World's Largest Diamond Exhibition Opens in London

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Vol. 25 No. 12 - JULY 2012

Butterfly brooches in LA show

Recycled Diamonds Integral to supply By Chaim Even-Zohar

Queen Elizabeth's 10,000 diamonds on display in London

Recycled Diamonds Integral to supply

Butterfly brooches in LA show

    Sixteen spectacular brooches—elegantly designed in butterfly motifs and fashioned from 18K gold and rare gemstones—are now on the display at the Natural History Museum of Los Angeles County.

     The pair who are the owners and creators of the Butterfly Brooch Collection prefer to remain anonymous, but it’s hard to fully appreciate this remarkable collection without knowing something about them. Business partners for several decades, they combine a perfect mix of abilities: a passion for rare gems and a desire to share their passion with the world. That is what drove them to create their remarkable butterflies—as well as a much more extensive collection of jewellery set with rare gems that they’ve been assembling since the mid-1970s.

     One is a master gem cutter who is recognized worldwide for his skill in cutting the rarest of gems. He also knows his way around a “hole in the ground” and actually mined many of the gems he has cut. The other is a wonderfully gifted jewellery designer who knows, perhaps better than anyone, how to take best advantage of the unique beauty inherent in such exceedingly rare gems.

     Each of the butterfly brooches has its own fascinating story. Among the rarest and most noteworthy of the stones seen in the butterflies is benitoite, California’s state gem. One of its owners began working the Benitoite Gem mine (also known as the Dallas mine) in San Benito County, California in 1967, and continued for 33 years. He is responsive for both mining and cutting much of the world’s supply of this rare gem, because this mine is the world’s only source of gemquality benitoite. Now, the mine is considered exhausted. This butterfly has a total of 34.67 carats of benitoite.

     Two butterflies in the collection feature vivid orange spessartine garnets from the Hercules Dike at the Little Three mine in Ramona, California. This is another deposit that one of the owners worked for many years. The mine is now surrounded by a housing development.

The beautiful shocking pink centre stone gives this brooch its name—the Rhodochrosite butterfly Brooch. In addition to rhodochrosite, this brooch features apatite, opal and titanite gems—all from Mexico.

The Pearl Butterfly Brooch features natural pearls from the Sea of Cortez (also known as Baja pearls). The Spanish explorers in the early 1530’s noticed that the Pericu Indians had necklaces made of these pearls. The recovery of pearls became a priority for the Spanish as they established settlements on the Baja Peninsula, and the Baja pearl industry grew to supply many of July 2012 Bangkok Gems & Jewellery 39 the world’s pearls in the 19th century. Softly coloured rainbow feldspars from Madagascar were also included in this brooch to set off the pearls, and the vivid green eyes are Colombian emeralds.

Couture Design Awards 2012

Couture, with its rich history of hosting the world’s most coveted designer brands, recognized the pinnacle in fine jewellery design for 2012 at its Couture Design Awards. The annual programme, held last month at the Wynn Las Vegas, recognized winning designers in 10 categories as well as the recipients of the People’s Choice Award and the Couture Time Awards.

Judging the entries were Susan Abeles, director of jewellery for Bonhams; Eric Ford, precious jewellery buyer at Neiman Marcus; Janice Blumberg, owner of Be on Park; Alison Rowe, fashion and accessories editor for Niche Media; Claudia Mata, jewellery and accessories director for W Magazine; and jewellery designer Stephen Webster.

Couture Time Awards Romain Jerome’s Steampunk Chrono, a 50- milimetre retro-futuristic timepiece with 42-hour power reserve, won in the Couture Time Awards’ Architecture category. HD3 Slyde’s domed sapphire touch screen timepiece, presenting a bevy of virtual functions and complications, took the Couture Timepiece Award for Innovation.

