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24 july 2018

alex_popov_xx.jpgWithin the framework of the Qatar-Russia 2018 Year of Culture, the World Diamond Museum hosts an exhibition of the Qatar Museums at the State Historical Museum in Moscow – "Pearls: Treasures of the Seas and the Rivers," that opened on 11 July 2018. Alex Popov is a founder and the Chairman of the World Diamond Museum. He spoke to Rough & Polished about this event.

With the advent of cultured pearls at the start of last century, natural pearls were virtually edged out from the market. Cultured pearls are divided into two main categories – the sea and the river pearls. What is the difference – between natural, cultured sea and cultured river pearls, – including prices?

The picture is not as simple as it may seem. These days, natural pearls are a rarity in the market. This is first of all due to overfishing. As a result, in the areas where natural pearls were harvested for centuries, there has been a sharp drop in stocks that the sea would provide. This is most often the result of the reckless exploitation of the seas and of the ensuing, sharp drop in the population of shellfish that produce those natural pearls. Rarity always drives up the prices but even the mollusks that still produce natural pearls do not produce the quality of earlier days.

On the other hand, one should realize that, even while the global production of cultured pearls has been impressive, the cost of the higher qualities is quite high. For example, if you want to buy a high quality string of good-sized cultured pearls, its price may come up to six figures. On the other end of the scale, small, low-quality Chinese sweet water baroque pearls will sell for a few dollars a string as they are produced by the tons.

The first technological breakthrough in the production of cultured pearls was made in Japan by the entrepreneur Kōkichi Mikimoto, who established the first cultured pearl farms in the coastal waters of Japan. The second technological breakthrough came a few decades ago, with the advent of sweat-water pearls, which are much easier to grow and therefore significantly cheaper than their sea counter parts and as said earlier, are produced by the tons.

At the same time, natural or wild pearls, in terms of price are now almost invariably auction items. Asking about their price is like asking what the current price for paintings by Rembrandt is – this price can only be determined at auction.

Tiara of Archduchess Marie Valerie. Made with large pearls from the Pacific Ocean’s pearl oysters for Archduchess Marie Valerie (1868 -1924), the daughter of Empress Elisabeth of Austria, known as Sissi, spouse of Franz Joseph I of Austria. Vienna, Austria, 1913, Gold, silver, diamonds and pearls. Image credit: Qatar Museums.

Why not then revive the fishing for natural wild pearls given such high prices? It could be a good business, couldn’t it?

I have not heard of attempts to revive such pearl fishing, but I've heard of attempts to start cultivating pearls in the Persian Gulf using the Japanese technology. Although, it seems to me that there are people who think about it, in particular in Qatar.

Let’s move over to diamonds. Lab-grown diamonds are gaining a competitive edge on diamonds and demanding a growing market share. What are the latest developments and how will they influence the diamond industry and trade overall?

When De Beers rolled out its Lightbox initiative, I saw two things. First, that de Beers is forward thinking, as they seek to preserve their company’s interests for the next decades. Secondly, that with their five-year plan, they seek to consolidate their assets to maintain their global dominance in the diamond market.

Let me embroider upon this further. It's no secret that 60 percent of ALROSA's products are the so-called "Indian goods." These are small stones that until the middle of the past century were not even seen fit for the gem diamond manufacturing business and were relegated to the industrial diamond category. But with the rise of India' diamond manufacturing industry, the Indians started to cut and polish these rough diamonds and earned good money with them. However, the polished diamonds produced from these rough stones mostly were and still are stones of an undefined and low colors, containing various inclusions and trading at about $100 a carat in the market.

The American market, the most important market for the diamond industry, is currently going through transformation. And these small natural stones of low colors and with inclusions are being replaced by lab-grown diamonds of good quality, also trading around $100 a carat. So why buy nondescript natural stones in such a price category, when you can buy lab-grown stones with much better characteristics?

Put yourself in the shoes of a modestly living woman who wants to buy a ring, and she does not have much money, she has only a thousand dollars. If lab-grown diamonds will replace natural diamonds in this category in the market, the development of many diamond deposits – which basically produce such goods – will become loss-making. And for the Indians it will be all same what to manufacture – they will switch to cutting and polishing synthetics. 

A seven strings Gulf pearl necklace made in Qatar by the leader of pearls of the country: Husain ALFARDAN. The necklace is made with perfectly matching pearls. It takes years and thousands of pearls to succeed into such a creation. Private collection. Image credit: Qatar Museums. 

