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Russell Shor, GIA senior industry analyst: The industry must maintain the standards established by the KP

28 may 2012

Being a senior GIA industry analyst, Russell Shor gives a close look at the complex political and economic issues facing today’s gemstone and jewelry industries in his interview to Rough&Polished. He is part of the team that publishes Gems & Gemology, GIA’s award-winning quarterly and also contributes to various other GIA publications, and works with the GIA’s Laboratory, Education, Research, Development, and Marketing departments on key industry issues. For more than 23 years, Shor has worked with all levels of the diamond industry, from the mines to the major dealers and retailers. Shor, who has been with GIA for nine years, was previously editor-in-chief of GemKey magazine (now InStore) and GemKey.com, where he headed the information and community functions for that on-line service. Before that, from 1995 to 1998, he was editor of New York Diamonds. He is also well known to many in the industry for his reporting on diamonds for JCK magazine from 1980 to 1995. In that position, Shor traveled to all major diamond-processing centers in India, Israel and Antwerp, as well as to mining areas in South Africa, Australia, West Africa, Russia and northern Canada. Shor authored the 1993 book “Connections: A History of the Diamond Trade and Its People.” He has been a featured speaker at numerous industry events, including both the 1991 and 1999 International Gemological Symposiums. We also asked Russell to tell about the GIA Laboratory and answer some questions which may be of interest to every diamond manufacturer.

What kind of new innovations are currently used within the certification system? What is the difference between them and the methods applied a couple of years ago? Many factories are still trying to certify diamonds in their own labs because your certificates are not cheap. How do you prove the need to certify diamonds in good professional world-class laboratories such as GIA?

GIA reports offer a neutral, “third-party” opinion on each diamond graded in our labs around the world. Over the years, the world diamond industry has come to rely on GIA reports because the market demands them, not because GIA has proven the need for such third-party grading reports (we do not call them certificates).

Some background here: More than 60 years ago, GIA researchers created the standards for grading diamonds that are still used today. Controlled lighting, standardized equipment, and clear guidelines for grading ensure that all diamonds are graded under the same conditions throughout all of the GIA laboratories worldwide. GIA researchers realized then that different lighting conditions can make diamond colors appear different, for example. The GIA also created the “4Cs” term to define diamond quality in a standard way around the world. Some diamond companies, working in their own offices, may have different conditions than a gem lab and thus may “see” diamonds differently, which may result in different grades.

How often do you come across certificates featuring evaluations different from those of GIA? How often do you see price conflicts because of this?

Again, the market is the arbiter. GIA-graded diamonds do carry a premium in the market over diamonds without grading reports. Essentially, there is no “price conflict” and the reassurance that the diamond is graded accurately is worth the extra cost to most diamond dealers and retailers.

The certification is aimed to attain price transparency in the industry. Can it somehow affect the diamond market?

Diamond grading reports have created more sales avenues for diamonds. Reports have facilitated business to business transactions around the world, and have helped sustain demand for diamonds by ensuring public confidence in diamonds.

What is your take of the promising Asian market?

The Asian markets have grown 30% to 40% in the past few years. China is the main story, but other markets such as Taiwan, Korea and Malaysia are also growing strongly. Additionally, Hong Kong has become one of the world’s most active centers for luxury jewelry.

Some of the jewelry brands think that the usual 57 facet cut is hopelessly outdated, and therefore every good jeweler is trying to invent new diamond shapes. What kind of new shapes do you like personally? What shape gives more brilliance to a diamond?

The 57 facet round brilliant still accounts for a substantial majority of the world’s diamond sales, so it would be inaccurate to state that the cut is outdated. New diamond shapes, however, have helped branding efforts by giving jewelry designers a unique product that they can offer exclusively. The key to these new cuts is technology – in the past 15 years, diamond cutting technology has allowed cutters to create more valued cuts, more easily, with less risk to the stone.

What do you think, is the market of synthetic diamonds able to take strong positions? What are the current trends in the market of synthetic diamonds?

The first synthetic diamonds were introduced nearly 60 years ago and one fact is as true today as it was then: creating gem quality synthetic diamonds is a very expensive process. There are attractive synthetic diamonds in the market today, but they still represent a tiny portion of the market for natural diamonds.