Up to down Bridal John Apel was the winner in the Bridal category with this platinum engagement ring with pear-shape, marquise and round rosecut diamonds. Silver This bangle, made with 38 carats of rainbow moonstone and white topaz and set in black and white rhodium-plated matte silver, is from the Lauren Harper Collection and won in the Silver category.
Human Spirit Award The Couture Design Awards also recognized Jim DeMattei, president of ViewPoint, with the Human Spirit Award, which honours a member of the Couture community who stands out for exceptional generosity of mind and spirit.
		Diamonds Above $20K Stephen Webster won in the Diamonds Above $20K category for his Temptation of Eve ring, which features 7.75 carats of Forevermark diamonds, 3.34 carats of white pave diamonds and black onyx set in 18-karat white gold.
Gold Majoral’s 18- karat yellow gold necklace won in the Gold category.	x
		Pearls Mikimoto’s baroque black South Sea cultured pearl and diamond ring, set in 18-karat white gold, took first place in the Pearls category.
Coloured Gemstone Below $20K Rodney Rayner won in the Coloured Gemstone Below $20K category with his Via Roma ring, made in 18- karat rose gold with orange sapphires, champagne diamonds, white diamonds and irregular faceted citrine and smoky quartz centres, with a citrine centre stone.

The Couture Design Awards recognize the best in fine jewellery design.

Graham London’s Silverstone Tourbillograph, an automatic one-minute tourbillon chronograph wristwatch, won in the Technical category of the Couture Time Awards.

Bremont’s aviation-inspired ALT1-WT watch took first place in the inaugural People’s Choice category of the Couture Time Awards.

		Platinum Heinrich & Denzel’s Arcus bangle with 268 brilliant diamonds set in platinum took first place in the Platinum category.
Diamonds Below $20K This bracelet by Moritz Glik with rose-cut and brilliant-cut diamonds enclosed in double white sapphires in 18- karat yellow gold and blackened silver took first place in the Diamonds Below $20K category.

From left: Jan Mohr, of Couture retailer relations; Jim DeMattei, president of Viewpoint; David Rocha, executive director at Jewelers for Children; and Chris Casey, publisher of National Jeweler and vice president of Nielsen’s jewelry exposition group.
Coloured Gemstone Above $20K This bangle by Lydia Corteille is made in 18-karat gold with brown diamonds, tsavorites, green turquoises and emeralds and took first in the Coloured Gemstone Above $20K category.
		Debuting at Couture Sevan Bicakci was recognized with the Debuting at Couture Award for his Magical Peacock pendant, made with silver, white and brown diamonds and a carved rutilated quartz centre stone set in 24- karat gold.
People’s Choice The People’s Choice Award was given to Kwiat for these platinum and diamond earrings from the Legacy Collection.

Queen Elizabeth's 10,000 diamonds on display in London

1 & 2 The Jaipur Sword and Scabbard, set with 719 diamonds weighing a total of 2,000 carats, originally presented to King Edward VII for his coronation in 1902.
3. The Coronation Necklace.
4. The Diamond Diadem Tiara, worn by Queen Elizabeth II on British and Commonwealth stamps, also features on some issues of coinage and bank notes.
5. Exhibition curator Caroline de Guitaut holds the Cullinan Brooch.

       More than 10,000 diamonds go on show at London’s Buckingham Palace this month to mark Queen Elizabeth’s 60th year on the throne. The exhibition, which runs from July 31 to October 7, was designed to coincide with the queen’s diamond jubilee this year, and features jewels Her Majesty wears regularly
at official functions in Britain and abroad.

      The aim of the exhibition is to show how rulers have used diamonds as visible signs of wealth and power,” said curator Caroline de Guitaut, who described the crowns, tiaras, rings, earrings, swords and snuff box on display as “priceless.” De Guitaut said the 86-yearold monarch was consulted on what would be used for the exhibition, housed in a darkened room inside Buckingham Palace and accessed via gilded, colonnaded corridors lined with royal portraits going back generations.

      “We have tried to showcase some of the very most important diamonds in royalpossession.” The first item on show in a brightly lit glass case is Queen
Victoria’s small diamond crown which, despite its size, features more than 1,100 diamonds. After her husband Prince Albert’s death in 1861, Queen Victoria,
the only other British monarch to have marked a diamond jubilee, wore only mourning clothes, meaning that colourless stones such as clear diamonds were an ideal adornment. Queen Victoria was regularly pictured wearing it, including in her official diamond jubilee portrait.

