World's diamond districts nicked by falling dollar
Lloyd Jaffe uses tweezers to pick up a slightly yellow diamond from a row of stones in a tray. ``I can't get many of the darker color stones,'' said the diamond dealer. ``If I could, I could sell them in this country,'' he explained as he put the stone back in place among the color gradations, which start at the letter D for colorless, go to I, where stones take on a yellow hue, and end at Z.
One reason Mr. Jaffe cannot get the darker stones, those in the J through M color range, is that these - and many other stones - are going to Asian buyers. ``Last year the Japanese buyers made the market in the United States,'' reports Joseph Schlussel, a broker and publisher and editor of the newsletter The Diamond Registry Bulletin. Diamonds are sold internationally in dollars.
With the lower value of the dollar, and the corresponding increase in the value of the yen, the Japanese are purchasing all types and qualities of stones. US diamond exports for the first three quarters of 1987 went primarily to Japan and Hong Kong, reports the American Diamond Industry Association (ADIA), of which Jaffe is chairman.
It was not always this way. Jaffe recalls times when the darker stones, in particular, did not appeal to American buyers, and diamond dealers did not want a lot of them in their inventories. Dealers are having a difficult time getting all the stones they want; he says that stones ranging in weight from 1 carat to 1.75 carats are in shorter supply. The industry's benchmark stone, the 1-carat, D-flawless, sold recently in the wholesale range from $14,000 to $17,000; in 1980, it had hit $64,000, when investors turned to diamonds as inflation hedges.
``The Japanese put their hands on whatever they can find and pay top dollar,'' particularly the D, E, and F stones, notes Avi Abramoff, vice-president of the Balance Trading Group Ltd.
The lower dollar has not been the only factor affecting the US diamond industry. The stock market's fall last October caused pre-Christmas jitters as dealers were preparing for the season, which in December 1986 accounted for 40 percent of the industry's yearly jewelry sales. In addition, DeBeers Consolidated Mines Ltd., the South African diamond cartel, has recently slowed the number of diamonds that reach the market.
``There's a shortage of certain goods in New York,'' Mr. Abramoff adds. ``I used to get 50 of one stone, and now I can only get 20 and I pay slightly higher prices.'' Buyers want stones of 1 carat or more, in the medium color range - F, G, and H - and with few flaws. ``These are always in demand, but the discount is shrinking.''
The New York market these days is clearly international, with the West Germans also buying because of the strength of the mark, Abramoff notes. ``It's a strange type of situation. The US is relatively soft, but stable, while demand in the Far East and Europe is strong. It's a foreign market,'' he concludes.
Still, the US imported diamonds in huge quantities in 1986, the most recent full year for which data are available. The ADIA notes that manufacturers and dealers imported almost 1.3 million carats of the rough, or uncut, stones worth $434 million. The number of cut-stone imports reached 7.8 million carats worth $3.02 billion. Importers paid on the average a per rough-carat price of $337 in 1986, up 11 percent increase over 1985.
The dollar's fall has had another effect on the US diamond industry: The currency has weakened to the point where more diamonds are being produced in third-world countries and cutting operations are springing up where labor costs are lower, Jaffe says.
Some production has shifted to Asia, because of lower labor costs; Hong Kong, Bangkok, and India have become big producers. ``You see major American companies moving overseas with large production. It creates weakness from our point of view, because that local market would compete with the US,'' Abramoff says.
In addition, the number of stones cut in China, Borneo, and Thailand has increased, although the diamonds are smaller. ``By maintaining lower cutting costs, diamonds are available to more people,'' Jaffe notes.
There are still some shock waves from the October market plunge. Before October the industry was booming, with heavy diamond production and strong buying for Christmas, Abramoff says. DeBeers reported last month that 1987 diamond sales climbed to $3.07 billion, a record figure that includes a 20.3 percent rise above 1986. Most of this gain occurred from January through October. Close to 50 percent of diamonds cut today are used in jewelry, and Americans account for more than one-third of the diamond-buying public, the ADIA says.
After the stock market fell, some US diamond importers became so anxious about Christmas selling that they shipped stones back to Israel, Abramoff notes. But the worst did not occur. ``People didn't stop buying luxury items. It was a very reasonable Christmas,'' he says.
Diamond production has slackened a bit, and DeBeers has been intervening in the market by holding back the number of rough stones it sells. Mr. Schlussel, the newsletter publisher, says prices had dropped between 10 percent and 15 percent since September. ``But it's been reversed in the last couple of weeks. The market is recovering,'' he says. In 1987 the Central Selling Organization (CSO), DeBeers's merchandising arm, raised prices 10 percent.
Schlussel estimates that within the last three months, DeBeers has cut its selling by 50 percent, and at times has stopped selling altogether. The Soviet Union has stopped selling for now, he adds. Countries stop selling if they think prices are too low to justify their production.
The almost 6,000 categories of rough, including synthetic, diamonds are distributed and sold at ``sights'' where brokers see how many diamonds the CSO has allotted them. Sights occur 10 times a year at five- and six-week intervals in London. The next sight is Feb. 22.
The CSO is responsible for fine-tuning the world's diamond supply. It sets prices and maintains a stockpile of diamonds, which Jaffe says has been estimated to be worth $1.8 billion. DeBeers markets and sells more than 80 percent of the supply through contracts with producing countries. The rest is marketed independently.
In 1986 Australia produced 32.5 percent of the world's rough diamonds, followed by Zaire, with 22.9 percent, and Botswana, with 14.5 percent.