Gemstone Business: Buying Quality Rough
How do buying quality rough, that I can cut, make money? This is a question that I get asked frequently, as you might have guessed. The gemstone business is like any other, you will have to work hard, invest, and generally make some sacrifices to be successful.
There are a lot of factors to consider, some of them out of your control. But the two main things to live by are; Buy parcels, quality rough, and learn how to deal with the variety that parcels include. Parcels are the only way to buy if you are serious about being in the business to cut and sell stones. Be aware that parcels take large sums of money and to get the best price you are going to have to buy larger parcels usually. But that is the way to get the best prices and the best deals on rough.
Buy quality rough for later. I mean quality, if you buy cheap material it will always be cheap. Quality is more expensive, and that is the point it will always be worth more. Here is a recent thread of conversation on the AMFED/USFG faceting egroups list… Bob Keller of www.rockhounds.com wrote:
“I dunno – just 5 years ago or so I didn’t have much trouble finding what I thought was pretty decent amethyst and ametrine at the Tucson Show from South American sources for fifty cents per carat or so in small quantities, picked – not poured. Here and there a large, eye clean jungle cut amethyst or citrine for a buck a carat, stuff like that. No mas, and I don’t think it’s because I’m just not getting up early enough.”
If Bob had bought (invested in) all of that Amethyst he could find at fifty cents a carat years ago, guess what he would be making on it now??? He would also have good stuff to cut now just for fun, if that is what he wanted to do with it. Unfortunately, he did not buy more than a few pieces probably for financial reasons, or he just wanted a couple of stones at the time. We have all been there, I am sure.
Rough, especially top rough is always gaining in price year to year, there maybe a few dips here and there on the costs, but it is always up on the average. If you want to make money, you will need to take a longer view in most cases when buying. The gemstone business is like any other business it takes time, lots of hard work and a substantial investment of money over a long period of time. Rough you buy today will be worth a lot more later… Use the fact that rough is getting more expensive to your advantage.
Why is rough getting more expensive? One reason the cost of rough is increasing is just that the cost of everything is going up in price… Remember what a candy bar used to cost? Inflation is a steady constant force. Some of the cost increase is the availability of the material or lack of the material all together… For example, with Amethyst, the Maraba mine in Brazil that has produced inexpensive material for the last 15 years or so is played out. There has been a very steady price increase on large good color Amethyst ever since. It is simply the lack of material available.
The demand for commercial colors and materials is increasing as new markets open up and there is just a lot larger market to contend with than there was years ago. Of course, as the cut stone market gets stronger/larger, it’s going to put a lot of price pressure on the rough market. Rough suppliers no longer have the surpluses that they once did. It is just a lot easier to sell gemstones than it used to be. Prices are going up, and they are not likely to stop.
Last but not least has been the trend of developing gem producing countries to try to cut it and retain more of the value. Thankfully most of the gemstone producing countries have only been partially successfully doing this. But this trend will probably continue and it does put a lot of pressure on the rough market. I personally think like almost everything in life that this trend has and will reach a balance. Not all the rough produced will be native cut for various reasons, but part of it will be.
If you want to make money on cutting stones in the short run then you will probably need to spend a fair amount of money buying parcels (remember a parcel is mixed and it will not all be top material). Assuming you can find somebody willing to sell you a parcel that is worth while, you might be surprised to learn, this is not an easy thing to do most of the time.
To be perfectly honest, I am never in a hurry to sell top quality rough in parcels, unless I have to. I know I will make a lot more money on the stone(s) in the long run selling them separately, especially if I cut them. Why should I sell it in parcels? Why would anybody? The answer is, I need cash flow for other parcels, but I will only sell a parcel of top material, when absolutely necessary, and even then only a large enough parcel to make it worth my while.
I know I am not the only person that feels this way. Anybody that tells you any different is either uninformed, or not being truthful, it is simply good business. Top rough is never easy to find and I try to hold onto all I can. Just like you. Assuming you can get a nice parcel. If you want to sell it fast, you will have to be happy with a smaller margin (most quality/clean parcels are not priced a lot under the going rate of the cut gemstones wholesale, you can make some profit, but not usually a lot) most of the time.
Think about it, this pricing is logical, there are guys paying about what you will/are for the same type of rough and cutting it (usually over seas) and trying to make 10% to 20% on it. Of course this does depend on the deal you manage to get and the type of rough it is. But this scenario is pretty typical and you will run accost it if you are in the gem business long.
The other option is. that you will have to invest your money in the rough/stones and wait a while for a larger profit later on down the road. This is just how things work most of the time. Or, sell the stones retail, which is always the best profit, but it entails more cost and usually a longer period of time to move the stones. If you want to be able to make money cutting professionally, then you are going to have to give up a lot your cherry picking habits. You will have to learn how to deal with problem rough, and how to make money with it. That does not mean it will not cut clean, but it does mean that it will not be “hand select” and there are likely to be things that you will need to work around. You will need to learn to work with flaws, bad shapes, and about anything else that you might find in a parcel of rough. Mistakes can cost you dearly. Handling and working the rough into a quality finished gemstones is not nearly as easy at this level, you need to be aware of this. You will be earning your money one way or another, by working and by investing in the rough, there are no freebies.
Do not expect to be able to make a lot of money buying one stone at a time, especially in the short run. You can make money buying and cutting hand select rough, but it is obviously going to be tougher to do. It can be done, just go look at about any cut gemstone that is being sold in any retail jewelry store. Chances are you can buy the top, hand select rough (assuming it is available, not all materials are, Sapphires are one obvious one you cannot do well on usually), cut a much higher grade of stone color, clarity, cutting, and still make a nice profit at the retail level (for what the jeweler is selling it for). You will need to find the customers, but that is another discussion. Often you can even sell the gemstone to the jeweler at a nice profit, depending on what it is, looks like, you have in it, and so on.
My point is, that if you are a hobby cutter, you can make money selling to both jewelers and retail customers, but will find the going tough in the wholesale market. If you want to be in the “stone business” then expect to have to pay your dues. Also, it will be very difficult to compete against guys that are invested in the business over a long period of time, they just have the inventory and availability of stones. That is a huge advantage, trust me. You are not going to get rich doing it and it will be tough to do on any type of a regular basis, at least until you build up your business. But you can make a few bucks here and there. Maybe to help pay for your hobby or addiction which ever the case may be. If you want to be in business, then you will need to spend serious money, make investments (like any other business) for long term profit and be patient. It is not a fast process, it will take years.
You can make a good living if you have what it takes to be in the gemstone business (some people do not, in all honesty), but you are still not likely to get rich either. My advice – Buy top quality rough in parcels when/if you can (if you have the money and can find good parcels). Get the best price you can and stock pile (invest) some for a later day. It will cost more money later for the same rough. This is good advice for the hobby cutter also. That is, if the rough is still even available… Some gemstone mines are here today and gone tomorrow, so do not count on being able to get all of types of rough you can now. There will be some mines that are gone, and probably some new types being mined. One thing that you can probably bet on, it will not be cheaper.
- Gemstone Business: Invest and Cut