THE INTERNATIONAL DIAMOND TRADE AND THE VANCOUVER MARKET by ANDREW JORDAN B.A., Queens University, 1973 A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF Master of Science in"the Faculty of Commerce and Business Administration We accept this thesis as conforming to the required standard THE UNIVERSITY OF BRITISH COLUMBIA April, 1978 /TN Andrew Jordan, 1978 In presenting this thesis in partial fulfilment of the requirements for an advanced degree at the University of British Columbia, I agree that the Library shall make it freely available for reference and study. I further agree that permission for extensive copying of this thesis for scholarly purposes may be granted by the Head of my Department or by his representatives. It is understood that copying or publication of this thesis for financial gain shall not be allowed without my written permission. Department of CcLOf y W\ C fC<2 The University of British Columbia 2075 Wesbrook Place Vancouver, Canada V6T 1W5 Date ABSTRACT The subject of this thesis is the structure of the distribution channel of gem diamonds in the world market, and certain vertical stages of the channel are singled out for more detailed study. The main stages of the distribution structure are: the mining of rough diamonds, the largely centralized sorting and distribution of the rough, the manu• facture of polished diamonds in a number world centres, the distribution of the polished gems at several bourses connected with the manufacturing centres, and the operations of the local wholesalers, jewellery manufacturers, and retailers. Three areas are singled out for more detailed study: the De Beers group, which, through the Central Selling Organi• sation (S.C.O.), dominates the distribution of rough; the Israeli diamond industry, the largest manufacturing and dis• tributing centre of polished diamonds; and finally, the Vancouver retail market for diamonds and diamond jewellery, which is one of the many regional branches of the largely unexplored retail end of the distribution channel. Chapter II provides a base for all that follows by describing in detail the four parameters that are basic for the appraisal of a polished diamond: colour, clarity, cut and weight. An Appendix studies the increment in the price per carat of a polished diamond as the weight of the stone ii iii increases. It is found, for example, that the traditional squaring rule gives results close to, but consistently higher than, the actual prices. Chapter III studies the prevailing modes of production in the diamond-producing countries, the historical evolution and present activities of the diamond- cutting centres, and the operations of the major trading centres. It is found that certain characteristics of the diamond-cutting industry make it an ideal field for cottage industries and small firms, working in places situated far from either the mining, the distribution, or the consumer centres. Certain recurrent patterns in the creation and development of local cutting industries are discussed. Chapter IV focuses on the development of the Israeli diamond industry. Since the first years of the State of Israel, the exportation of polished diamonds was seen as one of the main sources of foreign currency, and expansion of the industry was energetically supported by the Israeli government. The main factor limiting the growth of the in• dustry, however, was the supply of rough diamonds. The chapter studies the changing relations between the C.S.O. and the Israeli industry, governmental protection of the industry, and the export figures. The second half of the chapter is devoted to a detailed description of the actual trading at the Israel Diamond Exchange at Ramat Gan. Chapter V studies the role of the C.S.O. in the world market, in the frame provided iv by the history of the De Beers group. The CS.O.'s avowed policy of stabilizing prices for. the benefit of the industry as a whole is measured against the recent and on-going deve• lopments in the world market, characterized by steeply rising prices, speculative trading and relative shortages of rough, and some tentative explanations are proposed. Chapter VI, finally, describes the Vancouver wholesale and retail diamond markets. Since diamonds are sold by retailers almost exclusive• ly as part of pieces of jewellery, a survey was made of Van• couver jewellery stores to find out the relative popularity and average selling prices of the main types of diamond jewellery. The method employed in this survey involved appraising and coutning the jewellery pieces displayed, and direct enquiries from the salesmen. The survey was complemented by sales figures and other information on the buying preferences of Vancouver jewellers, furnished by a local wholesaler. The results were tabulated and compared with published Canadian and American data, and explanations were proposed