RAPAPORT... The following speech was delivered by Ronald Friedman, president of the DMIA, at the Rapaport International Diamond Conference in New York on September 10, 2009.
Honored guests, fellow speakers, ladies and gentlemen,
Thank you, Martin, for the invitation to speak on behalf of the Diamond Manufacturers & Importers Association of America.
It is my pleasure to speak to you today on the topics of New York and the big stone market, the work of the DMIA, and our concerns for the current state of the rough and polished markets as they exist in this time of recovery - from the recent market volatility and lows to the market fragility that we are experiencing today.
The DMIA, now in its 78th year, is the leading industry organization of America’s premier diamond manufacturers, importers and dealers, and is always at the forefront of issues concerning the diamond and diamond jewelry community. Our mission, without agenda, is to promote diamonds in every possible and positive way, with the goal of ensuring confidence in and integrity of our product from mine to consumer.
Some of the DMIA’s accomplishments and work on behalf of our membership and the industry at large include:
The first industry organization to host the GIA in presenting the new “cut grade” to the industry prior to its official launch
The first presentations to the industry on the DeBeers Class Action Lawsuit and Settlement
Presentations by various industry analysts, notables, and experts on the state of the industry, sharing their respective analyses, views, expectations and projections for the future of our trade
Interacting with the Diamond Trading Company and presenting invaluable analysis and rationale to Managing Director Varda Shine in an open letter dated November 12, 2007 concerning the stability and infrastructure of the American diamond manufacturing sector and its critical importance to the international diamond community prior to DTC’s 2007 SoC review
The first presentations to the industry on the complex legal aspects of memorandum, consignments and the Uniform Commercial Code
Providing written commentary to our membership and the industry at large on the recent financial crisis, the need for responsible and conservative conduct in light of the dramatic changes and risk that we face on credit and memos (the full text of this commentary dated February 12, 2009 can be found on our newly launched website: www.dmia.net
Interacting with banks to better understand their thinking in order to inform our membership as to how lenders approach and evaluate credit lines, debt and risk
Being involved in dialogue on the responsible reporting of prices and price lists, fair trade diamonds, and the social responsibility of the diamond community in promoting development and growth of African nations
The DMIA’s Gemological Committee works on behalf of the diamond community. It actively liaises with all diamond grading laboratories on all issues relating to the grading of polished diamonds
Consistent with the DMIA policy of inclusiveness, many of the above-mentioned presentations were open to industry participation and the members of the other New York industry organizations.
But Martin asked me to speak about New York and big stones.
New York is the gateway and point of distribution to the United States, the largest diamond and diamond jewelry consuming market in the world. The American client is best served by New Yorkers who understand the needs of the domestic market and the challenges and risks of doing business in the United States.
New York also serves as the international center of the big stone market. From famous stones, to the companies that are at the forefront of the manufacturing and dealing in big stones, to the most well-known master cutters who are sought out to fashion rough stones into works of art, to their certification by the Gemological Institute of America, to the auction houses that often handle some of these most important stones, New York is involved in all of these aspects more than all the other centers combined.
Historically, it has been the skills of New Yorkers in knowing how to cut, polish and market the most valuable important stones in both size and quality that directed big stones to New York.
As one example, on February 14, 1972, the 968.90 ct. Star of Sierra Leone, ranking as the third largest gem-quality diamond and the largest alluvial diamond ever, was discovered in the Koidu area of Sierra Leone. It was shown to DTC sightholders at the CSO headquarters, located at 11 Charterhouse Street in London, at the time when there were more that 300 sightholders. This amazing stone was destined to fall into the hands of Harry Winston, for it was he who had the ability more than anyone else to do special things with this very special stone. According to Wikipedia, it was none other than Lazare Kaplan who cut the stone for Mr. Winston.
Other examples of big stones and the New York market center on the firm of William Goldberg and the rough stone weighing 353.90 cts. that yielded the famous 137.02 ct. Premier Rose, and the 255.10 cts. stone that yielded the 89.01 ct. Guinea Star. Both Harry Winston and Bill Goldberg were magnets for important, famous and unusual stones, each being involved with important and big stones far too numerous to mention.
Yet another example is the 890 ct. rough stone discovered in the Democratic Republic of Congo (formerly known as Zaire) in the early 1980’s. Eventually sold to a joint venture between Marvin Samuels’ Premier Gem Corporation, Louis Glick and the Zale Corporation, the main stone was polished and resulted in the famous stone named the “Incomparable” weighing 407.48 cts. The “Incomparable” is the largest flawless diamond ever graded by the GIA and the third largest diamond in the world. Now owned by Premier Gem and Glick, it has been displayed in many museums throughout the world and is currently part of a traveling exhibition with “The Nature of Diamonds Exhibition” sponsored by the Museum of Natural History.
Coincidentally, it is no mistake that these companies are members of the DMIA. Of course, these are just a few examples of the “powerhouse” companies that are complemented by numerous other lower profile DMIA members who manufacture and deal in important fancy color pink, blue, yellow and white diamonds, all of which represent millions of dollars of investment in big important diamonds. It cannot be ignored that in addition to the members who deal in large stones, the DMIA has many members who deal and specialize in more commercial sizes and qualities, catering to the much broader market where the bulk of diamond sales volume occurs.
