RAPAPORT... When it comes to business, the Antwerp diamond center is increasingly vigilant. It has been under so much pressure over the past decade — from economic as well as political forces, not to mention other trading centers — that it’s not going to give up any bit of potential business without making sure it can’t be avoided. So, when Antwerpians discovered that a recent agreement between ALROSA and three Indian companies calls for shipping rough directly, bypassing Antwerp, they were, at the same time, upset, fearful and concerned as to its impact and significance for the future.
The essence of the deal is that approximately $490 million of rough diamonds in 3-grainers down will be supplied over the next three years to Rosy Blue, Ratilal Becharlal & Sons and Diamond India Ltd. (DIL), a purchasing consortium of Indian companies. In principle, that amount isn’t significant compared to the quantities ALROSA is accustomed to distributing through Antwerp. Still, in these perilous economic times, Antwerp is alert to any shipments from anyone to anywhere that do not pass through its diamond center.
Enough Rough to Go Around
Freddy Hanard, managing director of the Antwerp World Diamond Centre (AWDC), had this reaction. “Obviously, I’m always pleased when I learn that an incremental amount of rough is going to be distributed through Antwerp. However, even though that’s not the case with this agreement at this stage, it doesn’t mean that less rough is going to reach our city. Indeed, as far as things have been developing since the beginning of 2010, it appears quite probable that ALROSA is going to increase its sales in 2010. Consequently, I’m optimistic that the diamonds going directly to India shouldn’t cause Antwerp to receive less traffic.”
Even though Antwerp may not directly lose $150 million a year from the ALROSA-India deal, it’s still $150 million of potential growth that it won’t see. A prominent member of the AWDC board, who wanted to remain anonymous, pointed out that “The world belongs to everybody and this is something we shouldn’t overlook. Of course, we would prefer that those stones be delivered directly to us. But let me remind everyone that this is a simple law of the marketplace. Last year, when a deal was reached with ALROSA for a period of three years, all of the 15 companies that were involved were Antwerp-based. Once it was for us in Antwerp, now it is for others and next time it will be for us again.”
Antwerp’s Role
“This is not in any way a sign that Antwerp’s position is weakening or anything like that,” explained one Diamond Trading Company (DTC) sightholder. “As far as I’ve been able to understand, it actually has nothing to do with Antwerp at all. In fact, these deals should be put in a wider perspective. Recently, for example, India sealed a multibillion-dollar nuclear deal with Russia. In exchange for such a huge purchase, India could be expected to negotiate other deals with the Russian government, diamonds being only one of them.”
But Dilip Mehta of Rosy Blue, one of the companies directly involved in the agreements, replied that “The diamond deals are by no means connected to the nuclear agreement between India and Russia. It’s completely natural and in the normal course of business for a company to attempt to go as directly as possible to the supply source for all sorts of goods. And, at this stage, we shouldn’t forget that this rough agreement is the result of several companies making individual approaches to ALROSA.”
“Furthermore, it’s only natural that as a result of business trips made by a delegation led by a prime minister a certain number of deals will be signed,” continued Mehta. “The same thing happens when a Belgian delegation goes abroad headed by its prime minister. Nevertheless, that’s no reason to assume that the agreements were politically driven rather than economically. Moreover, if I’m not mistaken, the deals signed by 15 Antwerp-based companies in 2009 are successfully being fulfilled, and nobody has complained. These new deals with the Indian companies are company-driven moves, and result directly from economic rationality. I don’t see any reason to be scared by them… unless you’re not operating efficiently yourself, because then, no matter what happens, you should indeed be scared.”
The Marketplace
Rough diamonds:
• In 3-caraters+ in VS+, the market is back almost to where it was one and a half years ago, or just some 5 percent to 10 percent below.
• The same applies to commercial goods. However, they’ve fallen a bit compared to January, when some goods even passed the highs of June 2008.
Article from the Rapaport Magazine - April 2010. To subscribe click here.