Antwerp's Square Mile is an assortment of tired office blocks and shops. Groups of men talking business congregate in the streets. But the main clue to what brings them to the city is the heavy security at the entrances to the rundown buildings.
Inside, they will pore over rough diamonds – gems that could easily be mistaken for lumps of glass or stone. Some will spend hours using high-tech equipment to analyze their potential. Others use a hand-held loupe, or magnifying glass, to eyeball what polished stones they think they can cut from the misshapen rocks.
"It is like a piece of art," says Johnny Kneller, chief executive of Safdico, the diamond manufacturer that was co-founded by Laurence Graff and is part of his high-end jewellery and retail empire. "Then there is the commerciality. You can choose to give up weight because you like the product."
The Lesotho Promise, a 603-carat stone from Gem Diamonds' Letseng mine sold for $12.4-million (U.S.), was cut into 26 stones for one necklace, now on sale with a rumoured price tag of $75-million. Another, the 478-carat Light of Letseng, produced the first flawless round brilliant cut to exceed 100 carats.
Many cutters and polishers have left Antwerp but about 80 per cent of the world's rough diamonds still pass through the city. This year has been a difficult one, both for the miners and the diamentaires who transform rough stones to polished ones.
The economic slump has hurt demand for jewellery while a squeeze on financing has limited diamentaires' ability to stock up on rough stones. Rough diamond prices, estimates Royal Bank of Canada, are down about 15 to 20 per cent this year after a volatile 2011, when prices leapt sharply only to plummet.
The diamond industry also faces a period of considerable change.
Soaring demand from China, where the share of brides receiving diamond engagement rings has risen from about 1 per cent in the early 1990s to 31 per cent in 2010 – a similar pattern to the U.S. in the 1940s – means a buoyant outlook despite the short-term ructions.
Yet both BHP Billiton and Rio Tinto are trying to sell their diamond mines. With the market still tightly held and few large discoveries in the past two decades, the mining groups have struggled to expand their market share.
Accounting for less than 1 per cent of the miners' profits, the diamond operations are not large enough to justify management's time on a sector that shares few attributes with their larger segments.
"Each rough diamond is unique and the valuation of rough diamonds therefore will always be expert and have a subjective element to it," says Brian Menell, mining entrepreneur and diamond industry veteran. "The dynamics of marketing diamonds will always be unique relative to other mined commodities."
De Beers, now controlled by Anglo American, famously values its diamonds according to 12,000 different price points. And since the industry leader relinquished its stranglehold on the market, miners are rethinking how they market their output, extracting more value as a stone moves from mine to finger.
"The diamond mining industry historically has worked on the premise that its business stopped at the mine gate," says Glenn Turner, chief legal and commercial officer at London-listed Gem, in which Graff also has a 15-per-cent stake. "But we've found a significant margin that we can give to shareholders."
Gem, whose Letseng mine boasts a prodigious output of very large, high-quality diamonds, last year started "smart-selling," keeping a selection of stones either to manufacture themselves or cut in partnership with a diamentaire. The aim is to share in the midstream profits for 50 per cent of production value by 2017.
"The profitability of cutting and polishing is much better in these large, high-quality stones," says Stephen Wetherall, Gem's group sales and marketing executive. "We are in the box seat in terms of production to do this, whether it is in partnership with jewellers or manufacturing ourselves."
The migration of miners downstream is matched by attempts by luxury retailers and jewellers to secure supplies of precious gems. Tiffany has signed numerous off-take agreements – contracts to buy the output of a mine – with producers to help fill its famous blue boxes.
Harry Winston, the Canada-listed group, combines high-end jewellery stores with a 40-per-cent stake in Rio's Diavik mine and is trying to acquire further mining assets.
Its "book ends" strategy – which argues that most value accrues to the miner and the retailer, rather than the high-volume, low-margin processes in between – means its two divisions buy and sell into the market, not to each other, prompting some analysts to question the model's merits.
But the group maintains that seeing both sides of the market has its advantages and hints at more vertical integration to come.
As Jean-Marc Lieberherr, chief commercial officer for Rio's diamond division, puts it: "Miners are getting closer to retailers and retailers are getting closer to miners. We are shortening the pipeline and getting closer to the end consumer, which also gives us gives us a channel to work on bringing different dimensions to the consumer experience."
Rio's programs focus on transparency – tracking a customer's diamond from mine to the shop – and, in some instances, playing up the cultural or social story around the stone.
That can mean building a brand or retail presence around one particular mine – something Gem is considering for Letseng.
But Rio also recently launched a collection of sustainable jewellery, Nature's Beauty, testing customers' appetite for baubles with a certified ethical and environmental pedigree. Elsewhere, the company works with jewellers, such as China's Chow Tai Fook, developing new markets such as the fashion jewellery segment – for diamond purposes, anything under about $5,000.
Not everyone is a fan. Some analysts argue that miners are increasing their risk by holding on to stones, rather than selling for cash.
While sharing in important gems makes sense, they add, the competitive world of diamentaires is fraught with pitfalls – 60 per cent of a rough stone is typically lost in manufacturing and breakage is a constant threat – while branding is well outside miners' expertise.
"The trend is misguided," says industry veteran Mr. Menell. "Miners attempting to go downstream into branding or retail and retailers trying to go upstream to secure supply will in most, if not all, instances corrode value. They are very different industries, with different cultures and different requirements for success. Companies will inevitably do one or both of them badly."
But for the industry such experiments are part of attempts to sustain the demand for diamonds since De Beers moved away from championing the entire sector.
"Part of our business philosophy is to try to decommoditize diamonds and go beyond the four Cs," says Mr. Lieberherr, referring to traditional pricing based on cut, colour, clarity and carat.
"We think it is going to help sustain the appeal of the diamond category in the longer run."