Imagine an automobile market, in which cars do not become obsolete and are not being disposed of for half a century. Every year, we see millions of new vehicles coming off assembly lines, but all those produced earlier are still on the market, their features are unchanged and they are bought and sold. Obviously, such a market is doomed - the steadily growing mass of goods will weigh on the price until it turns out to be below the prime cost and the manufacturer will be ruined. In what way is this pattern different from the modern market of natural diamonds? In the same way as a diamond cut, for example, by Smolensk’s Kristall in 1967 is different from a diamond cut there yesterday. That is, in no way at all.
Historically, the creation of new consumers was no less important for the diamond industry than the search for and development of new diamond deposits - this was a necessary condition for the existence and prosperity of the market. But the destruction of mining for noble opal in Europe, the magic transformation of Japan into Consumer No. 2, the Eternity Ring Programme for Soviet diamonds and other glorious milestones in the formation of fresh consumer armies led to a situation where consumers are left today with a large amount of accumulated diamond goods on their hands. According to Blue Nile’s experts, their estimated value exceeds a trillion U.S. dollars. And thanks to the efforts of all stakeholders operating in the "diamond pipeline" this figure is continuously growing. Clothing and accessories are used to go out of fashion, gadgets and cars get morally and technically obsolete and only "diamonds are forever." The legendary advertising slogan is slowly but surely turning into an evil joke - diamonds are indeed eternal, they do not age and do not deteriorate. They return to the market.
Today, no one knows for sure the volume of the secondary diamond market. But everyone understands the fact that the problem exists and it is very serious. Otherwise, De Beers would not start the U.S. Diamond Reselling Insight Program and would not create the International Institute of Diamond Valuation (IIDV). Nevertheless, all publicly-accessible forecasts for rough and polished diamond markets persistently continue to ignore the existence of a huge (and continuously growing) "producer." The reason is simple - no one knows how to measure it.
In other luxury markets, the secondary turnover is a subject of close attention and analysis. Take, for example, the market of silverware. According to the Silver Institute, demand for this product in 2015 was 62.9 million ounces. And 28.5 million ounces of table silver was recycled in that same year. And this is just what went into refining, without taking into account the inventories of antique and second-hand stores, as well as online trading platforms, which sell used table silver. It can be said with confidence that more than half of the supply in the table silver market is provided by the secondary market.
But if he population is parting with family silver on such a scale, why should we think that it does otherwise with diamonds? Where are today the American matrons who received "Eternity Rings" graced with 25 diamonds for a silver wedding anniversary, say, as far back as 1965? Is it really true that the heirs of their late grandmother are feeling greater piety to her diamonds than to her table silver? It’s hardly so - while the operational statistics of refineries are relatively easy to access, it should be said that no jeweler, diamond dealer and retailer will bother his customer with details as to where the diamonds for his or hers new jewelry piece were sourced from.
Our one-year-long monitoring of prices displayed on online trading platforms proved that diamonds set in second-hand jewelry mass-produced in 1960-1990 are sold on average at 50% of the price of similar stones registered in the Rapaport Diamond Report. Exactly the same price ratio is true for the table silver market – vintage items mass-produced in 1960-1990 are sold at half the price of modern goods. So, the hypothesis that the secondary market makes at least one half of the polished market can be considered operational.
Favorable (for diamond producers) price forecasts continue to be underpinned by the thesis saying the world's mineral reserves are depleting. This idea was voiced for the first time ten years ago in an interview with Academician Nikolay Pokhilenko taken by the author of this article. The academician was right - there have not been any new large diamond discoveries since then. However, at that time the capacity of the secondary market, and even more so the reaction of this "deposit" to global downturns was not discussed. Meanwhile, if this factor is taken into account, diamond pricing prospects appear to be far from rosy. And it is not only due to the banal pressure on the market exerted by the bulk of goods accumulated over a century of industrial diamond production.
The mass consumer is wary of using things that have ever belonged to another person. "Bad aura" and "bad energy" are very common phobias, which sellers of vintage and antiques often have to deal with. But is the consumer guaranteed that a diamond in a new jewelry piece he is buying today in a boutique is not taken from the secondary market? There is no such guarantee. What is the probability that this stone was not mined yesterday, but in 1935, 1951 or, for example, in 1970? This probability is not defined and you can only discuss whether it is great or not. But there is no doubt that it is not zero! Would the consumer like to have a stone produced in South Africa at the time of apartheid or by Savimbi’s militants in Angola? Or maybe this stone once belonged to a victim of the Holocaust?
It is very much likely that the secondary diamond market has gained a critical mass, both in terms of goods and information. It is rather surprising that the apologists of diamond synthetics do not yet use its deadly potential. "Child labor," "ecology" and "blood diamonds" are a common explosive, but the "bad aura" is a nuclear charge. At one time, the market of noble opals was rooted away in favor of diamonds with the help of a similar "bomb" (misfortunes brought by stones). And maybe the next turn of the spiral is already close by.
Sergey Goryainov, Rough&Polished
