Anomalies of World Diamond Market

This summer, the Kimberley Process management posted their world statistics for 2004-2007 on https://mmsd.mms.nrcan.gc.ca/kimberleystats/public_tables/Global_Summary%20-%202007.pdf
The furnished data allow making an in-depth comparative analysis of the world diamond market and educing some anomalies, whose comprehension brings up non-trivial implications.
To start with, let us consider the sum-totals of these statistics.

Table 1. Major Indicators of World Diamond Market (in round figures) 
 

Indicator	2004	2005	2006	2007
Production: - Volume, mn cts - Value, $ bn - Average price, $/cts	159 10 64	177 12 66	176 12 69	168 12 72
Aggregate import: - Volume, mn cts - Value, $ bn - Average price, $/cts	499 32 64	502 38 75	479 36 74	479 40 84
Aggregate export - Volume, mn cts - Value, $ bn - Average price, $/cts	496 32 64	514 38 75	486 37 73	471 39 82
Number of counted lots: - Import, thousand pcs - Export, thousand pcs	55 57	56 59	55 55	56 57

The first thing, which strikes the eye, is the conservative and hardly varying behavior of macroeconomic markers. Thus, the output in recent years was steadily maintained at $ 12 billion. The annual import and export stay at approximately 55,000 diamond lots. The aggregate export in money terms is almost similar to the aggregate import (naturally, some part of goods is en route or being processed and documented).

Secondly, it is evident that the average diamond price is growing slowly. Incidentally, there comes out an important peculiarity: while the output data for the four-year period indicate a growth rate of 64 to 72 dollars per carat, the export data move the figure from 64 to 82 dollars per carat and the import data push it from 64 to 84 dollars per carat. It is easy to calculate that the book price of production during the four years went up by an average of 12.5 percent, whereas the average export price grew by 28 percent and the average import price increased by 31 percent. It is clear that the 30 percent value is the closest to the real world price increase for diamonds. In other words, there is a world-established practice to count diamond output at reasonable bottom-line prices and to export diamonds at slightly knocked-down prices.

Thirdly, the export-import figures are three times as much as the output figures. This means that on the average diamonds cross four countries: the parent country of their output, the whole seller’s country, the dealer’s country and the manufacturer’s country. Such a four-stage diamond logistics appears unreasonable.
Let us consider the most conspicuous anomalies.

Table 2. Major Indicators across EC Countries
 

Indicator	2004	2005	2006	2007
Import - Volume, mn cts - Value, $ mn - Average price, $/cts	194 12472 64	202 14740 73	191 13734 72	187 14427 77
Export - Volume, mn carats - Value, $ mn - Average price, $/cts	203 12961 64	195 15346 79	178 13835 78	184 15363 83

The European Council or, to be more specific, London and Antwerp are the traditional centers of large-scale diamond trade.
It is evident that the above figures are relatively leveled. The smooth growth of the average price agrees with the global trend. There is fluctuation at + 5-10 percent with regard to the scope and value of trade operations.
To level off natural (or artificial) fluctuations let us use the averaging method.

During the four years, 774 million carats were imported and 760 million carats were exported. In other words, there is a difference of 14 million carats. This makes 2 percent of the physical diamond flows and can be easily explained by fluctuations in stocks. That is, the Law of Mass/Matter Conservation of Lomonosov-Lavoisier is held true with agreeable accuracy.

It is not so in terms of money: in 2004-2007, the European Union imported $55.373 billion worth of diamonds and exported $57.505 billion worth of diamonds. Neglecting the insignificant cutting industry in these countries we can deduce that the take amounted to $2.231 billion or about $533 million per year. This is the real intermediary and grading margin paid by the world diamond market to dexterous and smart guys in London and Antwerp.

Apportioning it to $12 billion worth of diamond output we get 4.4 percent. It is much more than the regular one percent in diamond broking by petty dealers. That is to say that approximately $500 million are taken by the “big fish” of diamond business like De Beers.

Table 3. Major Indicators for Israel
 

Idex	2004	2005	2006	2007
Import - Volume, mn carats - Value, $ mn - Average price, $/cts	42 6022 144	36 6178 171	27 5492 202	24 5858 245
Export - Volume, mn carats - Value, $ mn - Average price, $/cts	35 3733 106	31 4283 138	23 3450 151	24 4135 175

There is a conspicuous anomaly here – in 2007, the carat export matched the carat import. Possibly, there was a massive outflow of industrial diamonds from the stocks.

The other figures fit in the logic of smooth and steady downfall of both the intermediary business and cutting industry.
Thus, Israel is getting less and less rough (in carat terms it dropped from 42 million to 24 million carats); its average price grew by 70 percent, which is much higher than the world-wide price increase. On this background, its export was marked by a similar average price boost by 70 percent. In other words, Israel’s cutting industry was losing its competitive edge by leaps and bounds.

The cutting industry proper decreased its rough consumption from $2,289 million in 2004 to $1,723 million in 2007 or down 25 percent. The average price of consumed rough increased from about $350 per carat to $500 per carat.

Table 4. Major Indicators for Switzerland
 

Indicator	2004	2005	2006	2007
Import - Volume, mn carats - Value, $ mn - Average price, $/cts	12 882 70	13 1547 119	10 1261 127	10 1394 140
Export - Volume, mn carats - Value, $ mn - Average price, $/cts	12 1605 133	13 2178 171	10 1578 158	10 1624 164

Switzerland has no cutting industry and acts as an intermediary, often providing a “cleaning” function or intrinsically in many cases serving as a floor to legalize problem diamonds coming from Africa, Eurasia, and Latin America.

The statistics prove this well and truly. In carat terms, import is equal to export, which is logical: weight is the most unbiased customs indicator. However, in money terms export is much higher than import – for instance, in 2004 it was twice as much! This anomaly points to “high-margin” deals, but it is not our business to analyze them.

It is important to stress that the “trade surplus” is smoothly lowering and in 2007 it was down 15 percent. Evidently, Switzerland is cutting the share of odious diamond deals under the pressure of the European Union standards.

Table 5. Major Indicators for UAE
 

Indicator	2004	2005	2006	2007
Import - Volume, mn carats - Value, $ mn - Average price, $/cts	28 884 31	37 1485 40	42 1661 37	43 1954 46
Export - Volume, mn carats - Value, $ mn - Average price, $/cts	29 1669 58	34 2249 66	42 2368 56	40 2825 70

Dubai turned to be the main center of open diamond trade. Export and import are balanced in terms of carats. But in terms of money diamond outflow is 1.5-2.0 times higher than diamond inflow. Virtually in all business fields such a situation points to the presence of “grey” and illegal traffic of goods.

Vladimir Teslenko