Letters

WHERE TO GET YOUR DIAMONDS: DE BEERS OR THE RUSSIANS?

I recently read an article in the Rapaport Diamond Report entitled “Leading Dealers Lose Patience with the Russians.” Well, we complain about the Russians and blame them for everything, but there is nothing more away from the truth than this headline. The diamond industry is going through the greatest revolution since the inception of the De Beers’ monopoly.

There is an old saying, “Just when you’ve won the rat race, along comes a faster rat.” Up to now, De Beers thought it had a monopoly for eternity. But not any more. The fact is the power of De Beers is slipping rapidly and the power of the Russians is gaining rapidly. De Beers has nobody to blame but itself; it dug its own grave.

In the old days of Harry Oppenheimer, De Beers ran the organization the smart way. It spread out its business to 350 client-firms [sightholders] so that it could divide and rule. Now the new generation decides to eliminate all the small clients and work only with the big ones and make them super big. By doing so, De Beers has created a monster that is now coming back to haunt it. The Russians have discovered they do not need De Beers to get to the giants that De Beers created.

According to market information, De Beers now buys about $100 million of diamonds a month from the Russians. Also, according to the market, the Russians have discovered they can bypass De Beers, sell directly to the market and make 30% more for their merchandise. And the Russians found out that if they decide not to renew their contract with De Beers, they can easily market $200 million monthly by bypassing De Beers and selling directly to the giants, which De Beers created, and to the medium-sized companies, which De Beers neglected.

Whoever thinks De Beers has leverage on the Russians should go home and do their homework again. The only way De Beers can go to war with the Russians is to flood the market up to a maximum of six months. If it does, De Beers will be out of business in six months for the simple reason that it does not have the mines that the Russians do. Thus its inventory will be tremendously depleted after six months.

The Russians claim they can hold out for six months, according to rumor. We must not forget that the Russians are sitting on the mines, not De Beers. The one who is closest to the well gets to rule the well.

I do agree that some diamond manufacturers are suffering today. The best solution for them is to follow the most important principle of the American success story: competition, competition, competition. Let the Russians start their own syndicate; plenty of people will gladly help them set it up. That way, we will have leverage when it comes to buying rough from De Beers. The Russians claim they have 25% of the world market and also claim, when it comes to desirable goods, they have 50% of the market

It always is sad when good things come to an end, but we must accept the fact that all good things do come to an end. On the short haul, it’s going to be tough for some of the diamond cutters who buy directly from the syndicate. But in the long haul, it’s going to be a bonanza for all diamond cutters.

Finally, let me say this. The whole dispute between Russia and De Beers has nothing to do with market stability. The bottom line is very simple. After the dust clears, we’ll know what percent of the market the Russians will have and what percent De Beers will have. This is what it is all about.

Take the oil cartel as an example. There are 13 members in the cartel, but nowhere will you find Saudi Arabia demanding that smaller members market their oil through Saudi Arabia and threatening that if they do otherwise the cartel will disintegrate. The same goes for the diamond cartel. Why not have two members in the diamond cartel? Having two will enhance the position of all diamond cutters.

Al Singer

President

Solar Diamonds Inc.

New York, Ramat Gan, Antwerp

The writer, Tzafrir Anbar, diamond controller for Israel’s Ministry of Trade and Industry, goes on: “As the government’s principal spokesman on our policy towards the diamond industry, I want to express understanding for those who have elected to take the Russian route. We must keep our priorities in order. We all want market stability. But what we need even more is profitability. A stable market is of no use to an industry which is not profitable, since any such industry will eventually wither under such circumstances.”

Anbar then comments on the erosion of profitability in diamond manufacturing and says, “The industry faces the problem of how to achieve a fair division of profits within the diamond pipeline. And here the CSO has failed to take care of its own customers. The CSO has erred; it has buttered the wrong side of its bread…

“The [present] situation is undesirable and unhealthy. The CSO must realize that industrialists will and must do everything to keep their factories going. We will support our industry in its pursuit of its own best interests.”

We invited De Beers to comment on Singer’s letter. De Beers declined to comment on the particulars of the letter but said its best response could be drawn from recent speeches by its chairman, Julian Ogilvie Thompson, and Harry Oppenheimer himself.

Ogilvie Thompson addressed the Russian issue in a talk he gave in November. “It is common cause,” he said, “that currently the main threat to the stability of the industry comes from Russia. Competing Russian interests have not adhered to these disciplines and have been leaking diamonds onto the open market in contravention of the contracts with the CSO, placing Russia in the role of competitor with the other diamond producers in the context of a finite market and a prime luxury product. Their actions have [undermined] and continue to undermine the delicate equilibrium and confidence both so necessary to our industry.

“There are those who, on the basis on these problems, predict the end of the CSO. To them I say that we have seen such problems many times over the last 60 years and on each occasion the CSO and the industry have emerged stronger than before.

“In these difficult times, we will rely on the loyalty of our partners and of our clients, relationships which go back over many years. We will utilize our core competencies, which we know cannot be matched in the industry and which not only give us the competitive edge in mining and marketing, but also the expertise which allows us to be adaptable and innovative should change be necessary.”

In his talk, Thompson stressed De Beers’ mining experience, its technical knowledge, its financial strength and “its commitment, on behalf of the whole industry, to promote diamond jewelry through a substantial, worldwide – and widely acclaimed – advertising program.”

Harry Oppenheimer, speaking at ceremonies last September marking his retirement from De Beers’ board, also addressed the Russian issue.

“Of course we are face-to-face with serious problems,” he said. “It has always been like that. I keep reading nowadays about how the diamond trade, and De Beers with it, is going to be destroyed, perhaps by the Russians, or as a result of new discoveries in Canada, or by God knows what other new developments.

“Nothing of the sort is going to happen. The demand in the world for diamonds is stronger and more firmly established than it has ever been and we have faced much greater risks in the past. Cooperation among all the major producers is beyond doubt in the interests of them all, not only of De Beers, and just for that reason there will be cooperation, in the long run. If it should happen that we must face stormy seas, I can assure you that we are far better equipped technically, financially and by our long experience to ride them out than we ever have been before – or than anyone else in our fascinating and complicated industry could possibly be. What the whole diamond industry needs is continuity.”

NOVEMBER COVER QUESTION

Your November cover caught our immediate attention since we just ran our own very successful Atocha promotions. One question though – why weren’t saltwater fish used for the cover, in keeping with the fact that the Atocha treasure came from the sea? (The fish shown are freshwater species.)

Just keeping you on your toes…

Robert L. Bridge

Co-chairman

Ben Bridge Jeweler

Seattle, Wash.