Add to that that the cost of growing a half-carat diamond in the lab is today about one hundred dollars. That is, selling it for five hundred, you will get a very high profit. It is a very good, a wonderful business model! People dream of such a model. And even if the profit falls by 50 percent, it is still a good profit, because production costs are covered by sales within a year and a half or two, given the right quantities of goods produced. Therefore, when De Beers invests $90 million in a factory in Oregon, it will work very well for them. They know that they will get free machinery within two, maximum three years, fully returning the investment. Once again, they have become monopolists, because – almost – no one has the money to invest in so many machines. In other words, the other, smaller, existing and competing players in this market niche, those that have from two to ten machines, are virtually doomed. They will never be able to compete in terms of price. De Beers simply came and removed everyone from the market. After the announcement of Lightbox at the JCK show in Las Vegas in past June, prices for lab-grown diamonds dropped some 20 percent- for small stones. Reportedly, prices for larger stones are not yet affected.

Well, let's say that De Beers will be able to divide the diamond market into synthetic and natural markets. But if there will be no new large diamond fields discovered, what will happen in 50 years?

Then the owners of large natural diamonds will be living in a paradise… as their stones will rise in price perhaps three times.

By taking this step, De Beers kills three birds with one stone. First, the company earns enormous money for its shareholders. Secondly, it eliminates all the competition in the synthetic diamond market, becoming a monopolist in this field. And, thirdly, it puts in disadvantage all those who mine small diamonds, including ALROSA. It should be noted that the output of large stones without inclusions in Namibia, Botswana and Angola is higher, so the first victim in this situation will be ALROSA. And what if, as a result of all these transformations in the market, ALROSA's clients will refuse to buy small stones and start buying only stones weighing half a carat or more? The company will then raise prices. And De Beers will immediately follow the suit. 

Old pearl fishing boats are floating around the spectacular Museum of Islamic Art in Doha. The boat where used to dive for pearls, and the last dive was in the years 1970s. Image credit: Qatar Museums.
Let us now turn back to this remarkable exhibition of pearls organized by the World Diamond Museum. In your opinion, which of the exhibits deserve special attention of its visitors?

First of all, I would like the visitors of this exhibition to understand the most important thing that natural pearls are about. Those are beautiful and most famous pieces, including a necklace from the private collection of Hussain Alfardan, the most prominent pearl trader of Qatar; jewelry pieces made by Cartier; Elizabeth Taylor’s pearl earrings from Bulgari; a brooch designed by Salvador Dali; and old jewels of the royal houses of Europe, including the magnificent tiara of Archduchess Marie Valerie of Austria and others. And this most important thing is labor intensiveness of their harvesting. The rarity and exclusivity of these pearls is unmatched. Think of the labor that was required. Try to imagine how many divers have gone into the depths, how many times they had to dive into the waters and how many mollusks they needed to bring to the surface and open them to make it possible to put together the seven-string pearl necklace from the collection of Hussein Alfardan. This takes years and the work of hundreds of divers who risked their lives. This is incredible work.

I know people who, having inherited pearl jewelry, put it up for auction and suddenly got a lot of money, which certainly was a pleasant surprise for them. This is the nature of the natural pearl market. In another fifty years, we’ll have a different scale of valuation, and all those items of natural origin – including diamonds – will sharply increase in price. The same thing happens with paintings, which have also appreciated to a great extent. Nobody expected that paintings would set annual price records at auctions.

Pearls from a mussel fished in the Mississippi river in north America. Qatar Museum collections. Image credit: Qatar Museums.

Could you briefly describe the role of the World Diamond Museum in organizing this exhibition? Is it a step towards implementing your announced program of exhibitions to be run in various countries?

Back in 2017, the World Diamond Museum agreed that it would bring a jewelry and diamond exhibition to the State Historical Museum in Moscow. With the announcement of the Qatar-Russia 2018 Year of Culture, we saw the opportunity to show the magnificent collection of the Qatar Museums to the Russian audience. This exhibition is the first significant project of the World Diamond Museum.

At the same time, we are working on an Internet and multimedia project, which will be launched and will begin to travel around the world in the second half of 2019. Our photographers, designers and editors are working on the colorful album of “Diamonds – Facets of Mankind,” in which the connection between humanity and diamonds will be told and shown in a completely new light. The book is to be published in early 2019. The editor of this prestigious publication is Dr. Usha Balakrishnan, who leads the team of authors and researchers from various countries.

Vladimir Malakhov, Rough&Polished