The decision by leading diamond industry figure, Martin Rapaport, not to update prices for fancy cut diamonds for a long time and, in July, to cut them, has put the spotlight back on the issue of the list and its prominent role in the global diamond business. The price list, which has become a fixture in the diamond industry, has long been a source of heated debate.

For, as with any other product, shouldn’t the market alone decide what the price of any given diamond should be? Try explaining to someone who doesn’t work in the diamond industry, why the price of a certain diamond is ‘Rap -15 percent’ and you’ll get an idea of just how bizarre it sounds. And although other price lists also exist, they have not convincingly managed to win the support and patronage of the diamond trade.

Rapaport came out with his now well-known and widely used Rapaport price list in 1978. For many in the industry, the automatic reflex action when looking to check a diamond price is to look at the Rapaport list, which has become a sort of Bible for many diamantaires. But the list is not without its critics, and when Rapaport recently cut prices of fancy cuts he touched off a debate on a long-standing and contentious issue in the diamond industry. Many in the industry believe that not only did the decision regarding fancy prices not reflect what is really happening in the market, but also has a more profound impact. And this is not first time that the Rapaport list has sparked anger in the diamond industry. In 2006, members of the Belgian and Israeli diamond exchanges reacted vehemently when the Rapaport list published an average reduction of 5 percent in the prices of diamonds in the 10 to 90 point range despite what they said was strong demand at the time for VVS and SI stones. An emergency meeting was held at the Rapaport office, attended by leading diamantaires who handed a petition over to Rapaport.

And in 2008, just before the JCK Show in Las Vegas, the Rapaport list raised some prices by 25 per cent, along with smaller increases and some decreases. Members of the diamond industry heatedly questioned Rapaport at his annual breakfast meeting. Rapaport explained that the new levels included premiums that the industry was paying for goods, and advised diamantaires to recalculate their discounts against the new list.

And again in late 2008, the Belgian Polished Diamond Traders Association (BVGD) criticised a decision to raise diamond prices broadly. The BVGD said the Rapaport list was inaccurate since the market at the time was characterised by falling prices.

The decision by Martin Rapaport over prices of fancy cut diamonds, and then in July to cut them not only does not mirror what is actually happening in the market, say some diamantaires, but also has a more profound impact. If the industry is looking at a price list where prices have not risen – even though in reality they have – then manufacturers say to themselves: 'Why should I bother manufacturing those prices. It simply is not worthwhile, never mind profitable because I won't be able to secure the price I need.'

All this at a time when margins are razor thin at best, and when many manufacturers are even, according to reports, producing goods at a loss just to keep their operations working. Reports indicate that the price of rough is rising higher than the price of polished, thus reducing profitability for manufacturers even more. Many manufacturers, who are keeping expensive stock and trying to protect paltry margins, have now been told that their goods are worth less than their profit margin.

Manufacturers are likely then to decide that if the profitability only comes from making rounds then they will take rough goods that would normally be polished into fancy shapes and make round-shaped goods. This has several implications: firstly, it is creating more rounds for a market that already has a surfeit of them. But those rounds are being made at a higher cost because manufacturers are losing more yields making them into rounds than they would do if they were creating fancy shapes. As a result, the price of rounds rises.

Secondly, it reduces the number of fancy shapes on the market and may serve to persuade consumers that they should buy jewellery set with rounds because there is a larger selection of such diamonds. Thirdly, it creates problems for the manufacturers' clients – wholesalers, jewellery makers and retailers – who may seek to stop doing business with them, saying that they are not receiving a wide enough selection of diamond shapes. Lower-cost fancy shapes give them an extra option to offer their customers, but this alternative is now lost.

And, fourthly, it creates problems for manufacturers with their banks who will now decide that the stock held by the diamond polishers is worth less, according to the price lists, and may therefore be less willing to extend further credit.

This case and the recent reduction the price of some fancy cuts raise the question as to whether the publishers of price lists should have such a strong influence in setting prices. Should companies that trade in diamonds also be publishing price lists – is this a conflict of interests? And does the diamond business not deserve a great deal more transparency –how deep and wide is the information upon which the lists are based?

Are the lists based on actual asking prices from hundreds and thousands of suppliers worldwide, and are the prices based on real transactions in the market over the previous business days and on a substantial amount of volume? In addition, given the huge number of different types of diamonds that exist, are there enough sub-sets with information being collected for each?

A survey of Indian diamond companies uncovered some interesting attitudes to diamond price lists. Asked whether the industry should be reliant on private companies to set diamond prices, a strong majority of 58 percent said No, while just 24 percent said Yes. However, when asked if such price lists were reliable, a surprising 42 percent answered in the affirmative, while just 22 percent said No.

