Stock Off Rapnet: Rapaport, DeBeers & Diamonds
Written by Stephane Boghossian
Last week on Friday, Martin Rapaport broke the Diamond Rap price again by 7% across all types and sizes. Diamond suppliers around the world got furious and joined forces against the “champion of the everyman polishers and manufacturers”. Not everyone in the world was willing to sit back and let this continue. Stock off Rapnet became a macro trend. Hundreds of diamond companies have already removed their goods from Rapnet.
Introducing to Rapaport Group
Polishers should make their own choices. Walk into every dealer of colorless diamonds at any office of a diamond exchange and right in the middle of their desk you will find the famous red Rapaport price list.
For over 40 years, the Rapaport Group has been publishing a weekly price list for colorless diamonds. What started as a hobby by its founder became the industry-wide standard. You can find the first-ever Rapaport list still hanging on the wall at the head office in Ramat Gan, Israel to remind us of the beginning of the end. Since those days, the Rapaport Group has also launched a diamond sales platform called Rapnet to allow for worldwide online diamond trading for industry participants, among the myriad of other services that they offer.
Over 1 million stones are listed for trade on Rapnet with over $8 billion in value, the online trading network for the industry’s buyers and sellers. When Rapaport revises this list in one way or another, the whole entire industry is greatly affected. This is because diamond dealers sell most goods (including on Rapnet) at a discount to the listed prices of the Rap List, or on rare occasions at a premium price to the list. When the list is revised upwards, the valuation of inventory goes up and when the price list is revised downwards, valuation moves accordingly. In short, the Rapaport List can take businesses up or down in one fell swoop. The Rapaport list directly affects the diamond prices of the diamonds on Rapnet (which you will recall is greater than 1 million in number and $8 billion in value).
Why should DeBeers fall to the pressure of Rapaport?
DeBeers has the right to charge or ask whatever price it wants for its products, like any other diamond producer. Any other industry is true to this rule. If a price is too high, the producer has the right to reduce them to a level where the buyer will feel that they can buy the product and sell it for profit. The basic economic law of supply and demand. Martin Rapaport already blamed DeBeers for artificially high rough diamond prices: the high prices for rough diamonds are causing all of the diamond trade to fall like dominoes as small to medium-sized diamond manufacturers cannot meet the prices of the rough producers in order to buy, cut, polish and resell for a profit. He states that the profits are nonexistent because the diamond miners are greedily charging exorbitant prices for rough diamonds, forcing the polishers to borrow enormous loans from banks to pay for the goods. The banks were happily lending the money to the diamond industry and willing to only collect the interest payments for the loans because they had no problem with the money being funneled essentially directly to the mining companies until the debt has now piled so high that even the banks are slowly pulling away from this scheme. A resulting scene began to fear: DeBeers high prices, low consumer demand, and no more bank loans. But, look at it differently: if enough cutters, polishers, and manufacturers simply rejected the mining companies’ prices, that very factor would cause the price of rough diamonds to go down regardless. The goal here of Rapaport is to eliminate the diamond trade entirely and eventually sell directly to the consumer, seemingly completely minimizing the diamond trade’s power and influence.
DeBeers truly controlled the supply for diamonds and their prices for over a decade. Now, ALROSA produces more diamonds than DeBeeers does, so the power goes away.
2014 & 2015
The turning point for the diamond industry market control was back in 2014 when the diamond market was faced with greater uncertainties. Martin Rapaport did what he did on any given week, reviewing and updating his price list according to his usual calculations. Only this time, it featured a huge drop in prices. It affected all those that feed him (via the membership fees that they pay to the Rapaport Group), causing many raised eyebrows at the sudden and significant change. There is also a significant conflict of interest that exists because Rapaport trades his own inventory despite the fact that he establishes prices on the Rap List. That can be a major cause for concern in his overall judgment in dropping the prices.
The first revolution in this industry took place on March 1, 2015, when the majority of large Indian dealers and polishers decided that they had enough with Rapaport “controlling” their destiny and decided to put an end to it! What did they do? As I mentioned above, they priced all their inventory on Rapnet at the Rapaport suggested price list’s list prices. This completely distorted information for Rapaport and his data bank of information on which he relies. Is the RAPI as it currently stands a proper representation of data? Maybe after taking a closer look, dealers will realize that they should ditch the incomplete Rap List altogether, with the obvious benefit that the data is incomplete and wasn’t properly contributing, but also that selling according to agreements between buyers and sellers would allow for significantly better profit margins for both parties as market forces would finally properly be at play.
