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8 posts from December 2006

UN Continues Liberian Diamond Embargo

Liberiamap_1The United Nations Security Council extended its embargo on arms destined for Liberia and renewed an embargo for six months on rough diamond exports from Liberia.  While the Security Council acknowledged the progress the Liberian government has made this year in monitoring the diamond trade, it determined the situation is still unstable and a threat to security and peace in that war-torn region.

Illegally marketed diamonds, known as conflict diamonds, have been the catalyst for civil wars in Liberia being in 1989 and the brutal conflict in neighboring Sierra Leone.  Ex-president, Charles Taylor in Sierra Leone, faces seventeen counts of war crimes for allegedly arming and training rebels in exchange for conflict diamonds.

In order for the Security Council to lift its embargo on diamond exports from Liberia, the Liberian government must join the Kimberley Process that documents the origin of rough diamonds in an international effort to keep conflict diamonds from entering the diamond marketplace.

The Kimberly Process has successfully reduced the percentage of conflict diamonds in world trade.  From an estimated high of 14% of total world diamonds during the mid 1990s, the Kimberley Process is credited with reducing conflict diamonds to about 0.2% (two tenths of one percent) of current diamond production.

During 2006, the only source of conflict diamonds has been the northern regions of Cote d'Ivoire, a country in Western Africa, bordering the North Atlantic Ocean, between Ghana and Liberia.

GIA Synthetic-Diamond Grading Report

Gialogo_1 In June, the Gemological Institute of America (GIA) informed the World Diamond Congress in Tel Aviv, Israel that the GIA Laboratory intended to grade synthetic diamonds.  There was overwhelming agreement by the diamond industry that synthetic diamonds should be graded so that consumers would receive proper disclosure when the lab-grown diamonds enter the marketplace.  However, there has been months of heated debate over what language should be used to described synthetic diamonds.

The producers of synthetic diamonds feared consumers would perceive the word “synthetic” to be the same as fake or simulated diamonds.  The providers of natural diamonds wanted language that would clearly differentiate lab-grown diamonds from diamonds mined from the earth.

GiasyntheticreportThe GIA’s new Synthetic Colored Diamond Grading Report clearly identifies the diamond as laboratory-grown and refers to the man-made origin four times.  The new report also uses grading terminology to describe color and clarity that is different than is used for natural diamonds on their traditional reports.

The GIA instead will laser inscribe "laboratory grown" on diamonds produced in a lab that do not already have an inscription with Federal Trade Commission-approved language such as "man-made," "lab grown" and branded names such as "Chatham created.”  The producers of synthetic diamonds have stated that all their diamonds will be laser inscribed with some type of synthetic nomenclature but the GIA will ensure that all synthetic diamonds will be laser inscribed with proper disclosure.

The GIA Laboratory will begin accepting lab-grown diamonds for grading using the new reports on January 1, 2007.

IGI Laboratory-Grown Diamond Grading Report

Igilogo_2 After decades of researching synthetic diamonds, The International Gemological Institute (IGI) has implemented their new Laboratory-Grown Diamond Grading System.  The IGI has been developing and testing the system for more than a year.

The new grading report has a different format compared to the IGI’s grading reports for natural polished diamonds.  The report provides an explanation and definition of synthetic diamonds and specifically identifies the type of synthetic origin. IGI requires that all synthetic diamonds it grades this way have the laser inscription containing the words “Laboratory-Grown.”

The purpose of using the term laboratory-grown and the information on synthetic diamonds on the new reports is the IGI’s attempt to better educate consumers and provide accurate and reliable product information on the lab-grown diamonds entering the marketplace.

Laboratory-Grown Diamonds: EGL USA Update

Eglsyntheticreportlg The terms “synthetic” and “cultured” have been so widely used in the marketing of man-made diamonds that the many consumers do understand the difference between these laboratory-grown diamonds and natural diamonds.  In an effort to be clear about the proper disclosure and communication of the synthetic origin of these diamonds, the EGL USA group has revised their diamond grading reports. 

