Rough Diamonds’ Fatigue

If rough diamonds were human beings, they would suffer from travel fatigue. Last week, we mentioned the 35 million carats that had to make a stop in Dubai before being moved mainly back to Europe or onwards to India. The more interesting in-between stop for rough diamonds is, of course, the United Kingdom. 

In the good old days, there was an understanding between De Beers and the British government that the latter would not release rough diamond import and export statistics. Since they would essentially all apply to one company, extremely valuable commercial information could be derived from such figures. It would also show imports from Russia – in those bygone years in which the relationship was not officially acknowledged. Those days are over, but the information remains as intriguing and telling as ever.

            We estimate the worldwide 2005 rough diamond production at $12.3 billion for 168 million carats. Of this total, 88.5 million carats valued at $8.5 billion made a temporary stop in London. The provisional British statistics reveal plenty about the roads traveled by these stones:

For example, 8.76 million carats were imported from Russia in 2005 for a total of $661 million. The average per carat value was $75. It is a fair guess that this is part of the Alrosa production purchased by the DTC. 

Equally interesting are the import figures from Canada – 11.1 million carats valued at $1.28 billion. The Canadian production thus averages $115.51 per carat. What is interesting about these figures is that you will not find them listed in Canada’s export data, which shows that some $640 million has gone “directly” to Belgium.

            There is no doubt that all the Canadian goods were transferred immediately from Heathrow to Belgium. Making this little stopover in London saved Rio Tinto and BHP Billiton from paying a $3.85 million for the Belgian import levy. Belgium has this levy to finance its diamond office and it is applicable to all rough imports from outside Europe (with the exception of South Africa, which is exempt). 

            Again, statistically, a very confusing situation emerges when it turns out that the entire U.K. exports of rough in 2005 totaled merely $1.55 billion. Where did the other $6.9 billion of rough go? It all went to Belgium. However, you will not find that in these figures, because the transfer of rough from England to Belgium is seen as an internal European movement for which no official trade statistics are kept. (Some of these figures can still be obtained in Antwerp because of voluntary disclosure, but there is no law requiring recording as such – and the Antwerp figures have become less authoritative.)

South Africa “Newly Found” Rough…

            Some of the U.K. import figures are really puzzling. The total rough imports from South Africa, for example, total $2.68 billion for 28.8 million carats (at $93.04 per carat average). This is almost a billion dollars more than we believe is being produced in that country. There is no need to stress that some of the South African exports go to other destinations such as Belgium, where they are exempt from the import levy.

            It seems that some rough is leaving South Africa first through business class (to the DTC in London), and then re-enters to leave for a second time (probably in economy class). However, it is puzzling why re-exports of South African rough should go to London. Are unused parts of Sight shipments going back to the seller?   

            A good part of the U.K. statistics concerns Botswana. There, the total U.K. import figure was $2.06 billion for 15.5 million carats. That is about half of the actual annual carat production; we do not know what happened to the other half. Maybe these carats are being sorted in Gaborone. The Botswana goods reach London are at $132.77 per carat. (It is not clear if that is before or after the 10 percent discount at which the DTC purchases Botswana’s goods. Actually, we do not even know if after the signing of the new marketing agreement, it may be lower.) 

The Dubai and Swiss Connections

            In 2005, the U.K. exported $25.8 million worth of diamonds to Dubai and imported $55.2 million from there. There is no correlation between the carat figures, so we should not suggest that this is circulatory trade for profit-shifting purposes. However, these are interesting figures nevertheless. It would be our guess that there are still Sightholders taking their goods in the Dubai free-trade zone.

            As Switzerland remains a non-EU country in the heart of Europe, the U.K. exports to Switzerland need to be recorded. They totaled $36.4 million of really nice specials at an average of $1,989.41 per carat. What is of more interest, however, is the some $215.2 million worth of rough at an average value of $230.63 per carat that was imported from Switzerland into the U.K. Where did these come from? We will have to wait for Kimberley data to find out; Switzerland does not publish data on movements into and from the free trade zones.

Australia-London-Belgium Connection

            Then there is, of course, Australia. Some $365.9 million worth of Argyle goods were imported into England at $21.67 per carat. As the 16.8 million carats (by volume) only represent slightly more than half of the 2005 production, one should not jump to the conclusion that this per carat value represents the Argyle production. However, it gives a good indication of the import value of the Argyle goods sold by Rio in Belgium.

            Rough exports to non-European cutting centers are mostly likely to be to DTC Sightholders. The data shows $615.5 million to India (at $20.80 per carat); $318.6 million to Israel (at $148.45 per carat); $187.3 million to South Africa (at $241.28 per carat), and $164.9 million to the United States (at $150.39 per carat). If the U.S. goods indeed represent Sights, then there also must be some low-valued goods mixed with the more expensive goods.  

            To sum up the “stay” in England of the rough stones, some 88.5 million carats of gem quality rough came in (at $95.76 per carat average), of which 39.9 million carats was exported out of Europe (at 39.78 per carat average), mostly to India. Then comes the “invisible” transfer of some 48.7 million carats (at an average of $142.16) either into DTC stock or to Belgium.

            Can one conclude from this that world production has an average value of $95.76? Absolutely not. The cheaper part of the Argyle production (some 15 million carats) was not visible in the U.K. data, nor was the DRC with its low value MIBA mine. It is our estimate that the average value of all diamonds produced by the world’s mines in 2005 is $74.66 per carat.

            There are still others out there in the rough world, notably around 76.4 million carats worth $3.8 billion that never made it London. They are the world’s “cheapies” at $50.24 per carat.

            It is clear: with these figures, we all need a vacation.