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DIAMOND

Diamond Trade

The general principles of the art of diamond trading will be considered here. I get many emails from would-be-traders who are looking to become diamond buyers. Many are often naïve to the point of dreaming with their eyes open. To help some genuine novices and to discourage some obvious dreamers, I will share some insides into a reality of diamond trade and answer most asked questions.

The diamond trade, one of the most secretive and informal business, is organized along this line:

Miner - he mines diamonds
Shop owner - he establish a licenced shop in the diamond mining area and supply various miners in exchange of diamonds they produce
Diamond dealer - he buys from many shop owners and/or miners
Diamond buyer - he visits the diamond producing regions and buys from local diamond dealers
Diamond trader - he is established in main diamond trading centers and buys from various diamond buyers, which he often finances.
Diamond cutter - he buys rough diamonds from diamond traders to cut them
Cut diamond wholesaler - he buys cut diamonds from diamond cutters and supplies local retailers or jewelry manufacturers
Jewelry maker/wholesaler - he makes or wholesales ready made jewelry
Cut diamond/jewelry retailer - he sales to final clients

Naturally the real flow of diamond business can include all, more or only some of the above mentioned intermediaries. The names of each intermediary can change but not the function. Some hold more than one function. The main aspects is that most diamond business participants know each other and often do the business on a hand shake, which makes difficult for a total newcomer to break into the circle.

Most of newcomers try to contact directly miners or local diamond dealers not knowing that for miners or diamond dealers the newcomer is a potential confidence trickster or fly-by-night businessman who promises more than usually delivers. He can put a gun to miner's head and walk away with the parcel or pay with a counterfeit currency. Diamonds are a cash money and nobody has problems to dispose of them and certainly not at a bargain price to someone unknown. I imagine, it's like in any trade, an unknown business partner can be more trouble than good. In that case, no business no losses!

First, let look at diamond miner point of view. I will be covering here the issue of small and medium sized diamond miners. All are working hard to make the best profit they can get from diamonds recovered. They will visit as many dealers as they can to get the best price for a miner's parcel. Often, they will have to sale the diamond parcel to a dealer, which advanced them some capital in anticipation of a future production. The miner is not interested to allow a buyer to pick through his diamond parcel. He knows that the best price will be obtained when he negotiates the whole diamond parcel as one transaction. The larger and better quality stones will force the dealer to pay higher prices for small mélé, flats, chips, fancy and bort. This fact should cool some naïve future buyers thinking that they could pick and choose from miner's diamond parcel. A dealer buys it all or nothing!

The next deals with going into known mining areas to buy. Yes, sometime it will bring the price down since the miner is saved a trip to town, which obviously costs him money and lost time. Also, he doesn't want to leave his operation, as it will open him to losses by theft; the master's eye fattens the horse. On the other hand, in the field, he mainly needs fuel, food, parts and sometime equipment. The one who supplies these necessities to him wants to be paid in diamonds since this will be the source of an additional benefit. Often he credits the miner in advance with fuel or food he delivers. This answers the issue of buyers thinking that they will go to mining area with a wad of money and make killer deals. In some cases they will only buy from miners who own money to dealers or suppliers and are dishonest enough to sale on the side. It will definitely not make these dealers or suppliers happy and could even cost a cash buyer his life as a result; the doggy-dog's-world. Most often, the cash field-buyer will become the easy target of some criminals and loose his money and life in the same time. The authorities don't encourage the "travelling diamond buyers" as this type of practice is counterproductive to the collection of government royalties and the development and stability of diamond business. Only a diamond dealer with a stable place of business will obtain the diamond trader licence. A supply shop located in a diamond mining area can hold the diamond and/or gold trader licence, but it means to be established in one or more areas with resulting need for an organization and stability.

The shop owner sales his diamonds to a diamond dealer in town or a visiting diamond buyer. Which brings me to the issue of diamond dealers. The volume of diamond transactions forces them to have a large amount of funds available on hand. Diamond buyers from main diamond trading centres like New York, London, Antwerp or Tel Aviv finance most of these dealers, and to preserve good business practice and relations, they will not make one-time sales to other diamond buyers. Who wants to destroy a good will established by years of business to make one-time profit? Most often a diamond buyer will have to finance ahead a local diamond dealer to buy for him. This can be a risky way to invest if one doesn't have a confidence established by business relation over a long period of time. Diamond dealer, like a diamond miner is not interested for someone to come from-time-to-time and pick through his parcels selecting only larger stones. The diamond buyer will have to buy the whole parcel, which is a mix of all qualities, or pay an exaggerated price for selected diamonds. Overpaying for selected diamonds will put him fast out of the business. Who will then buy from him at higher price?

This brings me to the next issue; the prices of diamonds. Often inexperienced would-be-buyer thinks that miner's price, which is around US$100 per carat is a super deal and where one can make fast and easy money. Well, this price is for 5 to 6 stones per carat and you have to take the whole parcel. The price for larger stones in the parcel is negotiated sometime for hours… with diamond dealer making less than 10% on his investment before paying his business costs. The only way a diamond dealer can make money is to buy a large amount of diamonds, which take years of being in the same place to establish necessary good will. The dishonest diamond dealer who takes obvious advantage of his clients by crooked weights or diamond grading very fast is out of business and can even meet a worst end.

The next issue is security. A "travelling diamond buyer" doesn't have a security and has to deal from hotel rooms or other places where he meets unknown sellers. He is very often a victim of criminals who look for and target him. Also, if he is not a victim at a purchase level, he can become a victim of crocked officials for trading without the licence or exporting diamonds without proper permits. In the best case, he can loose all his money and land in a jail cell in some faraway country where anything can happen to him.

The last issue is where a diamond buyer can sell his diamonds. The large diamond traders or cutters in New York, London, Antwerp or Tel Aviv diamond centres will buy his larger stones while Indian cutters will buy his smaller stones. The market for small industrial diamonds is depressed due to man-made industrial diamond powder production based on patents of General Electric Co.

To resume the above, if someone wants to trade in diamonds he better start from the bottom; become an apprentice to an established diamond dealer and use time and dedication to progress up the business ladder. Especially in diamond trade old connections and trust established over long time play a major part of success. That way many diamond dealers are sons of previous dealers and family connection are an important factor in becoming a diamond trader. Higher one wants to go up the diamond business ladder; more jewish blood (from his mother side) he will need to have in his veins…to be accepted.

[ THE END ]
Diamonds: Large and Famous   Properties   Geology and Mining


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Rafal Swiecki, geological engineer email contact

This document is in the public domain.

March, 2011