Flight of the U.S. Rough

Where is your rough coming from? Russia, Botswana or Angola? From London maybe? Or perhaps, from the U.S.? No, I didn't find another secret diamond mine, though the U.S. continues to export more rough by volume than it imports. However, the U.S. recently became an important supplier of rough to the major trading centers.

As the efforts to secure rough supplies are ongoing, every center concerned with its future continues to search for a steady supply of the raw goods. Next week a delegation from Belgium will head to Zimbabwe to try and divert at least some of Zimbabwe's diamonds through Antwerp, when KP approves their exports.

Last week, the Israeli Diamond Exchange took advantage of the large number of visitors from producing countries to discuss its rough supplies as well. Some may have noticed a discussion on the sidelines of the Kimberley Process meetings between a group of Israelis and a senior representative of a major producer. The Israelis tried to convince the official to increase supplies to Ramat Gan. It was only one of many such discussions last week.

Diamond traders view the flow of goods as a water stream. If it can't take one path, it's sure to go through another. You just need to never give up, seek the alternatives and act swiftly.

Which brings me back to the U.S. Has the U.S. become a transition station for rough destined to manufacturers in other centers? If so, this may explain why in September the U.S. exported (by value) more rough diamonds than it had imported, the first time this happens since January 2009 when the rough diamond market was stuck deep in the global financial crisis.

The U.S. imported in September $16.5 million worth of rough and exported $26 million. Not a whole lot of rough, yet a sizable amount of goods.

The source of most of the U.S. rough diamonds was Botswana, $6.4 million averaging $1,771 p/c. South Africa, usually the leading supplier to the U.S., supplied just $2.9 million at an average value of $1,577 p/c. While there are a number of U.S.-based DTC Sightholders, no goods ever arrive from the UK.

After arriving in the U.S., most of the goods were shipped to Israel. For a second month in a row, more than $11 million in rough diamonds were rerouted to Israel, almost triple what usually goes to the country. Nearly $9 million in rough were shipped to Belgium and another $4 million to India, all major rough diamond trading centers.

And so, while most focused on the trade fair in Hong Kong, many rough traders set their sights on NYC. If Indians are locking the flow of goods from Russia and Zimbabwe, then Belgian and Israelis are working hard to find new paths to maintain the stream of goods to their sectors, even from unlikely sources as the U.S.

So where is your rough coming from? New and surprising places. Is it efficient that goods travel from South Africa and Botswana to the U.S. before heading to Israel and Belgium – where they'll be sorted and sent to China and Thailand to be polished? Not at all. The U.S. in not adding any real value and may find that even the trickle that still comes in will be diverted away. It may have already happened – since May rough imports are continually shrinking every month, falling 73 percent in just four months. The market dynamics are clearly in action here.