Asked whether the price should be decided only by negotiations between buyers and sellers, an overwhelming 82 percent said Yes. But doesn't the market set the price anyway by taking the price lists and adding or reducing the price? The response here was more mixed, with 30 percent saying Yes and 26 percent saying No, while most respondents chose Maybe with 44 percent. Similarly, on the question of whether prices are set on a wide enough basis of information, just 26 percent said Yes, while 30 percent disagreed, and Maybe was given by 44 percent.

Is there a conflict of interest if a price list is published by a company that also trades in diamonds? Almost two-thirds of those surveyed (62 percent) agreed, while just 22 percent disagreed. As for the issue of whether enough consultation takes place with dealers and the different diamond centers before a decision is made regarding prices, almost half (48 percent) said No, and just 10 percent said Yes.

Do price lists create transparency regarding prices? Only 20 percent of respondents believed that to be the case, while 40 percent said No and the same figure answered Maybe.

Do price lists work against dealers and traders by revealing too much of information and cutting profitability? Respondents seemed somewhat concerned by this issue, with 42 percent saying Yes, and just 10 percent saying No. Has the age of Facebook and instant communications made price lists irrelevant? No, say 42 per cent, and Maybe said 48 percent, with just 10 per cent Yes. Finally, they were asked if diamonds should still be priced in US dollars despite the volatility of the currency. An overwhelming 90 percent said that should continue to be the case, with just four percent saying No, and six percent saying Maybe.

One of the main price lists creators is Martin Rapaport, and he remains calm in the face of accusations by his competitors and diamantaires, having heard all the complaints many times over in his many years in the business. Although he declined to comment for this article, Rapaport has put on record many times his answers to the questions leveled against him. He has said that diamantaires must bear in mind in the vast range of diamonds for sale and the problem of providing information that can be understood by the many people all over the globe involved in the industry. He also points out that people misunderstand if they think he is trying to give precise information on every transaction. His aim is actually to give a sort of marker in a very rough way about prices, and to provide the global diamond industry with a common denominator for it to use.

He notes that when a consumer sets out to buy any expensive product, whether it’s a car, a diamond, or anything else, the consumer does not always pay the list price, but instead attempts to get a discount on it. In other words, the list price is a general indication of the final price. The list gives people a starting point, he says.

Rapaport has said in the past that the reason that he is not willing to disclose how he comes up with prices is because it might lead other firms to copy his methods. The company has to be sensitive about its intellectual property, he explains. He said the firm continuously studies the markets, and has economists analyzing the data. The company also has widespread interactions with the market. He has said that when he reduces prices, people are usually upset with him, but love him when he raises them. When there are complaints, he discusses the situation with diamantaires and if he believes the wrong decision has been made, he will immediately act to correct the situation.

As for charges of a conflict of interest due to his trading activities, he has rejected them, saying he does not actually own diamonds but simply trades them. He has said that it is logical for the trade to check prices with a body that knows about diamonds in order to check its current value. Rapaport has worked in the market for more than 30 years, and says that because he is in the market he can provide accurate information.

Rapaport says that some people dislike the list because it gives buyers access to a lot of background information that they did not have in the past, and that they are able to make money by using his information.

The diamond industry across the globe is fairly clear that price lists are not accurate or a good indicator of what is happening in the market. Vijay Shah, Director of J. B. And Brothers Pvt. Ltd. in Mumbai, says a single pricing system would be good for the market since it would reduce the variation in pricing of diamonds and prevent haggling over prices. Such a system would also boost consumer confidence.

He believes that a scientifically develop pricing system calibrated with the diamond structure and aligned to a benchmark price list would have higher reliability standards. As an example, he cites the pricing strategy adopted by J B And Brothers Group, with a system based on the “Diamond DNA”. As no two diamonds are the same, their price needs to be unique

As for the market setting the price of diamonds rather than price lists, Shah says prices are more influenced by cyclical events, rough diamonds becoming scarce, the depletion of mines and the increased cost of production. As for whether there is enough consultation taking place with dealers and in all the different diamond centres before a decision is made regarding prices, Shah said he does not He does not suspect, and is not aware, of any "cartelization in pricing and would not support such activity".

There is an argument that in the Facebook age of instant communication and dynamic changes, price lists are less relevant because people are communicating more easily and widely and receiving price information from a wider variety of sources. Says Shah: "Price lists are a transparent trade practice and not a fashion, which will fade with

a new

generation or time. Hence technology provides a better platform to effectively communicate with customers and vice-a-versa, increasing the need and relevance of price lists being made available to the buyer. And this promotes informed choice."

With the volatility of the US dollar in recent years, is it right that price lists quote dollar prices? Shah says that any internationally traded products are calibrated to globally accepted currencies, in many such cases the US dollar, to facilitate business transactions. "However, currency fluctuations are part and parcel of economies and businesses."

