London’s diamond trade may not be forever
Richard Orange says London’s traditional dominance of global dealing in uncut stones is under threat from new players based in India, China and Dubai ‘H ow does it feel to hold $9 million in the palm of your hand?’ One of the world’s leading diamond buyers, Rajiv Mehta, watches intently for my reaction to this question: the sachet of dull glassy pebbles I am gently weighing, if I could somehow get them out of this building and into the hands of some Antwerp middleman, would buy me one of London’s most prestigious addresses, my own island in the Bahamas, or a countrysized swath of the Argentinean pampas.
Slim chance: the building is one of the most secure in London and we are in one of its most secure rooms — a ‘sight room’, where buyers examine diamonds. The London headquarters of the Diamond Trading Company, in Charterhouse Street near Hatton Garden where the jewellery trade is centred, is part 1970s office block, part modern fortress. There’s no company logo outside, no reference to diamonds or DTC — or De Beers which owns DTC, or Anglo American which in turns owns 45 per cent of De Beers. The only clue to its purpose, apart from the thickness of its walls, is the occasional arrival of an armoured van at its solid metal gates.
In front of Mehta, who is chief executive of Dimexon, a big player in the diamond cutting business, lie two open safe boxes overflowing with close to $20 million worth of uncut stones, sorted by DTC into bags of different sizes, from a few nuggets the size of quails’ eggs to thousands of tiny, lower-quality diamonds, each barely bigger than a grain of sand. This is the ‘London Mix’, in which De Beers’ diamonds, after a basic sort close to its mines in Botswana, Namibia, South Africa and Tanzania, are thoroughly sifted in the back rooms of this building into 12,000 categories based on size and quality, rather than geography. For someone like me, not intimately connected with the diamond trade, to penetrate so deep into this world is rare, especially this week, one of the ten each year when DTC lets buyers examine its wares.
Back in 1890, De Beers’ founder Cecil Rhodes struck an exclusive sales agreement with a group of Hatton Garden dealers to distribute his African diamonds. London had dominated the trade ever since the East India Company secured an effective monopoly over stones from India, which was the world’s only source of diamonds until they were also found in Brazil in 1725. Parliament acknowledged London’s supremacy when it abolished customs duties on diamonds in 1732. The bill read: ‘This Kingdom is now become the great mart for diamonds and other precious stones and jewels, from whence most foreign countries are supplied.’ London is still the global distribution centre for rough diamonds. The great majority of the $6 billion worth of rough diamonds DTC sells each year is channelled through Charterhouse Street; nowhere else has anything like the same share of the rough diamond trade, worth just $13 billion in its entirety but translating into $68 billion for finished diamond jewellery. The corridors are thronged with representatives of DTC’s 93 ‘sightholders’, companies which hold coveted licences to buy directly from the company. They mingle in small groups swapping the latest trade gossip or, accompanied by DTC officials, they ferry black and yellow safe-boxes of diamonds from a counter next to the DTC vault to the rooms where they can scrutinise potential purchases in private. Mehta says he can spend between two hours and two days examining his boxes. ‘When you’re making a $20m purchase,’ he says, ‘you want to have a look at the goods even though it’s only a formality.’ The buyers are as much of a London mix as DTC’s diamonds. No sightholder is actually headquartered in London and, like the diamonds, sightholders are in effect carefully selected and graded by value, not by their geographical origins. The skullcaps and dark suits of the Jews who historically controlled the diamond industry are still well represented, but Indians now predominate. As much as 33 million of the 44.5 million carats of rough diamonds DTC exported last year went to India — more than 40 per cent of Britain’s total diamond exports by value. The arrival of the Indians as major players in the late 1960s took cutters in Antwerp by surprise, although perhaps it shouldn’t have given the trade’s historical origins. ‘They rather underestimated the Indians,’ remembers Mark Boston, chairman of Goldie & Co, a diamond broker. ‘They were quite condescending about them for a long time: “les hindoos” they used to say.’ Since then, Indian diamond cutters have come to dominate their craft. About a million workers in and around Surat, north of Mumbai, cut and polish 11 out of every 12 diamonds worldwide. And competition for Antwerp and New York, the two historic cutting centres, is only going to get fiercer. The Chinese are taking a growing role, and now the Indians are threatening to usurp Antwerp as a trading centre as well. The Bharat Diamond Bourse, a two million sq. ft. diamond trading complex in Mumbai, will be completed this October. Centres such as Hong Kong and Dubai are also pushing for a greater share.
So far London has been insulated from these trends by the DTC’s presence, but its fortress is now looking a little less secure. Indeed, some industry insiders expect that by the end of the decade, no sales of rough diamonds will take place in London at all. Unlike the threat facing Antwerp’s cutters, this has nothing to do with competition from abroad. Under pressure from diamondproducing countries to direct more of the industry employment towards local workers, De Beers itself is diverting sorting work away from London, and sales may follow. DTC Botwana will begin taking over most of DTC London’s sorting work in 2008. At the same time, Namibia and South Africa are demanding that more of the diamonds they produce are sold locally so they can develop their own cutting industries.
Over the past 20 years, DTC’s share of global diamond sales has slumped from 80 per cent to less than 45 per cent, and it has further to fall. Last year, after an inquiry by the European Commission, DTC agreed to stop selling diamonds produced by Alrosa, the Russian state diamond company, by 2009. Mark Boston is one expert who opposes so much change: ‘The sight system allows people to meet ten times a year. If you mix it up, have several different sights and systems, then everything gets confused and everybody will have different agendas.’ Some of the Indian cutters are also worried by the concessions De Beers is making. Lalit Adani, chief executive of M Suresh & Co, becomes quite agitated when asked about plans to move the cutting industry to producer countries. Obtaining sufficient stones for his legion of skilled craftsmen is already proving a headache, he complains. As well as the London sight week, he is being forced to buy from De Beers’ South African sights (held the same day), and from mining companies such as Rio Tinto. He is still short, and De Beers’ plans will further restrict supplies.
But diamond traders are both adaptable and resolutely global. Antwerp’s diamond bourses have long featured as many Indian faces as local ones; the same goes for Hong Kong. M Suresh & Co has already set up shop in South Africa to salvage what business it can from the new order, sending over Indian master craftsmen to train African cutters. And you can be sure every self-respecting diamond company, whatever its nationality, has a Botswanan subsidiary in the pipeline, while several Israeli diamond companies have registered as participants in Dubai’s new diamond trading centre.
In summary, this is just one more industry in which surprising new patterns are emerging as the old world loses its grip and new superpowers flex their muscles. The only attraction of the ‘London Mix’ is those diamonds in my hand: where the trading takes place is immaterial, so long as there’s trading to be done.
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