Due to the Coronavirus Pandemic, we have seen markets crashing and US unemployment went from a 50 year low to a post-war high in just 3 weeks. As we see the death toll increasing in all countries across the world, retail markets, and all consumer industries have taken a huge hit as many countries impose strict lock-down measures amid fears of a further outbreak. Consumer spending has also been curbed due to the switch to more conservative spending habits as people have fears of unemployment if this persists.
While it is expected that the price of goods would have fallen, the recent drop in Rapaport Diamond prices (Price list 20th March) have alarmed many Diamond Suppliers and caused a mass boycott of the only Diamond Trading Platform Rapnet.
For our community of end-consumers who may not be familiar with the Diamond industry, let us break down the events for you. In Moltenore, we value knowledge and would always try to share as much as we can with what is happening in our trade around the world.
Rapnet Fuctions
To start off, Rapnet is the ONLY Diamond Trading Platform that the world uses and have held a monopoly for 42 years. There are other smaller platform options, some are country based that certain suppliers would use, but if you want to get anywhere as a diamond supplier, you must be on Rapnet. That is how influential Rapnet is.
For buyers like us, we must pay an expensive yearly membership to use the platform which comes with the Rapaport Price lists. However, based on the membership option you choose, the functions and visible tabs that you can see are limited by that. Also, it is extremely inconvenient to register for an account, Rapnet must verify that you have dealings with foreign companies for the last two years etc. Basically, it is a super tedious process which deters us, twice, from signing up.
Although for Moltenore, we never had to apply for Rapnet as we hardly ever deal colourless diamonds and we have our own diamond suppliers that we use for melees. Hence it was never much of our concern as a predominantly coloured stone dealer.
Rapaport Pricelist
Back to the events, one of Rapnet’s functions is that they produce a diamond price list. This is known as the Rapaport Price list. What this list does is that it tells buyers the ‘high price’ of a certain grade (caract, colour, clarity) of diamonds for the week - Price lists are released every week. This is what a sample Rapaport price list looks like.
In buying a diamond, I would base it on the Rapaport Price List X Market Discount = Buying Price. This market discount is based on experience. For certain types of fast-moving classes of diamonds such as 1ct D VS diamonds, the market discount may only be 20% compared to other classes which gives 70%. This market discount is based on experience, if you are in the trade long enough, you would know. There is no hard and fast rule to learning it.
Key Points to understand before you read on:
The profit margin for diamond suppliers, who buy the rough crystal and cut it into faceted diamonds, is extremely small. According to some sources, it is around 2-3%. They make money from the huge sales volume, rather than the price difference.
Diamond prices have had a steady decline due to the proliferation of synthetic diamonds mixed and offered in the market. Profit margins have already been shrunk in the last few years.
Diamond suppliers sell in an extremely competitive space. The price difference between each supplier is almost negligible at times.
The Events
What happened on March 20th was that the prices for diamonds were reduced on average 5-9% on each class. While it may seem expected given the economic recession, this outraged many supplies as it was no longer a matter of a reduction of profits. In their words, they are now they are making losses, essentially 'killing the supplier'. The prices of rough that they bought were higher and rough prices did not drop with the fall in faceted diamond prices. This sudden low price list compelled hundreds of suppliers to create a mass movement to boycott Rapnet.
Within a week, it was reported that 5 billion dollars worth of diamonds which accounted for around 70% of Rapnet’s stock were removed from Rapnet – with the mass movement advertised under the now renamed Instagram account ‘stock_off_rapnet’ (old name). These suppliers who removed their stock collectively decided that they would use the previous price list <6 March Price List> instead of the 20th March Price List.
This was my screenshot on just Day 1 of the movement. In the week to come, the account would have amassed thousands of followers. It is now renamed to 'changing_diamond_industry'.
The resentment
Some of the resentment comes from the following:
Rapnet has never published live data unlike other smaller diamond trading platforms despite long term calls to do so. Some suppliers took it that Rapnet has refused to be transparent.
No one knows exactly how Rapaport decides on the price. Some suppliers claimed that there was almost no transaction for certain classes of diamonds on the month of March. They were puzzled on how Rapaport would know the extent to drop the prices by? According to critics, prices in those situations shouldn’t have changed.
This made diamond suppliers feel that Rapnet/Rapaport has crossed the line this time, at a vulnerable time where the world should stay united together against the crisis and support the industry.
The response
Rapnet’s immediate response to this crisis was that they would hold an online open conference on 31st March to explain how Rapaport comes out with the price list and that they would stop publishing price lists until May, hence the March 20th price list would continue to stay in effect. This further enraged suppliers by, quote ‘keeping to a price list they never agreed on’, although there is a silver lining to this well anticipated conference. In the meantime, alternatives to Rapnet in the name of Getdiamonds.com started to consolidate these ‘out of Rapnet’ diamond suppliers and have been trying to gain momentum.
