The Diamond Game
SALPETER, ELIAHU
AN INDUSTRY IN TURMOIL The Diamond (Game by by Eliahu Salpeter Antwerp Funny things are happening to a girl's best friend these days: De Beers Consolidated Mines, the source of approximately 85...
...And they add the words "God willing," as they always do in the Antwerp diamond market...
...It is true that Israel's inflation rate last year was around 40 per cent, and that dealers and manufacturers there may have felt it a sensible policy to store some of the rough stones as a hedge against inflation...
...Speculation has proved profitable, too, because the price of cut diamonds keeps rising yearly...
...But even the richest people can survive without diamonds...
...But, of course, if De Beers starts polishing we are all finished as manufacturers anyway...
...Add to that headache the concern about De Beers going into cutting and polishing, caused by its establishing a sawing and cleaving plant in South Africa...
...If one believed the Syndicate was establishing a pattern to meet rising costs and inflation, one did not have to be a financial genius to realize that withholding stones would mean additional profits when the next hike was announced...
...We will become glorified salesmen at best...
...If it succeeds, it may cause several bad bankruptcies-and that is the last thing the Syndicate wants...
...Many of those stockpiling rough stones are concerned about raw materials for their factories because they fear a continually diminishing supply from the Syndicate...
...In short, he who stocks stones when prices are high should sell while the selling is still good...
...Once the current crisis is over, safe and steady price increases will again be the rule...
...None of them are interested in all the stones they buy: Manufacturers tend to specialize in certain types and sizes, and so do those buying only for resale...
...And De Beers' behavior over the past few months has hardly reassured anyone...
...The aim was not to raise but to lower prices by fighting what it views as excessive hoarding of uncut stones, Eliahu Salpeter, a regular NL contributor, is currently a European correspondent for Israel's Ha'aretz...
...At any rate, it is not only speculation on future profits or hedging against inflation that causes hoarding, dia-mantairs here assert...
...If De Beers cuts back sharply on rough stones, the British may decide to compensate for that loss of trade by going into polishing...
...And there are reports it has reduced the amount of diamonds offered, with some dealers here maintaining that in April this was cut by about 30 per cent...
...For these and other reasons, prices have been skyrocketing-prompting one of New York's most prestigious jewelers to take the unusual step of admonishing would-be customers not to buy the naturally crystallized carbon deposits because they are unreasonably expensive...
...To begin with, there is the future impact of the Soviet diamond industry...
...Firms on the Syndicate's select list are invited and offered a package for a fixed sum...
...It is true as well that the depreciation of the dollar (the currency diamonds are traded in on the world market) vis-a-vis many other currencies, and more important, its fluctuation, have made stockpiling financially inviting...
...This shows that by the end of 1977, the company had on hand stock valued at 221 million rands (about $255 million...
...Each package includes stones of different types, sizes and quality...
...Maybe the real reason behind the entire exercise is that in recent years the Syndicate has been too eager to gain from the prevailing high prices, sold too many stones and thus let its buffer stocks drop below the 'red line.' Now they may be taking measures to reduce the supply to build up the buffer stocks again-and the surcharge would compensate them for the reduced quantities offered...
...One expert explains: "True, in mechanical polishing you lose much more of the rough diamond than if you 'study' and handle each stone manually...
...They can take it or leave it-but they cannot argue about cost...
...These sales, incidentally-called "sights"-are hardly sales in the usual sense...
...He went on to summarize the problem: "Should the Russians begin to market their own polished stones directly, it will be very bad for Antwerp, for Tel Aviv and for New York...
...Moreover, the Syndicate's raison d'etre has never been to bleed consumers...
...These three centers are followed by New York and by India, the latter concentrating on the polishing of small stones...
...But the theory behind the reduction is said to go something like this: If inflation in Israel is a major cause of hoarding, then speculators must weigh the benefits of "anti-inflation" insurance against a potential loss from a sudden drop in the diamond prices, should the Syndicate cancel its surcharge policy and increase the volume of stones available...
...Oppenheimer's analysis has a basis in fact...
...Rather, it has tried to stabilize supply and demand in order to optimize the producers' profits in the long run...
...Nevertheless, they have now established three big polishing factories of their own, although they continue to market most of their polished stones through the Syndicate as well...
...Yet even if it were true that the Syndicate does not plan to continue reducing output, the world's diamond districts would still have something to worry about...
...London, where De Beers -known as the Syndicate-holds its monthly sale, is the undisputed center of the rough diamond business...
...Israel probably does the most cutting and polishing, especially of medium and smaller stones...
...Of late, though, some shifts have been occurring, adding to the present unease in the international market...
