The Organisation for Economic Cooperation and Development was in town the past couple of days, looking at diamonds and specifically at how they are priced.
They came to the right place. Dubai is the third biggest diamond trading centre in the world, with the value of rough diamond trade approaching US$26 billion last year. The city is also a growing hub for the jewellery business, which, of course, relies heavily on polished stones as a major component.
But the multibillion-dollar industry has never worked out how to arrive at a uniform price for the basic commodity across the world. Unlike gold, or oil, there is no such thing as a standard “diamond price” accepted as a basic benchmark.
This is a problem that has troubled the diamond industry for years, and especially since the Kimberley Process was set up to stop the flow of “conflict diamonds” on to the world market. A transparent global price for rough diamonds would be a blow to the smuggler, and would be a big boost to the producers of Africa and elsewhere, which sometimes fear they are not getting next price when they come to sell their valuable resources.
Why has it proved to be so difficult to set up a global benchmark price? The easy answer seems to be that there are so many variables in the product, its production, trading and finance, any one of which can cause a big fluctuation in the final price.
There has also been the persistent worry – reiterated in front of the OECD participants at the special forum held in Dubai ahead of intersessional meetings of the Kimberley Process (which the UAE is chairing this year) – that an attempt to control pricing could be seen as anti-competitive cartelisation.
This would obviously worry the likes of De Beers and Alrosa, the two biggest diamond producers in the world who between them control about 66 per cent of the global business by both volume and value. The forum heard that the mining companies have big margins, especially on their African businesses, but these are coming down.
Producers were prepared to restrict production of diamonds last year, in the face of an oversupply of rough gems and a lack of demand from the big consuming countries – the US, China and India.
Middle East customers also buy an increasing number of diamonds.
Even so, it was a tough year for the diamond trade, compounded by a squeeze on diamond traders by the big banks, which began to worry about the amounts they had advanced in such volatile market conditions.
One expert at the forum said that the outlook was challenging in the short term, but good in the longer, as pricing was increasingly determined by “normal” economic criteria such as supply and demand. A uniform pricing formula would be a huge step towards achieving the “normalisation” of the diamond business.
This would ensure smuggling is reduced and producers get what they deserve for their produce. All eminent good sense.
It was a shame none of the non-governmental organisations, who claim to put the interests of the producing countries above all else, were there to hear the debate or contribute to it.
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