6. Queen Victoria’s Fringe Brooch. 7 & 10 Caroline de Guitaut, Curator of Royal Collections, holds the Delhi Durbar Tiara, which was loaned to the Duchess of Cornwall in 2005.
8. A view of the Cullinan VII (Delhi Durbar Durbar Necklace and Cullinan Pendant) 9. A diamond-set Coronation Fan, made for Queen Alexandra at the time of the coronation in 1902.11. Exhibition curator Caroline de Guitaut poses with the Cullinan VII necklace.

      Perhaps the most impressive display, however, is that containing seven of the nine major stones cut from the Cullinan Diamond, the largest ever found. The stone was discovered in South Africa in 1905 and was so large that a clerk working at the mine initially threw it away, assuming it was a worthless crystal. Eventually, though, the stone weighing 3,106 carats in its rough state, was presented to King Edward VII who decided to have it cut and polished. It produced 9 principal stones and 96 small brilliant diamonds. The two main gems, the largest colourless and flawless cut diamonds in the world, were set in the Sovereign’s Sceptre and Imperial State Crown.

      Like many of the important diamonds in the exhibition, Cullinan III and IV were used in a variety of settings over time, but today form a brooch worn by Queen Elizabeth at a service of thanksgiving at St. Paul’s Cathedral last month. Cullinan V is in a brooch, Cullinan VII hangs as a pendant from an emerald
necklace, Cullinan VI and VIII are also in a brooch, and Cullinan IX, the smallest of the nine main stones at 4.4 carats, is set into a platinum ring.

      Underlining how diamonds were used as gifts of diplomacy as well as objects of desire, Queen Victoria’sfine fringe brooch includes the stones presented to her by the Sultan of Turkey as a token of thanks for Britain’s support in the Crimean War. Victoria appears not to have appreciated the sultan’s tastes, and had the jewels reset.

12.Diamond encrusted: A table snuff box owned by Frederick the Great of Prussia, incorporating nearly 3,000 diamonds, which was purchased by Queen Mary in 1932.
13. A vitrine containing Queen Mary’s Girls of Great Britain and Ireland Tiara.
14. The Queen’s Williamson Diamond Brooch.
15.The Diamond Diadem.

      The Jaipur Sword and Scabbard were presented to King Edward VII for his coronation in 1902 by the Maharajah of Jaipur, and have been set with 719 diamonds weighing 2,000 carats in total.

      More recently, Queen Elizabeth was gifted the Williamson Diamond in 1947 by Canadian geologist and royalist John Thorburn Williamson, and it is considered the finest pink diamond ever discovered. From its original uncut 54.5 carats it was cut into a 23.6- carat round brilliant stone and now sits in the centre of a flower-shaped brooch by Cartier. While de Guitaut said she could not even guess the value of the diamonds on display, a pink diamond of similar size without royal provenance, fetched $46 million at an auction in Switzerland in 2010.

      Of all the royals represented in the exhibition, Queen Mary’s name came up most often. Queen Elizabeth’s grandmother clearly had a passion for jewellery, and among her acquisitions was a snuff box made originally for Frederick II of Prussia and his court. The box is covered with nearly 3,000 diamonds, including many on the bottom which would normally be invisible, and came to England after the Russian Revolution. There it was sold twice before being purchased by Queen Mary in 1932.

Recycled Diamonds Integral to supply

        “Last year was an excellent year for us,” said the outgoing De Beers chairman Nicky Oppenheimer at a party with clients. “If you didn’t make money, then you are obviously in the wrong business,” he semi-quipped before a stunned audience. Looking at the macroeconomics of the diamond pipeline from rough production to wholesale sales of polished, the trading and manufacturing sectors as a whole did not make money on
their trading activity, though they earned on inventory appreciation.