At what point will consumers begin to demand large quantities of synthetic diamonds?

No one can say for certain, but they will likely need to be somewhat less expensive, with more companies in the market producing them before the “critical mass” occurs.

Diamond market analysts are discussing a possibility of thoroughgoing expansion of De Beers in the gem-quality synthetic diamond market. Is it possible to establish a monopolistic framework in the synthetic diamond market similar to the one which was once set up in the natural diamond market?

Likely not, unless one firm figures a way to produce attractive synthetic diamonds quickly and affordably. If they own this particular technology, then they might be able to dominate the market until other firms devise alternate methods of producing them. The technology of producing synthetics is well-known and many companies could begin producing them should there be demand.

In your opinion, what problems facing the rough and polished diamond market are of the highest priority? What is your view of the price conflict between rough and polished diamonds?

The biggest problem facing the diamond industry is financing. Debt to sales ratios have been too high for many years, and liquidity has been difficult. This is one reason why rough prices rise faster than polished – diamond manufacturers must buy rough stones the keep their workers working, but the market cannot always absorb the polished stones they produce, so prices soften.

If diamonds could become a commodity, would it be good or bad for the diamond sector?

Generally, it would not be a good thing because jewelers are much better selling the beauty and romance of a diamond.

How efficient is the Kimberley Process now? What are its strong and weak points in your opinion?

The Kimberley Process (KP) has been generally effective. It has given great support to the mainstream industry that abhors trading in conflict diamonds. The weak point, which the conflicts in Zimbabwe have pointed out, is that the KP was meant to stop diamonds from funding wars and revolutions against recognized governments. In Zimbabwe’s case, the government was the organization making war on its own people, and there was no provision in the KP for that. The new KP chairperson, Ambassador Gillian A. Milovanovic, has stated she wants to address this problem.

Diamond prices are rising, and how often do you increase prices for your services? What can influence prices for GIA grading reports?

We are very aware of the financing difficulties facing the diamond industry, and have not increased prices substantially. However, we have adjusted local prices at our global locations to reflect changes in currency exchange rates.

We can see more stones in the market graded by GIA as Triple Excellent with a very high premium, more than normal VG make. How do you comment this?

Of the 4Cs of diamond quality, cut most affects the beauty of a diamond. The premium on Excellent cuts reflects this.

How often do you see investment diamonds in GIA laboratory?

GIA does not distinguish between diamonds sold for investment or for jewelry. However, in general, demand for investment diamonds is increasing, especially from Asia, the Middle East and Russia. According to some dealers at the recent BaselWorld trade fair in Switzerland, as many as one-third of top quality diamonds over 5 carats are going to the investment market.

One of the major reasons for success is the access to high-quality rough diamonds. What are the most promising diamond producing countries in the world? What problems do these producing countries need to solve for the benefit of development of the whole global industry?

Among the most promising are Canada, Angola and Russia. They all present different problems and opportunities. Canada, of course, is politically very stable, but its diamond areas tend to be in remote parts of the country with very high development costs and (correctly so) stringent environmental safeguards.

Angola has potential, but a poorly developed infrastructure, no local financing and governmental issues that make large mining companies reluctant to explore and develop potential diamond sources.

Russia could have vast diamond resources, but as the history of the Verkhotina deposit at Archangel demonstrates, mining companies can lose their rights very quickly. Russia’s mining laws deter foreign investors. However, Alrosa appears to be fully interested in diamonds. LUKoil, the current owner of Verkhotina has indicated it wants to sell the property, despite the fact that it is potentially a very rich mine.

What kind of future do you see for the diamond business?

The diamond industry is in a very uncertain time: De Beers, which used to control most of the rough diamond production, is playing much less of a role today. Other large mining companies, Rio Tinto and BHP Billiton, have said they want to focus on commodities with larger potential, and many of the smaller mining companies are not sufficiently capitalized to develop a major mine. In addition, world politics is affecting the industry like never before – China’s entry into Zimbabwe, for example helped short-circuit the Kimberley process there. And consumers are becoming more knowledgeable about gem quality and social issues. The GIA does its part by ensuring public trust in the quality of the product, but the industry must maintain the standards established by the KP to keep the public trust in the integrity of the product.

Veronica Novoselova, Rough&Polished correspondent in Italy