Large Diamonds Take a Hit

RAPAPORT... Wholesalers who specialize in diamonds in the 2- to 6-carat range spoke with RDR about the challenges of this market segment.

Bigger diamonds have been particularly affected by the U.S.’s economic crisis, as wealthier consumers who watched their stock portfolios and home values tumble have slashed their budgets. As a result, there are far fewer clients seeking out these goods compared with just six months ago.

Demand Trickles In

Stuart Samuels, a principal at Premier Gem Corporation, a Diamond Trading Company (DTC) sightholder based in New York, reported that demand is weak but he saw some improvement. “There is certainly more movement in this range compared with December and January, when demand was virtually at a standstill.”

Serge Fischler, president of Fischler Diamonds in New York City, observed: “There are a lot more requests than before for 4-carat-and-larger SI goods. There is movement in goods in H, I and J colors and SI3s, which aren’t typically certified.” Samuels added, “In the U.S. market, I find that in the bigger sizes, D, E, F and VVS sales are not being made.”

Todd Wolleman, president of Leo Wolleman Color Craft, Inc. in New York, noted, “What we saw in the ’80s is coming back — 2 to 6 carats are scaling back to SIs.”

Bargain Hunters

Despite reduced demand, lowball offers from buyers have sometimes led to standoffs, with dealers holding onto goods rather than selling them at steep discounts. Fischler explained: “We know we have to sell for a lot less than we did six months to a year ago, but there’s a limit to how low we are willing to go.”

Sellers who aren’t waiting out the recession are beginning to adjust their prices, according to Derek Parsons, vice president of British Diamond Import Company in Fort Lauderdale, Florida. “Dealers are now being forced into lowering prices by the lack of cash flow.”

Ben Moller, vice president and sales manager at New York’s E. Schreiber, Inc., pointed out one notable exception. “Prices for larger fancies are not as dire because there are fewer of them available.”

Credit is particularly vital to those dealers who specialize in bigger diamonds, and Parsons contends that for some sellers, caution is verging on paranoia. “It’s like what’s happening with consumers, when people with good credit can’t get home or car loans. It has to be overcome if the industry is to get out of this.”

But Samuels acknowledges a bright side. “The difference between the buying price and the selling price, that spread, has become wider to accommodate the risks and the time it takes to turn merchandise.”

Unclogging The Pipeline

Wolleman believes that in the year ahead, the industry must work to unclog the diamond pipeline. “The market has a backlog of inventory. The Russians are the only ones who haven’t turned off the spigot, so they may benefit from that in the future.”

Parsons sees a slow recovery for large diamond wholesalers. “I’m guessing receivables in this segment of the market are at an all-time low. Even as the economy starts to change, it will be difficult for people to spend thousands of dollars when they don’t have the security of those receivables behind them.”

Expressing concern for the near future of the industry, Parsons added: “We see the mines closing down so we know that in the long term, the prices won’t totally crash. But there is a difference between that and having the money to pay expenses now. We need the economy to turn around in six months or we’re going to see a decimation of the supply pipeline.”

Article from the Rapaport Magazine - May 2009. To subscribe click here.