Meanwhile, other diamantaires across the world believe price lists lack reliability and accuracy. Chaim Pluczenik, CEO of Diamond Trading Company (DTC) sightholder, Pluczenik Diamond Company NV in Antwerp, says the industry should not be reliant on the Rapaport list to set diamond prices. Although he is not against price lists, he says there should be lists created with reliable information.

He believes the market should set the price of a diamond, and that it should logically be the result of negotiations between the buyer and seller. In effect, he says this takes place because diamond traders the world over talk about the price of a particular stone in terms of a list price plus or minus a certain percentage. "I do not believe there is enough consultation taking place with dealers and in all the different diamond centers before a decision is made regarding prices," Pluczenik said of the Rapaport list. "Prices are not set on a wide enough basis of information, and the price list is simply producing a set of estimates regarding prices," he added.

Meanwhile, Abraham Fluk, Chairman of Yoshfe Diamonds International, in Israel, also a DTC sightholder, has clear views on price lists, saying: "There are no official price lists. They are business ventures, and anyone who wants to create a list is welcome to do so. These are private initiatives that are successful." However, he pointed out, the Rapaport list is not always accurate, "especially for small and medium size fine make goods". He believes that may be because they do not have enough information or the right research, and in these types of goods, they are not accurate. "Parcels are selling at higher prices than the lists state in their lists for single stones which proves that they are not accurate.

"I believe that they are not well-informed about the state of the market in this segment, and do not have enough information about small fine make diamonds. The smaller diamond market is highly specialized and there are so many items so the lists cannot reflect what is really happening. There are fewer people dealing in this part of the market, so it is very difficult for the lists to know what the real prices are."

Fluk also stresses that lists, when they are updated are already rather historical documents. "They are really intending to reflect what happened in the previous week or two, but they cannot give a price for the week to come. The lists are history when they come out. They simply show what has happened."

One of the claims the list creators make is that they help create more transparency in pricing for the diamond trade, but Fluk does not believe that this is the case. "I do not feel that the lists lead to greater transparency. No diamonds are sold for the price stated in the lists. You cannot know from the lists alone what the price of any particular diamond is. The lists are not the price, just an indication.

"People in the industry, especially the dealers, will always find out the price of any particular diamond through their many connections so they do not need the lists for that. There are no secrets these days. Companies advertise their prices for the goods on the Internet and elsewhere that they are selling and that gives a more solid reflection of the price."

Another argument often expressed regarding some lists is that there is a conflict of interests since a company may trade in diamonds and also set prices for them. But Fluk said that he does not believe this is a big issue, saying diamonds are sold on a commission basis and inventories of diamonds are not held. However, Pluczenik said that "for sure" there is a conflict of interests when a price list is published by a company that also trades diamonds.

Raj Mehta, senior vice president of Rosy Blue in Antwerp, said that he believes the issue of price lists and their effect on diamond prices is more complex than is often stated. Asked if the industry should depend on a single firm to set diamond prices, he says that in any business the price of goods is decided by the market. "The market price is not just derived from one market, but an international view should be taken. Based on that, if prices are printed, then it’s fine. However what is the market? That is the main question? One needs to ask if it is the person selling goods cheapest or, alternatively, at the most expensive price. Then again, maybe the person selling cheap is not selling the right goods, or only selling very small quantities of the diamonds. These are the types of questions that people should ask themselves," Mehta said.

Are the price lists reliable? Mehta said that whether or not the list is reliable, "the trade is yet following that as a base. Now if the base has some calculation, information, data behind its price structuring to support its conclusions, then we shouldn’t have a problem."

Mehta said that not enough consultation takes place with the industry in all the different diamond centers before a decision is made regarding prices, and that prices are not created from a wide enough basis of information. "Therefore, as I said, it should be looked globally and not locally. The price list only provides a baseline for prices, a point of reference."

The price lists also raise the issue of diamonds being priced in US dollars and the problems that causes when currencies in diamond centres decline against the greenback, as has happened in India over the past year, and in Israel over the past two months. But Mehta does not believe this to be problematic: "Raw material is based on the US dollar and therefore it makes it easier for the cutting industry to manage the same, or else we will have even more volatility. The answer here is: about 55-60 percent of polished diamonds are consumed in US dollars or currencies pegged with it, so it is best that the business stays in the dollar," Mehta concludes.

Meanwhile, honorary Israel Diamond Exchange President Shmuel Schnitzer commented: "I don't have anything against the Rapaport price list, or any other. I can live with them. Diamond prices have to be based on something. The problem is with what happens with the making of the lists. There is not always enough transparency in how they are made. The industry does not see with whom the lists work and the information they are getting; if we did it would give a better feeling.

"We need price lists. We can't be like we were in the old days when there was not so much transparency about pricing. Apart from that, in today's Internet world, there is information available everywhere. Relating to specific goods, if prices of certain diamonds are reduced, it can discourage manufacturers from making them."