by Greg Klein | December 12, 2014
Among the interesting details from a report released this week by Bain & Company is the huge discrepancy between rough and polished diamond production. Miners extracted 130 million carats in 2013. But only 25 million carats went into jewelry. What happened to the rest?
About 55 million to 65 million carats were relegated to industrial grade, the report explains. Of the roughly 65 to 75 million remaining, 40 to 50 million carats were eliminating by polishing.
That unavoidable shrinkage is factored into prices. But polishing presents less manageable risks too. In his book Diamond: The History of a Cold-Blooded Love Affair, Matthew Hart recounts an exceptional 79-carat pink stone found by alluvial miners in Brazil. Rocks like that sometimes go to a syndicate of investors formed specifically to buy a single gem. But while estimating the finished diamond’s price, potential buyers have to consider the unknown.
One risk was “the chance that the colour would disappear when the stone was cut,” Hart writes. He quotes South African diamantaire Brian Menell talking about an extremely valuable blue diamond.
We started polishing, putting on facets. Suddenly, as the cutter added a facet, the colour changed from strong blue to light blue, from $260,000 a carat to $40,000 a carat.
“We started polishing, putting on facets. Suddenly, as the cutter added a facet, the colour changed from strong blue to light blue, from $260,000 a carat to $40,000 a carat.”
Hoping for a six-carat finished product, Menell “had therefore watched $1.3 million evaporate before his eyes,” Hart continues. “As it turned out, Menell was lucky. When his polisher put on the next facet, the colour flowed back into the stone. The news of such incidents spreads quickly through the diamond world, and sows fear in the hearts of cutters who face coloured diamonds.”
Even polished stones of one carat or more are relatively rare, according to Bain. Comprising about 10% of polished diamonds by volume, they account for 35% of polished diamonds by value. “Because such large stones, especially of high clarity and colour, are increasingly rare, their prices have historically outperformed price growth in the overall market, rising 150% in the past 10 years, compared with a 120% increase for stones of one to 2.99 carats and a 60% rise for the overall market.”