       Those who restocked rough in the first eight months of 2011 saw DTC rough selling prices rise by some 44 percent, just to witness a steep fall of some 16 percent in the last part of the year. The DTC clearly abandoned its time-honoured policy of only raising prices to so-called“sustainable” levels. Looking at the composite price index, for all qualities and sizes, we saw a doubling of rough prices in the past two years again outpacing the
increases in polished, only to end at lower levels.

A Good Year?
       If we take an average 15-20 percent in inventory appreciation over the year (including polished), the industry did make US$2-US$3 billion overall, though this would be because of higher prices – and through no efforts by the players themselves. The euphoria expressed by Nicky Oppenheimer was, in a sense, not “out of place”; but it was a “good year” for the wrong reasons. Also, a large part of the (potential) paper earnings remain in inventory until they materialize, thus, actually, representing “future music.” So, last year was excellent if you were a rough producer or a jewellery retailer. That is where the real profits were, and, of course, these are the core businesses that the Oppenheimer family has now sold to Anglo American.

a) Mr Claim Even-Zohar b) Mr Nicky Oppenheimer

Looking at the Pipeline
       As it takes about a year and a half for a diamond to move through the value chain from rough acquisition to polished sales (at polished wholesale prices), the price volatility has made it far more challenging to present an accurate picture for the year that was. Even producer countries vary in their reporting methodologies of mining output values.

       Just look at the volatility in the reported average values of world (run of mine) output, which totalled about US$95 per carat in 2008, plunging to US$72 per carat in 2009, recovering to US$98 per carat in 2010, and then climbing to US$121 per carat in 2011. This shows an enormous (and unsustainable) jump. For 2012, we expect the average world output to decline to US$108 per carat, also because of the expected stepped-up production from the (cheap goods) Argyle mine and growing Marange output.

        Last year, natural diamond production came to some 125-130 million carats valued at US$15.2 billion. This output moved through the pipeline resulting in US$22.6 billion worth of polished. The overhang in the 2011 pipeline is an estimated US$1.3 billion of rough and polished expressed in polished wholesale prices at year end. It is this overhang that will also impact the rough demand for 2012.

        Worldwide diamond jewellery retail sales came to US$70.8 billion. The market share of America in diamond consumption was reduced to 38 percent. The other major traditional market, Japan, declined further to merely an 8 percent share. In a neck-toneck race to be the second-largest
diamond-consuming nation is India, with 12 percent market share, followed by China (the mainland) with 11 percent. Hong Kong is accounting for 2 percent.

c) Argyle mine d) A model displays diamonds at a De Beers Show. Recycled diamonds, experts say, could be devaluing the minerals used in engagement rings and necklaces.

The Recycling Factor
        The value of the diamond content in retail sales in 2011 came to US$23.6 billion. The vast majority of this amount (US$22.6 billion) comes, of course, from either recently mined rough or inventories. The new reality is, however, that some of the polished comes from recycled diamonds — diamonds that consumers have held for many years or even for generations but now felt the need to sell in order to pay mortgages, medical care, children’s education or even to supplement pensions or to pay debts.

        We want to be very careful here — this is definitely not a new phenomenon. Anyone who has followed the trade of pawn shops or is familiar with high-street family owned jewellery businesses knows that there has always been an element of selling off “old” estate jewellery. Many New York diamond manufacturers have built quite a reputation for their “re-cutting skills,” turning old shapes into more fashionable goods. However, since the advent of the last economic crisis, the volumes of diamonds held by consumers coming back into the pipeline have skyrocketed. Literally
hundreds of diamond businesses have developed special niche expertise in this area. Those recycled diamonds are mostly sent to India or other cutting centres for recutting.

        A large part of the diamondrecycling supply side takes place in invisible parallel markets, defying effective monitoring. It’s easier to measure gold recycling, as there, the jewellery needs to be refined through a limited number of known refineries. When, in early 2009, jewellery scrap fabrication exceeded new mining supplies, one got a further indication of the intensity of this movement of goods back into the pipeline.