...Still, for all the turmoil in the industry, optimism has not vanished completely-at least not among those who practice "suggestion therapy...
...Admittedly, reducing the supply seems a strange way to combat hoarding...
...But a strong suspicion exists that the surcharge and drop in supplies may have nothing to do with hoarding...
...That is an idea that might slowly begin to appeal to them," commented a manufacturer here...
...Antwerp does the largest overall volume, since it is involved in trading both rough and polished stones and in selling stones finished by others...
...Second, there is some doubt that the Syndicate can flood the market with enough stones to "flush out" the hoarded diamonds...
...The situation will, they say, become more stable...
...This is too much of a speculative gimmick and runs counter to all principles of stabilization that they stand for," says a big manufacturer here...
...The Syndicate implicitly denies such contentions by pointing at the interim report of the Central Selling Organization (the official name of the De Beers outfit...
...According to experts in Antwerp, today the USSR is the most advanced country in mechanized diamond cutting and polishing...
...First, the Syndicate's own good name works against it...
...This seemed to them, too, the best way of guaranteeing stable high prices in the long run...
...For those who refuse sights more than occasionally may find themselves crossed off the guest list, and being on it is in itself worth a fortune...
...The Israelis are taking up a still greater share of the manufacturing...
...The company firmly denies it has any such intention, but not everybody in Antwerp is convinced...
...per cent less than the 1976 figure...
...The odds of this psychological maneuver having any effect on the dealers are slim, however...
...He attributes this to speculation, "which reflects an increasing use of diamonds not for jewelry but as a store of value...
...Then the Syndicate, they claim, will as usual take care of things and make sure that prices do not fall too low...
...and this is reinforced by fears about the instability of currencies, particularly the U.S...
...Nevertheless, it is also true-although Oppenheimer did not list this among the causes of hoarding-that the Syndicate itself may have contributed to speculation by raising basic prices last year about 35 per cent...
...At the same time, the Syndicate says it does not see why -with hoarding pushing up resale prices 50 per cent and more above what it was charging-the extra profit should not benefit the producers it represents...
...and the Syndicate, despite its denials, is suspected of making plans to enter the cutting and polishing business...
...Antwerp has been declining in manufacturing, while gaining in total diamond trading...
...This, indeed, is what the Syndicate hoped to accomplish with its recent action...
...The invitees are generally willing to to pay the asking price even when they suspect they will not do well, or possibly lose money, on a specific sight...
...But in a state-run economy, calculations of cost are different...
...What worries people here is the rumor that the Soviets will not only step up their polishing and thus reduce the percentage of rough stones available, but that they will start marketing their polished stones themselves...
...The major strength of this system (and of the Syndicate) had been its ability to price rough stones so that by and large all links in the manufacturing and marketing chain could make a decent profit, and yet the retail jeweler could sell the ring or pendant at a price the ultimate buyer thought fair...
...The quality is good, sometimes very good...
...Those who held larger than usual stocks of rough stones-more than was needed to insure a regular flow through the pipeline-made handsome profits...
...According to Harry Op-penheimer, chairman of De Beers, there has been an "unprecedented demand" for diamonds...
...Some of the dealers have their own cutting and polishing factories, others act only as "wholesalers' wholesalers...
...Repeated warnings to customers that present prices are overblown must sooner or later show some effect and slow down the demand...
...For years the Russians have been marketing their rough stones in the West through the Syndicate...
...In other words, every one of the Syndicate's customers resells part of the package, either to other factories or to other dealers...
...particularly by dealers and manufacturers in Israel...
...When that happens, the hoarders will be obliged to rid themselves of the stockpiles and there will be more rough stones on the market...
...dollar and the Israeli pound...
...As for its supplying less while boosting prices, that might not be unusual if the Syndicate were an opec-style group out to get the most that it could for a commodity everyone must buy...
...AN INDUSTRY IN TURMOIL The Diamond (Game by by Eliahu Salpeter Antwerp Funny things are happening to a girl's best friend these days: De Beers Consolidated Mines, the source of approximately 85 per cent of the world's rough diamonds, last month imposed a second consecutive special surcharge on its stones...
...One may argue whether this is a case of which came first, the chicken or the egg, but the reality remains that the majority of dealers, cutters and jewelers must obtain most of their diamonds from the 250 or so outfits who have access to the Syndicate's 10-times-a-year sale in London, and can thereby dictate prices...
...I would guess that the situation is more serious," one dealer here commented...
...Not surprisingly, such developments greatly worry Antwerp-together with London and Tel Aviv (Ramat Gan) one of the world's three diamond capitals...
Vol. 61 • June 1978 • No. 12
