How to Properly Price a Rough Diamond
According to the World Diamond Council, there are two main uses for diamonds: jewelry and in industry. Only about 30% of rough diamonds go to expert cutters for jewelry manufacture while 70% are sold for industrial applications. Rare and beautiful gem quality diamonds have always been used throughout human history to express love and commitment, and are considered the ultimate jewel in many cultures.
Image source: http://smithsonianscience.org/2011/08/500-carats-of-rough-diamonds-donated-to-natural-history-museum/
The prices of rough diamonds depend on the skill, place, time, needs and desires of the involved parties in a negotiation in addition to the size, shape, clarity and color of the stones in a parcel of rough diamonds. Generally, manufacturers have to realize 30% - 40% gross profit on a rough diamond after it is polished for a net profit of 5% - 8%. Some rough stones have a higher yield than others, and the profitability of a parcel is oftentimes dependent on a combination of luck and skill.
The price of the rough diamond is usually affected by various factors in addition to the crystalline structure and quality of the stone being sold. The place of the business deal, whether it will be conducted in the USA, Africa, Europe, or any other foreign location will have a bearing on the price of the diamonds. The place of the physical transfer may be different from the place of the business deal, and this will also affect the diamond’s price. Other factors that may affect the price of the rough diamond is the method of payment for the stones and other costs that may be incurred during the negotiations and purchase such as hotel and travel costs, among others.
The primary source of prices for diamonds and diamond industry market information is the Rapaport Diamond Price List, also called Rap or the List by professionals in the diamond industry. The report is composed of many sheets accessible through subscription or by registered professionals. The prices for diamonds can be checked against its weight and shape by subscribers to verify the prices in accordance with specifications. Increases in price are shown in bold characters while price falls are shown in italics.
However, it should be remembered that characteristics such as fluorescence, polish, symmetry and the cut are not included in the Rapaport List, so prices of the diamond may still vary. The Rapaport Price List express prices per carat but in actual cases, cutters put prices on diamonds based on the cost of the rough diamond plus overheads or expenses incurred in getting the stone ready for the customer. It is important for customers to know about a diamond’s basic characteristics: the stones, macles, shapes, cleavages and flats to determine if the diamond they are buying.
The rough diamond’s crystalline structure is important in determining its purchase price. It should be remembered that similar sizes and shapes have different crystalline shapes, and therefore will have different yields. The rough diamond will yield from 50 percent to 25 percent, depending on many factors.
Generally, when a rough diamond goes through processing, it loses half of its original weight. This is the reason why processed diamonds have a price tag 100% more than the original price of the rough diamond.
Usually a 1-carat diamond is created out of a rough diamond of 2-carats or more. Advances in technology however, made it possible for cutters to increase the percentage of weight retained during the cutting process.
There are machines and software systems that have been developed to help the rough cutting process where you can see the flaws, and what polished diamonds you can cut from the the rough diamond. It even then ties it into the pricing structures so you can see what margin you would make on each diamond after it has been cut and polished. The machine above is called the Sarin Galaxy 1000
If you look above, the rough diamond goes through a stage of the cutting process. The machine evaluates the diamond without any impact, or drilling. You can see exactly the flaws and inclusions, and maximize the type of diamonds that can be cut from the rough in the 2nd image. Everything is graphed out to properly setup the cut of the rough.
These machines would make pricing rough diamonds much easier, unfortunately they come at a cost so it is still not as feasible. However for a nominal fee you can get your diamond rough evaluated this way you know what you can expect from the rough piece.