Martin Rapaport's Conference
There were a few key points to this conference
1. Reasons for the drop and limitations:
The economy is not doing well - Coronavirus and the economic recession, a fall is expected
The difference between the Rapaport Price list and Rapnet has been growing, there is a need to reduce this gap as it displays inaccuracy
Martin Rapaport - wants to maintain liquidity when the Chinese markets recover and start buying - Chinese buyers would expect a drop a prices given the global economic situation, hence he can not delay the price drops
Martin Rapaport - has to reflect the market prices as honestly as he can in his capacity
2. How are Diamonds priced:
The diamond price list is based on High Asking Prices not Transaction Prices
High Asking Prices are based on talking to 'relevant people' in the trade and some other matrixes that was not explicitly explained
In classes of diamonds that had no transactions, data was extrapolated from previous trends and neighboring classes of diamonds
3. Martin Rapaport Opinions:
He said he understands that this is a difficult time for everyone, but he has a responsibility to publish the pricings in what he felt was accurate
Rapaport prices are just High Asking Prices, suppliers are free to decide on their own selling price
He believes that there will be 'millions of consumers interested in selling diamonds, not just buying them'. This idea is that even if you sell at a loss now, you can buy new stocks from consumers who need money, at a lower price a make the profit in future when prices go up. This is an alternative he is suggesting instead of buying rough diamonds
He feels that it is okay if there is competition (Getdiamonds.com), that is healthy. But he expressed that suppliers should not, in his words, 'blackmail' others that continue to use Rapnet.
4. New Changes to Rapnet/Rapaport
Rapaport Price List will be published monthly instead of weekly
Rapnet Trade Sheet will be published weekly, and available in real time
Rapaport Price List will publish discount ranges
Advisory Board
Launched 2 telegram accounts: Rapnet Group and Rapnet Group Discussion, in an attempt to create a channel for open communication
In our opinion, some of these changes are great move forward. But given his prior response on the events, we can already expect how some suppliers reacted after his conference...
The Back Lash
It was a nice attempt to listen to what the suppliers have to say, but this telegram group decision had to be more well thought out. There questions that was not able to be covered in the previous conference. Also a lot of resentment remained... which ultimately, the Rapnet Group Discussion chat lasted 2 days before it was removed.
It was a group with over 300 + members, mainly just expressing their concerns. In all honestly, it would have been overwhelming for any organisation to have to answer to an onslaught of queries. Some suppliers were genuinely trying to seek answers and solutions for their businesses, but there were also a number of people who added fuel to the fire of resentment.
However to highlight some of the issues raised by suppliers:
2>2 (High Asking Price based on asking relevant people): Suppliers questioned who these relevant people are if a good number of diamond suppliers have an issue with the pricing
3>2 (Suppliers are free to sell at their own price): Well thinking from a consumers perspective. Image you have been buying diamonds at a 30% discount. Knowing that the prices should have fallen, you are eager to buy some diamonds but your long time supplier now tells you that he can only give you 20% discount. How would you feel? Some consumers would be unhappy and instead try to find an alternative which potentially might cut off this old supplier. Now bear in mind the low margins that suppliers make, and how competitive the market is for every single client. As a supplier, what options would you have? Sell at a loss to keep this client, do not sell and lose this client, or try gambling with a discount.
*Do note that as we are not fully involved in the diamond industry/Rapnet, there would be certain developments or events that we are not aware of. And the above list is not exhaustive. We are just sharing to the best of our abilities on what we understood of these events.
The Conclusion... No Proper Outcome
Now that these channels of communication were compelled to shut, only in time and a market recovery will we see how the diamond market continues to function, with or without Rapnet. This whole issue was not a matter of dropping the prices, but how much the prices were dropped which was what made suppliers feel that their livelihood is threatened by a organisation that they feel they have trusted and been loyal to.
However, we can also try to understand the dilemma on Rapnet's side. Moving on, it might be that suppliers have started to move on to other platforms, or that they eventually run out of options and return to Rapnet. It is also possible that the industry would abolish the idea of having a pricelist and function more like the coloured stone market. Only time will tell.
Fortunately, the coloured gemstone market works differently and are not affected by standard price lists. In Moltenore we are seldom involved in the diamond market although our hearts go out to those in our sister industry. Our prayers are with everyone trying to brave through this pandemic. The luxury industry is always the first to be hit and the last to recover during these times of crisis. Let's do what to can to make this industry a better place and we hope that the diamond market can recover from this crisis.