        We have estimated that recycled diamonds sold again to the jewellery sector came to about US$1 billion in 2011, which represents 4.4 percent of all polished diamonds sold at polished wholesale prices. This is quite significant, and it has definitely become a supply factor that requires serious thought by pipeline participants, especially producers, when estimating supplyand- demand trends. They do tend to soften polished retail prices, as retailers’ huge profits on recycled goods allow them more breathing space in selling polished.

e) The 2011 diamond pipeline

‘Global Household Mine’
        Just as one is very conscious about the depleting diamond reserves of existing mines, it is worthwhile to take a look at what the so-called “Global Household Mine” has in stock. What are its potential reserves? Unfortunately, diamonds last forever… they don’t just disappear, nor are they being thrown away together with old furniture, books or other junk piling up in people’s attics. The supply of recycled diamonds is driven by various functions — not only by economic necessities but also by the high prices.

         One tends to assume, or one likes to believe, that diamond possession is solely a very emotional phenomenon, but this is not universally true. In India, for example, diamonds and gold in the hands of consumers are often viewed as assets. In parts of the Arab world, this holds true as well. So what are the Global Household Mine reserves?

         Since ancient days, diamond mines have produced some 5.2 billion carats, which at 2011 rough production values (US$121 per carat), would amount to some US$625 billion worth of rough. The historically adjusted gem-quality polished output would be between 1.3-1.6 billion carats. (Traditionally, no more than 15-20 percent of output was considered cuttable; that changed in the 1960s with the emergence of the near-gems.) The
worldwide average polished sale price (at polished wholesale prices) is US$625 per carat. Therefore, the Global Household Mine probably
holds US$0.7-US$1 trillion worth of polished diamonds at current prices. About 40-50 percent of these diamonds would be held in America.
This is a staggering amount.

         In 2011, about a minimum of US$1 billion of recycled polished came back into the market — which, by value, represents 4.4 percent of polished retail demand. (It could be more but it won’t be less.) The really amazing, if not frightening, figure is the “stock withdrawal” of the Global Household Mine: the US$1 billion figure represents merely 0.1 percent of stocks by value. Indeed, theoretically, the Global Household Mine could meet the consumers’ requirements, at current levels, for about 35-45 years! As most women will not likely depart from their diamonds that easily, it is certainly not an immediate concern. But it must be part of a proper pipeline analysis. There is an additional “recycling” market in the making: investment diamonds. So far, a dozen or so new companies or structures purchase polished for investment purposes. These diamonds will come back in at some point, but now there are mostly buyers and not sellers.

         Retail Environment
Everything is relative. Though mining costs in absolute terms may not have increased so much since 2008, the higher price levels of the output have dramatically doubled, and in some instances, even tripled mining profits. This is quite evident in the evolution of profit sharing in the value chain.

        There are other pipeline parameters that have gradually changed over time, making them less valid for comparison. The total retail value of diamond jewellery pieces is one of these. An analysis of the diamond content in the final jewellery product shows that the ratio between diamond and other used materials/costs has changed. A decade or so ago, diamond content (at wholesale polished prices) would represent about 20
percent of the jewellery piece’s total retail price. In some countries, like England for example, it was even less, more like 18 percent.

        On the other extreme, there were markets (such as Indonesia) where diamond content might have been at an average 60 percent of the total diamond jewellery piece. This has to do with overheads, retail structure, taxes, etc. So, worldwide, diamond content might have been at averages of some 21 to 22 percent. This has gradually changed.

        Our research indicates that, worldwide, the share of diamond content in jewellery pieces has increased to some 32 percent. There are many reasons for this. One factor is the shift of markets from the United States (the so-called “junk market”) to the far more valueconscious Far Eastern market. The higher gold price has also contributed to containing more diamonds and less gold in an industry that is at pains to meet certain price points. Also less expensive materials are increasingly being used in the final product.

        So, our global diamond retail sales figure of US$70.8 billion actually holds more diamonds (by value) than this figure would have contained a decade ago. (Or, to say it differently, taking the US$23.6 billion of diamond content sold in 2011 (which we consider a hard figure), and if one would
hypothetically assume only 22 percent wholesale diamond content in the final retail piece, worldwide diamond retail consumption would have been calculated at US$100 billion.)