  • The EGL now uses the term “laboratory-grown” to disclose the synthetic origin of the diamond.
  • EGL USA gemological reports for synthetic diamonds have a new gray color theme to distinguish them from the dark blue scheme for natural diamonds.
  • Synthetic diamonds have a mandatory laser inscription that includes the term “lab-grown” (or its equivalent), the manufacturer (if known) and the EGL USA report number.
  • The back cover of the new synthetic report features information about the different synthetic manufacturing processes, detection techniques, and grading methods.
  • The report identifies the type of synthetic origin: High Pressure High Temperature (HPHT) or Chemical Vapor Deposition (CVD).
  • The report identifies the color origin: As Grown or Enhanced (HPHT or irradiation)
  • The report contains an identification section that indicates long-wave and short-wave fluorescence, microscopic features, and diamond type.

From the time that HPHT treated diamonds entered the gemstone marketplace in 1999, the EGL USA has continued research efforts to develop reliable detection and identification procedures for HPHT diamonds.

2007 Diamond Supply Contraction

De_beerscompany_1De Beers, the world’s largest diamond producer, has notified their clients that the first half of 2007 will have a reduced supply of rough diamonds.

This is a result of several forces in the rough diamond production and marketing arena.  One factor is that 2007 will begin the reduction of De Beers’ purchases of Alrosa rough diamonds as a result of a deal with the European Commission to settle a long-running legal case alleging monopoly.  Under the agreement, De Beers agreed to reduce purchases of Alrosa production by $100 million in 2007 and $100 million each subsequent year until purchases are zero in 2009.  Alrosa is unlikely to replace that level lost sales as they work to ramp up their new marketing efforts so the supply will dwindle.

Another complicating factor is that Botswana, primary source of De Beers’ production, will probably have lower production in 2007. The declining production of older mining operations is an industry trend that will continue for the next decade.  The diamonds in these older mines are more difficult to extract as they most go deeper, so production declines. 

De Beers’ newest mine, Snap Lake Arctic, is projected to start production in October 2007 so will not be contributing to worldwide production during the first part of the year.

The diamond industry is going through many structural changes and change usually means less efficient flow of diamonds.  For example, De Beers has pledged to provide rough diamonds to southern African countries so they can expand their involvement from mining into cutting and polishing and thus enjoy a bigger share of the economic wealth created by diamonds.  These operations will not have the efficiency of current clients and will siphon some of the rough diamond supply away from their current clients.

The bottom line is that worldwide supply will be reduced or at least slowed down in 2007 with the expected result being the firming of prices leading to a longer term trend of price increases.

Blood Diamond Buzz

Blooddiamondposter_1The movie, Blood Diamond, has certainly generated a lot of attention in the media.  Human rights groups are using the buzz surrounding the movie to draw public attention to the illicit diamond business and its impact on human rights, child soldiers, money laundering, terrorism and brutal warfare.  On the other side of the debate is the diamond industry that is concerned the public might over-react and not realize the progress that has been made to eliminate illegal diamonds and the critical role legitimate diamonds play in the economies of African countries.

Countries such as Angola , Sierra Leone and the Democratic Republic of Congo were previously sites of bloody conflict but have now regained peace.  Today these countries use diamonds to develop healthcare, educations and improve quality of life rather than financing atrocities and warfare.

Both sides have valid points but as often occurs when complex issues get debated in the media, it can be hard to listen to the truth because of all the shouting.

Blooddiamondsmap_2There as much corruption in the past and the stories of amputations, child soldiers and millions of refugees are evidence of the sheer brutality and indiscriminate violence that has ravaged these countries for years.  Now, only a few countries are considered sources of conflict diamonds today.  Ivory Coast and Liberia are still banned from exporting diamonds by United Nations resolutions, but Liberia hopes to see that ban lifted in early 2007.  Ivory Coast is still struggling with a group of rebels in the northern part of the country still benefiting from the sale of illegal diamonds.  Some suspect these illegal diamonds are smuggled across the border into Ghana.

