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Antwerp
By Marc Goldstein
Less than two months before the New Year, the mood is far from optimistic — at least within the diamond pipeline. More enthusiastic are those companies that are more vertically integrated, with direct access to the retail market and the consumers. Retailers are reported to be still buying, even if quantities are not as large as hoped for. It’s not rare to hear that given the current situation, profit can only be made by not going through two or three intermediaries. In other words, the current stagnation points to the fact that there might still be too many companies in the business. “We’ve been very lucky that we did well during the beginning of October,” said Axel Beck of Beck Diamonds. “Retailers are still buying. The expectations for the U.S. market are steady, which will help. Having said that, the general mood is depressed.” Diamonds may be forever, but growth isn’t. After a double-digit growth rate, China is seeking some air. “We’re facing the consequences of the weakness in Chinese demand. Jewelry chains are reported to be closing shops, which results in inventory being transferred to the remaining shops. Those outlets therefore have more goods to sell and we’ll have to wait until this process is over before seeing orders coming back to us. This absorption process started this year and we expect that it may last at least throughout the first half of 2016. Consequently, there’s no need to say that it’s certainly no time to flood the pipeline with rough,” Beck emphasized. Actually, it’s not news that sales can’t be high all the time. But the problem here is that people didn’t expect — and weren’t prepared for — stagnation to last so long, which according to some industry players has been ongoing since June 2014. One diamantaire stressed that even in 2008, the real crisis didn’t last more than a good six months, at least in the trade.
“As a vertically integrated diamantaire and jewelry manufacturer, we see the current times as an announced disaster,” said Charles Friedrich of Flanders Cut International. “Rough is very likely to drop and bankruptcies will happen. We’re not talking anymore of smaller companies, many of which are gone already. But it’s among the medium and large companies that problems will occur. As far as we’re concerned, we’re doing a tremendous amount of marketing, which makes all the difference. If we didn’t have our marketing support, we’d be pretty bad off, as many others are. We’re in a niche market and, most important of all, there’s no overabundance of goods there. Furthermore, we’re active in Europe mainly, and across the world as well, which tends to confirm that mastering quantities is a must if profit is to be maintained,” he elaborated.
The view from Antwerp is that globally, more and more stones are getting stuck in the pipeline. The prevailing opinion is that manufacturers and traders must refrain from buying, with the emphasis on the fact that it will take more than giving 20 percent off to get customers to resume buying. It’s not a question of prices, which causes people to lose confidence, but an issue of quantity. Furthermore, it’s been reported that new banks would be interested in financing the trade, which is seen as very negative. Diamantaires are aware that there’s already too much financing in the trade, which has been causing all the overload in the pipeline. A major diamond manufacturer, who insisted on remaining anonymous, revealed that some producers will now be implementing a new kind of strategy. “Even if it’s true that major companies like us can refuse goods and that globally all producers are reducing their sights, there may be more to it than meets the eye. For example, let’s assume that Producer X wants to sell $350 million at a given sight, but that all in all, after using their refusal rights, sightholders end up purchasing only $200 million at a symbolic price of $1,000 a box. Nothing prevents Producer X from contacting a given number of dedicated sightholders afterwards and offering to sell them the remaining $150 million goods for say $900 a box. In turn, those sightholders can then immediately resell the goods at $950, leaving even some room for the final buyers to manufacture and still make a tiny profit. But then, while Producer X reaches his $350 million sales, and some sightholders do make a profit, what’s to become of those who paid $1,000? They are doomed to lose money one way or another. And it becomes a vicious cycle with an unnecessary quantity of rough again being forced into the pipeline.” It has been reported that this practice had been initiated a couple of months ago. If true, this would mean that diamantaires may not be the only ones to be shortsighted, because eventually, everybody, including the producers, end up suffering when the pipeline gets choked with goods.Article from the Rapaport Magazine - November 2015. To subscribe click here.
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