RAPAPORT... Diamantaires attending the second diamond symposium in Antwerp on November 16 were asking themselves important questions: where they are at this point, just 12 months after the first diamond symposium, and even whether it is still relevant to talk about Antwerp as the world diamond center. That doesn’t mean Antwerp isn’t looking to redefine itself. On the contrary. But redefining itself at this tumultuous time in the diamond industry “is easier said than done,” commented one of the symposium attendees, after which another attendee joked “Antwerp has become the world diamond banking center — that’s it, period.”
Antwerp’s dilemma is, in fact, shared by all diamond centers. There’s simply no such thing as a diamond center anymore. Rather, there is a global diamond network centered on several cities. While some in the industry continue to have difficulty accepting this truth, the bulk of the symposium attendees were more eager to understand where they fit into this global network.
And while the presentations at the symposium were theoretically interesting, there were some complaints that they were so impractical as to be almost irrelevant to the business of doing business. “This is all very well,” said a Diamond Trading Company (DTC) sightholder, “but where are the customers?”
No Turning BackOne of the more interesting remarks at the symposium was that it has become pointless to keep waiting for things to “get back to their initial or normal state” — that is, their state prior to September 2008. Things have changed and the environment has changed. The diamond industry is never going back to the old reality and its members will have to learn to live with the new reality. It is not enough just to say that things have changed — they have, in fact, dramatically evolved.
Anish Aggarwal, managing director of Gemdax Consulting, discussed the crippling gap that currently exists between the rough prices and the polished prices, which Chaim Even-Zohar of Tacy Ltd. reportedly described as “They’re like wife and mistress; everything’s designed so that they never meet!”
Aggarwal explained that what he calls the “demand disconnect” finds its origin in three different aspects of the industry. First are the inefficiencies inherent in the pipeline itself, such as politically motivated rough purchasing behavior. Second is the fact that diamantaires basically tend to sell finance, as well as diamonds. Indeed, the primary rough purchasers act as bankers to the rest of the pipeline. Aggarwal insisted that “Giving credit is not equivalent to price discounting. In the latter instance, it’s a decision made about margin reduction, whereas in the former, you clearly gamble on your client’s financial strength.” He summarized that “taking on risks you can’t understand completely can be catastrophic.”
Victor van der Kwast, chief executive officer (CEO) of ABN AMRO’s international diamond and jewelry division, pointed out sharply that the industry should “sell diamonds with credit, not credit with diamonds!”
Aggarwal said that the third aspect of the industry that contributes to demand disconnect is speculation. “It’s a behavior that’s based on expected price trends, instead of demand fundamentals,” he told the audience. “It can cause prices to rise above levels substantiated by increased consumer demand. I’m not against speculation; it’s rational commercial behavior. My concern is more with accurately accounting for and controlling the risks associated with it. We also have to consider that the speculators are people active in the pipeline. Since the market is quite focused, just a few people can have a direct impact on prices in a given product area. This makes prices volatile and unpredictable.”
Banking ChangesNot surprisingly, a number of things are drastically different today than one year ago. One is that bankers are no longer willing to back up unreasonable buying practices. “We’ve not seen too many bankruptcies yet, Van der Kwast said, but if you don’t manage stocks, costs and receivables, you will not stay in the business for long. Who cares about sales today — what matters is profit!”
Pierre De Bosscher, newly appointed chairman of Antwerp Diamond Bank, took a softer approach, speaking about “customer of choice” and “diamond borrowing best practices” but the idea was the same.
On a more hopeful note, Krisztina Kalman-Schueler, managing consultant of Gorham & Partners, provided some statistical context for the current concerns. “According to our survey, in the U.S., there’s evidence that consumer spending is increasing. However, customers are still cautious due to lack of advertising and confusion around value.”
At the end of the day, maybe the solution is not so much about cutting costs, but rather about spending wisely — about spending where it’s most likely to be profitable.
One last encouraging detail: It’s been reported that luxury goods consumption dropped by less than 8 percent during the recent crisis, which suggests that there will always be people willing to buy diamonds. Perhaps what is lacking in the industry is a reminder of that.
The MarketplaceRough diamonds.
- Uncut and unpolished diamonds are undergoing a higher level of activity, most probably due to speculation.
Polished diamonds.
- VS+ in all colors are moving well.
- SI3 down in all colors are moving okay, as well.
- The situation is a little more difficult for stones in between.
Article from the Rapaport Magazine - December 2009. To subscribe click here.