Diamond price listing chief sees bright sparks in market

For a man who some claim does not own a single diamond, it is amazing that Martin Rapaport has built a 32-year career trading the precious stones all around the world. Rapaport's diamond list, a benchmark for wholesale prices that was first compiled by the American businessman in 1978, is as controversial as it is influential. The list's accuracy and reliability have constantly been called into question by traders, including competitors, who claim that the prices have been deliberately set low. Yet it is still quoted by many wholesalers. The list now forms only part of Rapaport's diamond advisory business, which is expanding its presence in the Asia-Pacific. Rapnet, a business-to-business online trading website, which has more than 4,200 registered users in 77 countries, has daily listings of more than 550,000 diamonds valued at more than US$3.7 billion. Rapnet's Hong Kong-based managing director Ofira Gutman says the Asia-Pacific market is driving growth and the company has more than 250 members in the region. After opening a new office in Shanghai, the company offers an import service to the mainland, which guarantees payment to suppliers and delivery of diamonds to buyers. But the profit margins from the service will be slim, according to Rapaport, because of heavy tax duties on the mainland. Describing himself as a 'dot connector', Rapaport has spotted a new market for diamonds - small to medium-sized mainland jewellers and wholesalers. His service will introduce Chinese jewellers to diamond cutters in Surat in India, the leading diamond-cutting and polishing centre in the world. For a number of years, many dealers in China have known and used Rapaport's price list, updated every Friday and circulated to subscribers all over the world. Now the American is leveraging his name to obtain new business opportunities. 'We are taking the buyers to the best jewellers,' he said during a recent trip to Hong Kong. 'It's like online dating. Now they actually get to meet each other. We have opened up a new market for buyers and sellers, cutting out the middlemen.' There is currently no charge to join the buyers' group, but this may change, according to Julius Zheng Rong, Rapnet's general manager in Shanghai, who adds that the company hopes to form a trading community in the country that will target the growing small to medium-sized enterprises, which now deal with larger diamonds compared with a few years ago. Famous for his price list, few dealers and even his critics in the diamond industry would write off Rapaport's business model. 'Rapaport probably doesn't own a single diamond yet he owns all the diamonds,' says one Hong Kong-based dealer, referring to the influence of Rapaport's price list. For many years, the diamond trading industry has not had a benchmark index that could give traders information on spot prices. Rapaport is adamant that diamonds will eventually be traded in an open market on par with gold, which is covered by a number of indices including futures and exchange-traded funds. He says he has been developing a diamond index that is based on bid and ask prices on Rapnet, which he developed in the 1980s. The index will give real-time pricing details according to the size and grade of diamonds, although he declined to say when it will become available. It is not the first time such an idea has been put forward. There are already a few diamond indices traded in the market, including one indicating polished diamond prices developed by Dutch bank ABN Amro. Rapaport himself does not seem worried that an openly traded index will ultimately replace his own price list. 'Would the diamond market becoming more transparent hurt my business? No. I am in the business of selling transparency. I am a merchant of transparency,' he says. 'That's what I do. I sell diamond price information.' According to Rapnet, Rapaport launched his career in 1975 in Belgium, as an apprentice diamond cutter in Antwerp. In 1978, he started selling the list, also known as the Rap to diamond dealers. In January, Rapaport resigned from the World Diamond Council, an organisation formed by representatives from the manufacturing and diamond-trading industries, over the most serious issue facing the industry, the return of 'blood diamonds' or conflict diamonds. The majority of blood diamonds come from Marange in eastern Zimbabwe, where there have been reports of the army torturing and forcing villagers to work on the diamond fields. The so-called 'Kimberley process', the industry's warranty system, attempts to ensure only 'clean' stones enter the global market. Unhappy with the fact that the Kimberley process does not deal with violation of human rights, Rapaport dismissed the warranty system as a 'sham'. 'The Kimberley process is created by governments for governments to stop rebel movements from destroying governments,' he says. 'Asking the Kimberley process to solve blood diamonds is like asking the American Cancer Society to cure Aids.' Rapaport says he had rejected diamonds traded on Rapnet with Kimberley process certificates in the past that he suspected were coming from Zimbabwe. But for most dealers, the certificates are still the most reliable form of warranty. So what can be done? 'You have to make people aware of these problems instead of hiding them,' he says. 'People have to realise you cannot rely on governments to solve human rights abuses. The diamond industry has a moral and ethical responsibility not to deal with blood diamonds and it has to apply its own standard on the stones that they sell.' These days, apart from travelling around with his business associates, Rapaport enjoys giving the occasional speech and selling his ideas to potential clients. He talks fast but is sometimes not easily heard, although his name and his connections can still draw audiences. The United States, which is still the biggest buyer of diamonds, is undergoing a change in consumer behaviour, says Rapaport. On a trip to Hong Kong's jewellery fair in March, he told the crowd that it is no longer 'cool for a woman to flash her two-carat diamond ring in California'. The US is buying substantially fewer diamonds than it did just a few years ago. Its net diamond account, according to data provided by Rapaport, has been negative, meaning there is an oversupply of diamonds. And it will be foolish for dealers to assume that demand will bounce back soon, Rapaport says. Apart from falling demand for diamonds, dealers should also be alert to speculators selling stones. As a result of the economic downturn, diamond prices crashed in early 2008. Rapaport's list prices fell about the same time, sparking anger among dealers. In particular, diamond speculators who had financed their purchases using credit became desperate for cash as banks withdrew lending. They started to sell their stock at a deep discount, further pushing down wholesale prices. 'Oh yes, people were upset about that, and they wanted to kill me!' Rapaport says. 'I don't understand why people were so freaked out. Why would you expect prices to just go up forever? There are seasons for diamonds just like there are seasons for plums. It's normal. It's healthy.' Rapaport is bullish on China and more so on India when it comes to buying diamonds. He also believes there is a big market for reselling diamonds back to retailers. 'I think there's a big market for reselling, and it is happening now,' he says. 'People are now feeding diamonds to us and we are selling through a tender system.' Rapaport, who is now in his 60s, is still doing what he does best, but says credit is also due to his colleagues. 'You have got to differentiate Martin Rapaport from the man who goes up there and makes a couple of speeches. We have a company and it's not just one person.'