclusions, and the transportation process of bringing diamonds to the surface of the earth many millions of years ago caused damage to many of them as well. Cleavage stones are those that must be cleaved, or split, one or more times, usually because of internal stress, inclusions, or cracks that penetrate the diamond and would significantly lower the polished value if left inside. Essentially, the goal of manufacturing a cleavage stone is to split it into smaller pieces that can then be made into single polished diamonds of better quality than the original rough stone. Technology has been critical in transforming the way these more difficult and speculative diamonds can be profitably manufactured. Manufacturers can now turn a profit on diamonds that might previously have ended up being used for industrial purposes.
Transforming Rough to Polished
According to the Antique Jewelry University, people have been grinding diamonds for use in cutting other gemstones since around the 10th century. However, it wasn’t until the 13th century that Venetian artisans understood that a diamond could be cut using another diamond. The earliest diamond cuts were crude by today’s standard, as more sophisticated diamond cutting tools would not be developed until the 16th century.
Much has changed since then. But the centuries-old technique of using diamond to cut diamond endures until today. Modern technology has made the polishing process far more sophisticated and has helped to increase yields beyond where they would have been even a decade ago. Interestingly, much of the benefit of technology is seen in the planning process. Meanwhile, the latter stages of the process have not changed significantly in many years. These final stages are still largely performed by humans using the same tools of the trade that have been in use for decades. Transforming a rough diamond into a polished gem involves three principal steps, namely bruting, blocking, and brillianteering.
Bruting takes different forms depending on the final shape of the polished stone. For round brilliant diamonds, the world’s most popular diamond shape, bruting involves taking two stones and spinning them at high speed in opposite directions. These stones are then applied against each other with moderate pressure so that the two diamonds shape each other into the preliminary round shape for the finished gem.
Source: Antwerp World Diamond Centre (AWDC)
Bruting for fancy shape diamonds is slightly different and takes place one stone at a time. The rough stone is mounted on to a rotating axle at an irregular angle. Rather than spinning against another stone, the stone is rotated at short angles against a spinning diamond polishing wheel. The ultimate shape of the diamond is created a few degrees at a time. While the bruting process of round brilliants remains much the same as it has for many years, the bruting of fancy shapes has grown increasingly sophisticated with new technology.
After bruting, the principal shape of the diamond is cut in a step called blocking. This involves polishing the diamond’s main facets. In the case of most 58 facet brilliant cut stones, this would include the main table and culet facets, as well as the eight upper crown facets and the eight lower pavilion facets. This step provides the diamond much of its finished shape, and each facet is closely monitored to ensure that proper proportions are maintained at all times. During this step, it is common for the diamond to go through several layers of quality control and observation.
The final step in the process is known as brillianteering. This involves the adding star facets on both the crown and pavilion of the stone. These facets give the diamond much of its brilliance and fire. Poor brillianteering can result in polishing lines that do not meet or line up with each other and can have a significant impact on a stone’s value. Interestingly, blocking and brillianteering are still largely performed by hand in much the same way that they have for decades.
How to price a diamond
As I said, diamond polishing is both art and science. Technology is helping more and more, but the final craft of each stone still rests in human hands. The costs of production are well known to the rough buyer. Although he will never be able to estimate the correct finished outcome of a rough diamond each and every time, his experience will help him to be highly accurate.
The midstream must use this knowledge to price diamonds rationally based on the expected value of the polished outcome of each rough stone. By taking production costs into account and by accounting for an appropriate return on their investment of capital, the midstream can restore sanity to rough pricing and return rough and polished prices to some sort of equilibrium.
The views expressed here are solely those of the author in his private capacity. No one should act upon any opinion or information in this website without consulting a professional qualified adviser.
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Diamond industrialist Ehud Arye Laniado is a man passionate about diamonds. From his early 20s in Africa and later in Belgium honing his expertise in forecasting the value of polished diamonds by examining rough diamonds by hand, till today four decades later, as chairman of his international diamond businesses spanning mining, exploration, rough and polished diamond valuation, trading, manufacturing, retail and consultancy services, Laniado has mastered both the miniscule details of evaluating and pricing individual rough diamonds and the entire structure of the diamond industry. Today, his global operations are at the forefront of the industry, recognised in diamond capitals from Mumbai to Tel Aviv and Hong Kong to New York.