         But this clearly isn’t the case; it is merely pointed out, as some analysts may also arrive at higher diamond jewellery retail values for a variety of reasons. This often has more to do with methodology and data collection than with anything else. Tacy Ltd. has done its pipeline for 23 consecutive years, and we believe our figures closely represent the reality. We recognize, however, that some researchers base figures on telephone surveys of consumers, on feedback from jewellers, on financial reports from large retailers, or statistics, etc. For the diamond industry, there is only one figure
that really counts: how many diamonds were sold in 2011. That figure is US$23.6 billion at polished wholesale prices.

2011 in Perspective
         In the pipeline, each and every diamond is only counted once, and every stone is basically cut and polished only in one principal location. Looking by value, we see now that close to 70 percent of all diamonds by value are manufactured in China and India, with some 13 percent in the southern African and Russian beneficiation countries. The role of Belgium, Israel and the United States as traditional cutting centres has gradually been diminished to close to insignificant figures. In terms of manpower, these latter countries’ cutting labour force can be measured in the hundreds rather than in the thousands. In terms of “number of stones,” we certainly can say that 14 out of 15 diamonds are cut and polished in India and China.

         It is important to neutralize “double accounting,” which is difficult as every stone may move many times through multiple jurisdictions. If one looks at Belgium, for example, its 2011 polished exports are close to US$15 billion, well over 30 percent higher than the previous year. But in terms of added value produced through manufacturing, there wasn’t more than US$200 million, and only US$1.1 billion (7.5 percent of total polished export value) can be attributed to domestic manufacturing. Like the Israelis and Americans, Belgians do most of their manufacturing in China, southern Africa, Asia and elsewhere. The 2011 pipeline likes to capture the added value generated between the various phases of activity.

         The traditional conventional wisdom that trading centres also require domestic manufacturing has valid marketing purposes as it adds to the illusion that one can find “freshly cut and polished diamonds” in that market. That “wisdom” definitely belongs in the past.

After the Crisis
         In terms of numbers, global retail demand in 2011 increased by 10.3 percent compared to the previous year. However, it is still slightly below the 2007 pre-crisis level. In 2012, our models, developed jointly with my colleague Pranay Narvekar of Mumbai-based Pharos Beam Consulting, show that global retail demand is set to increase by 8.3 percent. This definitely takes us well above the pre-crisis levels. The total polished wholesale demand in 2011 of US$23.6 billion is about 19.4 percent above the previous year. That sounds like a lot, but given the price movements it doesn’t point to an increase in volume terms. One of the reasons for the year to have been challenging is that in 2010, polished demand from the cutting centres was 38 percent above the previous year. So, the growth sentiment in 2011 was only half of that experienced in 2010. This is not the time to discuss the ripple effect, which clearly validates those figures.

         On the rough demand side, 2011 saw a 35.2 percent increase over the previous year. This trend will not continue, and our models suggest that rough demand will actually decline slightly in 2012. The same counts for the cutting centres. Though in 2011 we saw a growth of polished demand of 19.4 percent, this will slow down to 6.2 percent in 2012. So, while 2011 was quite a trying year for the downstream industry in which profits mostly came from higher diamond values, 2012, if anything, will be more difficult.

         There is also concern about the producers’ pricing of rough. There is strengthened fixation on their bottom lines, which triggers considerable rough price volatility. As mentioned earlier, the historical commitment to sustainable rough prices is something of the past. BHP Billiton pioneered the linkage of its long-term contract prices to the behaviour of spot-market auctions. It seems that De Beers is following in their footsteps and that the prices secured by the Diamdel auctions may well guide the pricing of DTC sight boxes under the new threeyear contract. Expect in 2012 continued volatility of 5-10 percent in both directions — with the overall price levels going sideways.

         The cutting and trading centres may be in for quite a squeeze in 2012. Earnings need to come from activity rather than from stock value appreciation. Actually, such a squeeze shouldn’t bother the downstream players too much — they have grown used to it.
— Courtesy of Diamond Intelligence Briefs