Hand in hand and commensurate with the numerous companies that deal in such stones, are the master cutters who have the knowledge, experience, skill and expertise in transforming rough diamonds into the most sought after finished stones. They execute their craft with nerves of steel. Many of you may remember the Lincoln commercial featuring Pastor Colon, an expert cleaver employed by Mr. Winston, who cleaved a diamond while riding in the backseat of a Continental, declaring the result to be “perfect”! Herbert Lieberman, Hy Kessler, the late Antonio “Nino” Bianco, and contemporary cutters such as Mates Witriol and Steve Nurick are all internationally recognized names specialized in the polishing of big stones. In many cases, overseas players, such as Laurence Graff, arguably the most important buyer of big stones today, and Beny Steinmetz, seek out these New York cutters to handle their important stones. It is no coincidence that the memorial service for Nino Bianco is being organized and hosted by Laurence Graff, Brian Gutkin and Johnny Kneller of Safdico Worldwide and Hoda Esphahani of Safdico USA. Again, not to be ignored are the many New York cutters equally skilled but less well-known and operating below the radar. All exemplify the passion, dedication and commitment of New Yorkers to produce the finest diamonds the world!
The Gemological Institute of America, the premier international diamond grading laboratory, is at the pinnacle of grading the most important and sought after diamonds in the world. Simply put, a stone must have a GIA grading report to be considered as an important stone. To complete the pieces of the puzzle, Sotheby’s and Christies, the most important auction houses in the world, regularly host sales in New York that draw international attention and attendance by those who are interested in and capable of acquiring these very important treasures.
When you consider all of these points together, it is D FLAWLESSLY CLEAR THAT BIG STONES ARE NEW YORK!
Before closing, I would like to take the opportunity to share some concerns and observations on the current state of the market. Lately it has become fashionable for other international diamond centers and their organizations to look for ways in which liquidity can be brought to their markets. Instead of selling down inventory, reducing debt, and finding other healthy ways of dealing with falling prices and reduced sales, they have reached out to governments for financial support and the infusion of cash in order to help invigorate the manufacturing sector. We read and hear reports of the Russian government taking vigorous measures to rescue the domestic diamond industry; of the Indian government supporting the national diamond cutting industry by releasing concessional credits in the amount of $4 billion, and of the Antwerp World Diamond Center initiative to secure government backing for additional bank loans to the manufacturing sector collateralized by polished valued for the banks by none other than the AWDC.
Of paramount importance is that presently there is basically very little and insignificant activity at retail, except for bridal. Under the scenarios I just described, and lacking cash flow resulting from sales and in order to gain additional funds to purchase rough, manufacturers are required to collateralize more polished in order to secure increased bank debt. Furthermore, a manufacturer who has access to additional funds is likely to become more aggressive in competing for and bidding up prices for rough, creating a very dangerous situation where polished stocks accumulate, unsupported by sales at retail. It must be noted that retail is the only variable along the diamond pipeline that is not controlled by diamond people or the diamond pipeline.
BE CONCERNED WITH RETAIL!
BE CONCERNED ABOUT SPECULATION!
BE CONCERNED ABOUT THE POSSIBILITY OF A BUBBLE!
For the long term health of the industry, the goal should be to decrease the amount of polished collateralized to banks, for there to be a sell-down of inventories to create liquidity. This, coupled with tight control on expenses will prepare us for a real business recovery.
CASH IS KING!
Demand for polished, and increased prices of polished should be a reflection of sales at retail. Polished must be sold down the pipeline, not just merely manufactured, inventoried, collateralized with banks, and memoed down the pipeline. Increased retail sales should drive increased rough production and distribution by mining companies, and increased manufacturing, in that order. These are all remedial concepts of supply and demand.
BE CONCERNED WITH RETAIL!
BE CONCERNED ABOUT SPECULATION!
BE CONCERNED ABOUT THE POSSIBILITY OF A BUBBLE!
One last thing! It is IMPERATIVE, ABSOLUTELY IMPERATIVE, that we work for meaningful margins, not fostering or allowing an environment where mining companies push and raise prices, squeeze the market, and take most or all of the profits for themselves. We have endured the worst and are still in the midst of a correction. We should recognize all the changes that have taken place since September 14, 2008, one of the most dramatic days in the history of Wall Street and the history of the international financial and banking systems. On that fateful Sunday, Lehman Brothers filed for bankruptcy protection and hurtled toward liquidation after it failed to find a buyer, and Merrill Lynch agreed to sell itself to the Bank of America. On that day, the lights went out for the diamond industry, and we should be glad in many ways to have survived the financial tsunami. Subsequently, diamond producers came to the industry to enlist our help during the crisis meetings held at the Antwerp Diamond Symposium last December. It was clear that we all needed to come together to face the most dramatic challenges that we have faced since the diamond crash of the early 1980’s.
Diamond people tend to have short memories, but we cannot ignore the effects and lessons of recent big bankruptcies both outside and within the industry. We cannot allow ourselves to be swept up with what Alan Greenspan referred to as “irrational exuberance” in terms of recent rough and polished prices increases. These price increases may be partly a reflection of isolated shortages due to mines being put on maintenance in the curtailing of production. WE MUST MAKE IT CLEAR TO THE PRODUCERS THAT HEALTHY MARGINS BUILD A HEALTHY INDUSTRY. We were there when they needed us, and we must make sure that HEALTHY MARGINS ARE AND MUST REMAIN PART OF THE CORRECTION AND THE INDUSTRY GOING FORWARD!!
WE MUST CHALLENGE OURSELVES AND CHALLENGE THE INTERNATIONAL DIAMOND COMMUNITY TO INSURE THE HEALTH AND WELL-BEING OF THE DIAMOND INDUSTRY GOING FORWARD.
Thank you on behalf of the Diamond Manufacturers & Importers Association of America for the opportunity of talking to you today.