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Can the industry manage without diamond price lists?

27 july 2015

Price lists have become an increasingly important part of the diamond market over the past 25 years – and the Rapaport list has achieved overwhelming importance. But do, and can, such lists, provide an accurate indication of diamond prices? Are changes to the list carried out too often and are those changes too severe particularly at a time when trading conditions are difficult? Is there a realistic alternative to the Rap list, or will the industry have to live with it?

Those were the key questions asked at the Presidents Meeting in Tel Aviv in mid-June by the Presidents of the World Federation of Diamond Bourses (WFDB) and the International Diamond Manufacturers Association. Industry discontent with the Rap list is nothing new, indeed diamantaires' displeasure with the list has been expressed in all the main centers – Belgium, India and Israel – in recent years.

Members of the diamond trade have not always agreed with revisions to the list – whether up or down – feeling that they are not in line with what the industry is seeing on the ground. And changes to the list every few months cause huge volatility and may leave diamantaires holding stocks that they are then unable to shift.

The global diamond trade, having got used to the Rap list and having seen its influence become so huge, is stuck between a rock and a hard place. On the one hand, many diamond traders would like to see a move to a different list, on the other hand they recognize that the Rap list, being so prominent, cannot simply be wished away. More than that, they recognize the stability that it brings. On the other hand, there is widespread feeling that Martin Rapaport should consult closely with members of the trade and industry organizations before making decisions.

Rapaport came out with his now well-known and widely used Rapaport price list in 1978. For many in the industry, the automatic reflex action when looking to check a diamond price is to look at the Rapaport list, which has become a sort of Bible for many diamantaires.

Changes to the Rapaport list have caused anger in the diamond industry on a number of occasions. In 2006, members of the Belgian and Israeli diamond exchanges reacted strongly when the list published an average reduction of 5 percent in the prices of diamonds in the 10-90 point range when manufacturers and dealers said there was actually strong demand for VVS and SI stones. An emergency meeting was held at the Rapaport office, attended by leading diamantaires who handed a petition over to Martin Rapaport.

And in 2008, just before the JCK Show in Las Vegas, the Rapaport list raised some prices by 25 percent, along with smaller increases and some decreases. Members of the diamond industry heatedly questioned Rapaport at his annual breakfast meeting. Rapaport explained that the new levels included premiums that the industry was paying for goods, and advised diamantaires to recalculate their discounts against the new list.

And again in late 2008, the Belgian Polished Diamond Traders Association (BVGD) criticized a decision to raise diamond prices broadly. The BVGD said the Rapaport list was inaccurate since the market at the time was characterized by falling prices.

The decision by Martin Rapaport over prices of fancy cut diamonds, and then in July to cut them not only does not mirror what is actually happening in the market, say some diamantaires, but also has a more profound impact. If the industry is looking at a price list where prices have not risen – even though in reality they have – then manufacturers say to themselves: 'Why should I manufacture at those prices. It simply is not worthwhile, never mind profitable because I won't be able to secure the price I need.'

All this at a time when margins are razor thin at best, and when many manufacturers are even, according to reports, producing goods at a loss just to keep their operations working. With prices of rough rising higher than prices of polished, manufacturers' profitability is declining even more. Many manufacturers who are keeping expensive stock and trying to protect flimsy margins, have now been told that their goods are worth less than their profit margin.

It also creates problems for manufacturers with their banks who may decide that the stock held by the diamond polishers is worth less, according to the price lists, and may therefore be less willing to extend further credit.

Shouldn’t the market alone decide what the price of any given diamond should be? Try explaining to someone who doesn’t work in the diamond industry, why the price of a certain diamond is ‘Rap -15 percent’ and you’ll get an idea of just how bizarre it sounds. And although other price lists also exist, they have not convincingly managed to win the support and patronage of the diamond trade.

This case and the recent reduction the price of some fancy cuts raise the question as to whether the publishers of price lists should have such a strong influence in setting prices. Should companies that trade in diamonds also be publishing price lists – is this a conflict of interests? And does the diamond business not deserve a great deal more transparency –how deep and wide is the information upon which the lists are based?

Are the lists based on actual asking prices from hundreds and thousands of suppliers worldwide, and are the prices based on real transactions in the market over the previous business days and on a substantial amount of volume? In addition, given the huge number of different types of diamonds that exist, are there enough sub-sets with information being collected for each?

Martin Rapaport remains calm in the face of accusations by his competitors and diamantaires, having heard all the complaints many times over in his many years in the business. Rapaport has put on record many times his answers to the questions leveled against him. He has said that diamantaires must bear in mind in the vast range of diamonds for sale and the problem of providing information that can be understood by the many people all over the globe involved in the industry.

He also points out that people misunderstand if they think he is trying to give precise information on every transaction. His aim is actually to give a sort of marker in a very rough way about prices, and to provide the global diamond industry with a common denominator for it to use. He notes that when a consumer sets out to buy an expensive product, whether it’s a car, a diamond, or anything else, the consumer does not always pay the list price, but instead attempts to get a discount on it. In other words, the list price is a general indication of the final price. The list gives people a starting point, he says.

Rapaport has said in the past that the reason that he is not willing to disclose how he comes up with prices is because it might lead other firms to copy his methods. The company has to be sensitive about its intellectual property, he explains. He said the firm continuously studies the markets, and has economists analyzing the data. The company also has widespread interactions with the market. He has said that when he reduces prices, people are usually upset with him, but love him when he raises them. When there are complaints, he discusses the situation with diamantaires and if he believes the wrong decision has been made, he will immediately act to correct the situation.

As for charges of a conflict of interest due to his trading activities, he has rejected them, saying he does not actually own diamonds but simply trades them. He has said that it is logical for the trade to check prices with a body that knows about diamonds in order to check its current value. Rapaport has worked in the market for more than 30 years, and says that because he is in the market he can provide accurate information. He points out that some people dislike the list because it gives buyers access to a lot of background information that they did not have in the past, and that they are able to make money by using his information.

And in the age of Facebook and instant communication, could price lists become less relevant as people communicate more easily and widely and receive price information from a wider variety of sources?

Among the claims of list creators are that they help create more transparency in pricing for the diamond trade, but not everyone agrees. "I do not feel that the lists lead to greater transparency. No diamonds are sold for the price stated in the lists. You cannot know from the lists alone what the price of any particular diamond is. The lists are not the price, just an indication.

"People in the industry, especially the dealers, will always find out the price of any particular diamond through their many connections so they do not need the lists for that. There are no secrets these days. Companies advertise their prices for the goods on the Internet and elsewhere that they are selling and that gives a more solid reflection of the price."

Israel Diamond Exchange President Shmuel Schnitzer commented: "I don't have anything against the Rapaport price list, or any other. I can live with them. Diamond prices have to be based on something. The problem is with what happens with the making of the lists. There is not always enough transparency in how they are made. The industry does not see with whom the lists work and the information they are getting; if we did it would give a better feeling.

"We need price lists. We can't be like we were in the old days when there was not so much transparency about pricing. Apart from that, in today's Internet world, there is information available everywhere. With regard to specific goods, if prices of certain diamonds are reduced, it can discourage manufacturers from making them."

By our Israel correspondent Abraham Dayan