for the differences found. The chapter concludes with a list of questions for future research on the retail market for diamond j ewellery. TABLE OF CONTENTS Page ABSTRACT ii LIST OF TABLES ix LIST OF FIGURES . xii CHAPTER I INTRODUCTION 1 II SORTING OF DIAMONDS 9 OUTLINE 9 PHYSICAL PROPERTIES 10 The Atomic Lattice 10 Crystals 12 Crystal Form and Manufacture of Polished Diamonds 17 MINING OF DIAMONDS 21 Recovery of Diamonds From Blueground 21 Recovery of Alluvial Diamonds 26 SORTING OF ROUGH DIAMONDS 2 7 Gems, Near-gems, Industrials 27 Sorting Gems 2 7 MANUFACTURING PROCESSES 29 Preparation 29 Sawing 29 Cleaving 31 Bruting or Rounding Up 34 Faceting 37 CUTTING STYLES 38 Early Forms of Cutting 38 The Most Efficient Forms of Cutting 40 Departures From the Ideal 46 Other Modern Cuts 48 v vi CHAPTER Page GRADING POLISHED DIAMONDS 53 The Four C's 53 Grading Colour 53 Grading Clarity 57 Grading Cut 64 Weight 66 Valuations 67 Fancy Colours 73 CONCLUSION 74 III PRODUCTION, DISTRIBUTION AND MANUFACTURE OF DIAMONDS 75 OUTLINE 75 THE DISTRIBUTION STRUCTURE . 75 THE PRODUCING COUNTRIES 7 8 U.S.S.R 81 South Africa 81 South West Africa (Namibia) 86 Angola 8 7 Liberia 88 Zaire 89 Sierra Leone 90 Ghana 91 Tanzania 93 Other African Producers 94 Venezuela 94 Brazil ..... 96 India 97 CUTTING AND TRADING CENTRES 9 7 Israel 98 Antwerp 98 Antwerp's Exchanges 102 India 104 U.S.S.R 107 South Africa 110 New York 112 Puerto Rico 114 Amsterdam 115 West Germany 116 France 117 Other Countries 118 CONCLUSION 120 vii CHAPTER Page IV THE DIAMOND INDUSTRY IN ISRAEL 124 OUTLINE 124 DEVELOPMENTS UP TO 1948 12 5 THE RECOVERY AND GROWTH AFTER 1948 AND GOVERNMENT POLICIES TO DEVELOP THE INDUSTRY 12 8 Supplies of Rough 130 Credit to the Industry 135 Manpower 137 Research, Innovation and Promotion 141 Manufacturing Practices: Plant Size and Subcontracting 142 THE DIAMOND EXCHANGE 146 ISRAEL'S EXPORTS 156 CONCLUSION 160 V THE ROLE OF DE BEERS 164 OUTLINE 164 HISTORY OF DE BEERS . 164 Foundation of De Beers Consolidated Mines Ltd. 164 From the Syndicates to the Present 168 The More Recent Evolution of De Beers 174 THE CENTRAL SELLING ORGANISATION 176 The Sights 178 Sales and Prices 180 Purported Policies of the C.S.O. and the Current Situation 184 ADVERTISING BY DE BEERS 191 CONCLUSION 198 viii CHAPTER Page VI THE VANCOUVER MARKET 199 OUTLINE 199 RESEARCH TECHNIQUES 201 Sources of Information 201 Techniques Used in Surveying Vancouver Stores. 201 The Survey Form 203 Data Gathered From A Vancouver Wholesaler. 207 RESULTS OF THE RESEARCH 209 Results From the Data of a Vancouver Wholesaler 224 CONCLUSION 233 SOME INTERESTING TOPICS FOR FUTURE RESEARCH . 235 Sources of Diamonds for the Vancouver Market . 235 Influence of the Activities of the World Trading Centres in the Price and Availability of Diamonds in the Vancouver Market 236 Relation Between Store Sales and Display Space 236 The Preferences of the Vancouver Diamond- Buying Public Compared to Those of Other Sections of the North American Public .... 236 Whether the Quality (and size) of the Diamonds Offered in the Retail Market Has Been Decreas• ing in Recent Years 237 APPENDIX 1 THE GEMOLOGICAL INSTITUTE OF AMERICA. ... 239 APPENDIX 2 RELATIONSHIP BETWEEN PRICE AND WEIGHT FOR DIAMONDS 244 APPENDIX 3 THE SHORTAGE OF ROUGH AS REFLECTED IN THE TRADE'S COMMENTS 250 BIBLIOGRAPHY 257 LIST OF TABLES TABLE Page 11.1 G.I.A. PRICE REDUCTION CHART 70 11.2 COMPREHENSIVE WHOLESALE DIAMOND BASE PRICES . 72 VIV.l IMPORT OF ROUGH GEM DIAMONDS 134 IV. 2 DIAMOND ENTERPRISES AND PROFESSIONAL WORKERS ACCORDING TO LOCATION 1973-74 .......... 140 IV.3 ENTERPRISES ACCORDING TO NUMBER OF WORKERS OCTOBER 1974 145 IV. 4 IMPORTS, EXPORTS, NET EARNINGS AND CURRENCY EARNING RATE 159 IV.5 IMPORT OF ROUGH GEM DIAMONDS AND EXPORT OF POLISHED DIAMONDS 1949-74 . 161 IV.6 EXPORT OF POLISHED DIAMONDS 1951-74 162 V. l C.S.O. SALES OF COMBINED INDUSTRIAL AND GEM ROUGH FOR 1959-1977 182 V. 2 C.S.O. AVERAGE PRICE INCREASES IN PERCENTAGES SINCE 1949 182 VI.1 PROPORTION OF WINDOW OR INSIDE DISPLAY AREA ALLOCATED TO DIAMOND JEWELLERY 210 VI.2 AVERAGE SIZE OF THE (CENTREPIECE OR SOLITAIRE) DIAMOND IN ENGAGEMENT RINGS 210 ix LIST OF TABLES (Continued) Table Page VI.3 AVERAGE SELLING PRICE OF ENGAGEMENT RINGS. ... 212 VI.4 AVERAGE SELLING PRICE OF LADIES' RINGS 212 VI.5 AVERAGE SELLING PRICE OF MEN'S RINGS 214 VI.6 AVERAGE SELLING PRICE OF EARRINGS. 214 VI.7 AVERAGE SELLING PRICE OF PENDANTS AND NECKLACES 216 VI.8 AVERAGE SELLING PRICE OF ALL DIAMOND JEWELLERY . 216 VI. 9 BEST-SELLING DIAMOND JEWELLERY ITEM 218 VI.10 THE FOUR LARGEST SELLING ITEMS OF DIAMOND " JEWELLERY SOLD, IN ORDER OF IMPORTANCE 218 VI.11 DEGREE OF TRAINING ON DIAMONDS OF THE STAFF. 221 VI. 12 AVAILABILITY OF LOOSE STONES FOR SALE 221 VI.13 WEIGHT OF STONES SOLD VI.14 CLARITY OF LOOSE STONES SOLD TO VANCOUVER JEWELLERS DURING NOVEMBER AND DECEMBER, 197 7 .