In case you missed it, Part 1 of this series covered the topic of polished diamond pricing, taking us through the steps of producing a finished, retailable diamond or diamond product. The upstream, midstream, and downstream aspects of diamond production and their relative costs/pricing were all covered. Here we explore further recycled diamonds, a burgeoning part of the industry and a key stage of the diamond life cycle.
For a visual summary, see our infographic at the bottom of this post.
A diamond is classified as recycled when it is sold back to a retailer, wholesaler, or even a third party. Some recycled diamonds are sold in their settings as a whole piece, and some are sold loose after being re-cut or re-polished. The buy-back prices of these diamonds can fluctuate depending on a number of factors outlined in the rest of this piece.
When a retailer or wholesaler buys back a diamond from a customer; the participant needs to purchase the diamond at a discount to compensate for operating costs, risks, and other expenses associated with their business. See figure 1 in this hypothetical example, the diamond is bought back at a 67% discount to the price originally paid at the retail level as the buyer needs to compensate for costs that will be incurred before the diamond is resold to another customer at the downstream segment of the industry.
When purchasing a recycled diamond, a buyer needs to consider the condition and shape of the diamond. A recycled diamond may need to be recut, repolished, or reshaped by a midstream participant in order to extract optimal value out of the diamond.
Regardless of a diamond’s astounding hardness, which is quantified as 10 out of 10 on Mohs scale of mineral hardness, diamonds can still be scratched or chipped, which would justify recutting or repolishing. Additionally, a recycled diamond may be reshaped, for example from an old-fashioned miner’s cut to a currently more popular round cut, if the relative value increase is justified.
Recycled diamond buyers will value a particular diamond based on its cut, size, quality and condition, just as they will when buying a mined diamond from a mid-stream participant or wholesale market. The value of a recycled diamond will also depend on current market conditions, which are constantly fluctuating due to supply and demand dynamics.
Most downstream industry participants historically have preferred to buy diamonds from a trusted midstream participant or wholesaler rather than buy-back diamonds directly from their customers. Given the uniqueness of each diamond with regards to its individual value-determining characteristics, the process of buying a recycled diamond can be complicated, risky, and too costly for a lot of downstream participants, which has historically limited the size of the market. Options for re-selling a diamond used be relatively confined to pawn shops, diamond districts, and few licensed retailers that would buy back diamond from their customers.
However, in recent years the recycled diamond market has grown as new technology has more easily allowed for the pairing of recycled diamond buyers and sellers on a global scale. In addition, Internet retailers have made global diamond pricing more transparent than ever before. Together these industry advancements have led to an increase in the size of the recycled market, leading to more competition and more competitive prices for customers re-selling their diamonds.
As the recycled diamond market continues to grow and become more widely available to customers wishing to sell their diamonds, price transparency will also continue to increase as well as competition among recycled diamond buyers.
By understanding the basic workings of the primary and recycled diamond market, one is better equipped to understand how diamond prices are determined. In the simplest context, the price of a diamond increases as it passes through each segment of the industry chain as value is created and costs are incurred (see figure 1). It’s important to keep in mind that when reselling a diamond one is not directly selling to an end customer but to an industry participant that will incur costs until another final customer is found.
After an industry participant buys a recycled diamond, the diamond is returned to a segment of the industry, either the midstream or downstream segment. The diamond will be recut, repolished, reshaped, or remanufactured, or sent directly back to a downstream participant where it will be resold at the retail level in the current condition.
The less time a recycled diamond spends back in the value chain, the more a diamond is worth to a buyer. The condition of a diamond, the quality, the size, and the shape will determine how far back the diamond needs to go in the value chain, and thus how much a buyer will be willing to pay.
Current market conditions driven by supply and demand as well as the size of the market will also influence the price a buyer is willing to pay for a recycled diamond. Typically reselling a diamond into a market with multiple buyers will result in a higher offering price for a seller as more buyers are competing for the diamond.
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