Financial institutions are another key stakeholder in the diamond supply chain, which Ehud believed expected greater transparency from the diamond sector.
"Bank financing is the lifeblood of the industry. Without it, there would be no money for exploration or new store openings," Ehud stated in 2015. He also stressed the need to boost confidence in the diamond industry. This lack of confidence is evident in, for example, the decline in available bank financing over the past several years.
Beyond diamond players, Ehud explored other supply-side topics that have sparked debates over the years where he believed that similar to demand-side issues, greater transparency is central to address them. Lab-grown diamonds provide a good example.
While their emergence was accompanied by rising concerns across the industry, Ehud believed lab-grown diamonds can play a complementary role to that of natural diamonds, provided consumers gain a better understanding of the inherent value of natural diamonds.
As another possible way to solve the problem of fragmentation in the diamond sector beyond consolidation, Ehud encouraged the industry to explore strategic alliances.
Ehud explored possible methods of addressing the issue of fragmentation, drawing in part on lessons from other industries.
First among them was simply consolidation, whether natural or through mergers and acquisitions.
Delving further into the issue of fragmentation in the midstream (manufacturing) of the diamond sector covered in last week's post, Ehud said in August 2015, "The more we examine the facts, the clearer it becomes that the main problem faced by the diamond industry is that the midstream – the manufacturing sector of the diamond pipeline that mainly polishes diamonds – does not get its fair share of the pie."
In addition to improving pricing transparency, Ehud believed that the diamond industry should also tackle the other issues that have led to a decrease in trust in the sector as a whole.
Improving the pricing transparency of polished diamonds is the first part of the two main components of the Crystal Clear philosophy. The other part, driven by the first, is the ability to then determine the prices of rough diamonds.
The rationale that Ehud used here was that, ultimately, it is consumers who determine the price of a rough diamond based on how much they are willing to pay for its polished output.
The introduction of a transaction-based polished diamond price list is possible. The Mercury Diamond™ Price List which Ehud founded, provides wholesale polished diamond prices based on transaction prices in the wholesale market.
A key component of Mercury Crystal Clear™, the diamond pricing system which Ehud founded, is expanding consumer knowledge of diamond characteristics beyond the 4Cs (Carat, Color, Clarity and Cut) known to the ordinary buyer.
"The importance of a transparent and easily understood pricing system for diamonds cannot be stressed enough. For many years, the general press and many consumers have been stating that the misunderstood differences in diamond prices are a turn-off."
Our survey of the market this week has found that while demand for polished diamonds is improving, the number of transactions remains lower than usual for this time of the year. In response to high inventories, we are seeing new buying and selling behaviours in the market – from manufacturers buying run of mine diamonds, to traders self-financing and offering longer payment terms.
All in all, it’s been a turbulent and rather unusual year when it comes to the price of diamonds. Those in the trade know this, but when it comes to the question of how diamond pricing actually works, consumers often remain in the dark. And in a market where consumers don’t have reliable tools to assess a diamond’s price, can we really expect them to confidently buy the highest priced diamond jewellery? This past Christmas, the figures show we couldn’t and they didn’t, but more of that later.
I’d like to be able to say that diamond traders and manufacturers are in an enthusiastic and upbeat mood this January as is usually the case at the start of the year. But the reality is they’re not feeling it, and while diamond inventories build up, I predict a tough year ahead.
The rarity of natural diamonds is a factor of the economics of diamonds. What continues to propel diamond prices is a combination of the cost of production, the cost of polishing, demand in the market and limited supply. But is that all there is to it?
Retail sales results from Christmas 2014 are in. Mixed reviews and uncertainty dominate the picture. Against a backdrop of potentially concerning global issues, we are also seeing a growing tension between diamond producers and manufacturers on issues of pricing and stock.
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