The Kimberley Process, established in 2002 to reduce and eliminate the flow of illegal diamonds, has greatly reduced the number of conflict diamonds sold.  Even critics of the Kimberley Process acknowledge the current problems are minor in comparison to a few years ago and that the program is well on its way to bringing order to a previously unregulated industry.

The diamond industry is now taking steps to put more of the wealth from diamonds back into the worker and their countries where the diamonds are extracted.  African countries that never were associated with conflict diamonds are trying to get the word out that diamonds are often their greatest natural resource and the potential source of their economic success.  They are concerned that the current media attention on blood diamonds will distort reality and result on a backlash on the African diamond industry.

Angola, Sierra Leone and the Democratic Republic of Congo are especially concerned about the possible current media attention because these war torn countries rely on their legal diamonds to fuel their economic recovery. 

Supply and Demand Update

Supply and demand for polished diamonds are constantly changing with the differences reflected by the prices.  Diamond prices in 2006 through July were greater than the same months in 2005.  The price differences were constantly decreasing until each month with August through November actually down slightly from the same months in 2005. November appears to be turning point with the price differences seeming to stabilize.

The apparent stabilization in polished diamond prices indicates that the supply and demand for diamonds are near balance.  For several years, demand has grown quicker than supply with prices increasing.  The recent economic impact of higher interest rates and prospects of a global economic slowdown have slowed demand and reduced retail inventories and production by some suppliers.  This gave the diamond market a chance to catch its breath.

Diamond prices peaked in the fall of 2005 declined slightly during 2006 and now seem to be stable.  The long-term forecast is for demand to increase and the worldwide supply of diamonds to decrease as production at old mines dwindle more than new mines can gain in production.  The expected result is increased diamond prices for the next several years.

What is a little misleading about the diamond price trends it that they are averages for all sizes of diamonds.  In reality, the larger diamonds (over 3 carats) are getting harder for cutters to find and the prices are growing dramatically.  For example, while diamonds in up to 2.0 carats are close to even or slightly lower than this time last year, prices for diamonds in the 4 and 5 carat ranges are up over 10% on average and even more for higher color and clarity.  There is every reason to believe that that increase in prices for larger size diamonds will be even more dramatic during the next several years.

Stillwater Mining Company Powers Palladium

Palladium’s primary use is in the auto industry where for years it has been a key component in catalytic converters.  However, recent years have seen a noticeable increase in use in the jewelry industry.  The change as a key metal in the jewelry industry was most evident in China where designers took advantage of the metals unique capabilities and saw the demand grow from 70,000 ounces to over one million ounces in just four years.  China is now the world’s largest market of palladium jewelry.

The interest in palladium for jewelry in the United States has been intense since the country’s largest jewelry trade show in Las Vegas last June.  Several top designers projected that palladium could be the industry’s white metal of choice in just a few years.

The reasons for the interest in palladium include its similarity to platinum (pure, hard, does not tarnish, hypoallergenic, white luster) but also the fact that it is lighter and considerably less expensive than platinum.  Jewelers love its capability for new designs and the higher profit margins they can achieve relative to platinum or gold.  Because palladium requires some different techniques and skills compared to gold jewelry making, it will take a little time for it to achieve its full potential but the forces of change are moving.

StillwatermineThe power behind the booming popularity of palladium in the United States is Stillwater Mining Company located in southern Montana, the only primary palladium producer in the U.S.  The palladium ore at their two mining locations is the richest known palladium deposit mined in the world with three parts palladium produced for every part of platinum.  By comparison, mines in South Africa yield two parts platinum for every part of palladium and in Russia palladium is a byproduct of nickel mining.


In March of 2006, Stillwater Mining Company launched Palladium Alliance International, an organization committed to providing marketing support and promotion of palladium as a precious luxury metal.  The platinum industry used a similar organization, Platinum Guild International, to propel platinum to record levels of demand for jewelry.  Stillwater Mining is hoping to follow that example to create consumer awareness.  Palladium jewelry is currently less than one percent of the U.S. jewelry market but Stillwater Mining Company is aggressively promoting its product and expects that percentage to grow dramatically in the years to come.

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