RAPAPORT... Generally speaking, the mood is not overly optimistic in the diamond business and everyone has his own explanations for the weakness of the market. To some of the small and even medium-size companies, the big bad wolf is competition from the Indian companies, who use credit to their advantage.
For years, diamantaires have been advised that if a deal is not going to be profitable, pass on it. Well, that message has at last been heard loud and clear. “To be honest, I don’t do any business any more because I don’t want to give credit,” said a smaller trader, who wished to remain anonymous. “The risk is too big that I could lose far more than the possible gains by playing with other peoples’ abilities to repay me in the future. The thing is that, one way or another, the big Indian companies are able — because of their faster turnover — to assume a statistically far smaller risk than the profit they make. This is not a statement I am making out of the blue. I know for a fact that all of my customers are now being supplied by Indian companies at unmatchable credit conditions.”
Even larger companies are experiencing difficulties with Indian competitors. “With a strong rupee and a weakening dollar, the companies that manufacture in India are in an unparalleled situation to buy rough, polish it and sell it at a profit to their emerging wealthy class,” said one Diamond Trading Company (DTC) client. “If you add to that the much more flexible availability of credit in India than you can find anywhere else, say, in Antwerp, for example, you get the very definition of competitive advantages.”
Pockets of Strength
While industry insiders might agree almost unanimously on some aspects of the current market, opinions can differ quite drastically on others. Jacky Korn of J. Korn Diamonds explained, “Business in Europe didn’t end very well in 2009, not even in comparison to the same period of 2008. In my opinion, business was down in some categories by as much as 30 percent to 35 percent. Compared to Europe, Asia is performing quite well, although they’ve become even pickier on qualities. They want a defined range of qualities and colors and you better be in the right price range if you want to sell.” Korn added that the U.S. remains extremely reluctant to resume business on the same level as before.
Roby Taché of Taché Diamonds doesn’t share that view, noting that “The U.S. turnover in December 2009 was about 5 percent higher than in 2008. Europe performed all right, and Germany and Italy were particularly good. It seems that people are not so afraid anymore and they are daring to buy rough. At 70 percent of the precrisis turnover, people are slowly flirting again with profit. However, the weakness of the dollar against the euro — which has a direct influence on our costs — is an obstacle. Fortunately, most of us aren’t suffering any more heavy inventory losses as most losses were written off at the end of 2008.”
“Pricewise, there also are real signs that business is coming back slowly,” Taché continued. “If you take 2-grainers rough, whose price was about $300 per carat before the crisis and $190 per carat at the peak of the crisis, they are now being negotiated at around $260 per carat. If you consider rough from 2 to 6 carats, the figures were $3,300 per carat before the crisis, $1,600 per carat at the peak and they’re about $2,700 per carat currently.”
Launching the Diamond Fair
Under the initiative of the Antwerp Diamond Bourse, an invitation-only diamond trade fair has been scheduled on the premises of the bourse for February 7 through 10, 2010. “We started from the idea that there are diamond fairs in almost every region of the globe and nothing in Antwerp,” said a bourse board member. “Our goal is clear. We want to remind European clients that they don’t have to travel to Asia or anywhere away from Europe to be served. If they want to buy $25,000 or $30,000 worth of diamonds, they had better get to Antwerp — and they can avoid the expenses of traveling to India. Buy from the source, bypass the intermediaries and save superfluous traveling expenses. What we’re attempting is to help Antwerp to become once again the gateway to Europe.”
Lucile Lerat of Punch, the event organizing company, provided further details regarding the fair itself. “Overall, 43 exhibitors will share some 38 booths that will all be housed in the bourse trading hall. A selected list of 700 clients has been approached and invited to the fair with all expenses in Antwerp covered by the exhibitors, including food, accommodations, etc. Our estimate is that at least 125 company representatives will be attending the fair — so far, so good, as far as the confirmations are concerned. Only a few dozen more to go and the goal will be reached. There is no need to say that should this test turn out to be successful, the event will be repeated next year.”
The Marketplace
• Goods are moving well across the board from piqué to SI1 and it is possible to make some 5 percent to 6 percent more profit than the previous month. Those who have the quantities can impose prices.
• It’s very difficult to impose prices on clean goods in general in D-H, IF-VS2. Even India and China are resisting and prefer to downgrade to D-H, SI-piqué.
• BHP Billiton posted monthly sales for December that were on average 9 percent higher than the previous month. That increase reflected a slightly better sorting, which in itself produced a 2 percent to 3 percent increase in value. Consequently, expectations are that the next DTC sight will see prices rise.
Article from the Rapaport Magazine - February 2010. To subscribe click here.