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Antwerp
By Marc Goldstein
How will 2015 turn out for diamantaires? Tom Smets of Smets Diamant elaborated, “We’re mainly active in Northern and Eastern Europe, where we see that, in spite of a relatively slow beginning, the current year should end with a turnover that’s globally going to be similar to that of 2014.” Many in the industry would be very satisfied with those results. Most diamantaires are less than thrilled about their prospects in the very near future. Audrey Tugendhaft of Forever Diamonds explained, “We specialize in the fancy pairs niche market. The business is a little weaker. September wasn’t so bad, but that’s when replenishing for the year-end season really took place. From mid-October, and probably through the end of the year, the game won’t really be a hit. “What’s slowing the business down, independently from the economic situation,” continued Tugendhaft, “are the fairs in general. More people favor attending the shows, resulting in less people traveling to Antwerp to do business. It’s a phenomenon that is affecting the other diamond centers as well. Consequently, in order to keep and develop your client list, you need to be present at most fairs. I’m expecting business to resume in January or February. Let’s not forget that many bankruptcies took place in the trade in 2015 on a global scale, which has had a negative impact on intratrade confidence. Consequently, market conditions should remain tough in 2016, as a logical sequel to 2015. However, I don’t expect the trade to be significantly worse than in 2015,” she added.
A source very close to the Diamond Trading Company (DTC), who chose to remain anonymous, stressed that the major producers’ policies will undoubtedly have a big impact on 2016 trade. “During the past two sights, the DTC sold very small quantities. As a matter of fact, people have relied on their deferral policies. At sight number nine, many took advantage of being allowed to defer up to 100 percent to sight ten. And again, at sight ten, buyers could also defer up to 100 percent to the first sight of 2016. The DTC was quite wise during sight ten, but the real question will be to see how De Beers is going to move at sight one of 2016.” Is De Beers going to accept vast quantities of refused goods that banks could even refuse to finance? Continued the DTC source, “They already said that they wouldn’t reduce the prices. The only realistic option left would be to reduce quantities. But then how long will they be able to survive selling so little? It’s been understood that ALROSA would play along with De Beers, which sends a good sign to the market.”
Is the lack of sufficient external funding an important driver of the current weak market? Geert van Reisen of ABN AMRO was very explicit. “The response is a clear no. The prolonged bearish market conditions are the result of the weaker-than-expected polished demand developments, with related inventory overhang, as well as the large disparity between the polished and rough prices.” The issue of liquidity “isn’t as desperate as some people seem to believe,” van Reisen went on to say. “There is currently sufficient finance to fulfill the trade needs. Obviously, the industry would benefit if new funding providers enter the industry. And this is also happening. But there is certainly ‘room’ in the Antwerp market, for example. Not to provide additional funding, but more as replacement funding. Even if some of the existing funding would decrease that should not be seen as a major threat to the industry — provided that the diamond companies focus even more on vertical/downstream sales rather than some of the less productive horizontal/intratrade sales. In other words, this requires speeding up the transfer process of the goods through the value chain. And focusing more on shorter credit terms will free up working capital and reduce overall financing needs.” A positive development in 2015 was that many companies refused to buy boxes that were not profitable and that the large producers allowed this to happen. Realization is setting in that the way business used to be conducted has changed.
“Companies need to adapt to this new reality. But this new reality is not only applicable to the diamond industry,” van Reisen explained. “It is the same for many industries, with the most comparable being other commodity producers. But the same is applicable to the banking industry as well. Given that a change has taken place on the rough side, will the fragmented ‘mid-stream’ players also be able to positively influence the industry dynamics toward the fragmented retail industry? Therefore it is essential to structurally work toward a ‘lighter’ inventory position to reduce the pressure of having to sell for liquidity reasons if the markets are in prolonged downturn. In that sense, ‘less is more,’” van Reisen noted. When in 2016 will markets become bullish again? According to van Reisen, “Obviously, the sooner the better, but let’s also not be nervous if it will still take another one or two quarters. But when the better markets return, it is important that diamantaires act sensibly about overall production to avoid starting a build up of excess inventory once again.”Article from the Rapaport Magazine - January 2016. To subscribe click here.
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