Covid-19: All businesses are shut down around the world
Since last checked during the Chinese New Year, diamond prices have gone down to an incredible curve and this number keeps descending day by day. But, if we see the diamond market before this virus, it was not as flourishing as other luxury industries.
- An excess inventory was already witnessed by major diamond online sellers
- Weak Chinese demand: 2019 HK -13% and China -5%
- 2019 US imports over half a carat down 28.4% to $6.395B
- Rough prices were too high to be profitable for diamond sellers
- India is shutting down! India’s net polished diamond export was low since February 2019 (-50% compared to today, a year later) as a new trend emerged: Lab-grown diamond.
- The average price for a 1-carat diamond has decreased by 11.5% since 2015 and even worse, 50% since 2011!
For this following example, we calculated 3 major factors that we think are important for you to understand the stake here! The diamond Index, the search for diamonds and the number of cases worldwide.
- The Diamond Index and Diamond Drivers were formulated following comprehensive research and analysis of the IDEX inventory database, aggregated since February 2001. Research and development were conducted in cooperation with Dr. Avi Wohl, Senior Lecturer of Finance at the Faculty of Management, Tel Aviv University. The diamond index is updated every hour. The percent of change displayed is with reference to yesterday’s closing time (24:00 EST).
- Total COVID19 cases worldwide provided by Wordometers
- Diamond search trend provided by Google: Numbers represent search interest relative to the highest point on the chart for the given region and time. A value of 100 is the peak popularity for the term. A value of 50 means that the term is half as popular. A score of 0 means there was not enough data for this term.
“I am doing my job—to communicate diamond prices and to establish a fair balance,” he said. “If you don’t like it, don’t look at it, don’t use it. [But] I can’t put out false information.” – Martin Rapaport
This is a screenshot taken Tuesday 31st March of @stock_off_rapnet, the Instagram account started in protest of the recent price cuts to the Rap list. The Instagram account ignited a global movement, with hundreds of dealers pulling their diamonds off the trading platform. The movement started 2 weeks ago after the latest Rapaport Group price list came out on Friday morning. Daron Serrouya, the owner of Israel-based Yondor Diamond, said that his son Ido started this account which has him more than 2K followers and already more than 500 posts. The account is a compendium of the logos of companies that have pulled their goods from RapNet and/or are benchmarking their diamonds against an older Rap list.
The Instagram account includes messages from some of the largest players in the diamond industry including Rosy Blue, Diamex Inc., Pluczenik, Venus Jewel and Taché.
After consulting with his members, Rapaport decided to take off the list, for the first time in the 42-year history. “For the first time ever, the diamond industry is united and determined to create its own trade platform, which is transparent and independent, not from a private company,” Yodor Diamonds said in an official statement shared via WhatsApp.
A similar controversy arose in 2008 but, back then, there was a price hike (as much as 25 percent for some goods) amid the financial crisis and just ahead of the Las Vegas jewelry trade shows that roiled dealers.
The birth of a new trading platform: Get diamonds
One trading platform is almost down. Well, other platforms are at risks such as IDEX, Polygon and Virtual Diamond Boutique, while an alternative industry platform is in the works. While Stock_off_Rapnet followers are angry at Rapnet, another platform is on the rise: Get Diamonds.
So, I challenge once again, like the Diamond Investments Blog stated in December 17, 2015, Mr. Rapaport to stop publishing monthly or weekly Rap price and try controlling the market. “Rapaport should take responsibility and admit that his actions are partially responsible for the mess that this industry is in. Various players from the industry should reconsider how they manage and operate their businesses. All the entities should look into consolidating their businesses with complementary ones. If the industry as a whole will take a step back, put their egos aside for a second, and work as a team, they will be able to push the industry as a whole forward. It will be a win-win for everybody, especially the consumer, who in the meantime is losing confidence in the industry, and walks to the next door shop and acquires an alternative product instead, a surefire death sentence to any industry.”