Although worldwide sales volume is soft, it is inventory
levels that are of greatest concern to the diamond industry. “Globally speaking, retail sales are not so bad in
general,” said Mihir Mehta of Jayam. “Maybe some people are experiencing
difficulties, but it’s not the overall trend. But
everyone in the pipeline wants to reduce stock, from the wholesale level
down to the retailers. When inventory is sold, it is only partially replaced
because of the general lack of confidence. Be it in China or India, people are
uncertain whether polished prices will remain steady. Everything went up so quickly and back down even faster, so it’s
creating nervousness and uncertainty.”
Price Drop
The diamond price drop occurred in September-October, at the
same time the euro crisis was worsening. “The stock reduction is affecting the
top end of the pipeline the most — rough dealers to manufacturers,” Mehta
continued. “The drop in prices impacted both the polished and rough sectors, which have seen global
sales volume decline between 20 percent and 30 percent on average.”
Mehta also mentioned the additional negative impact of the
devaluation of the rupee on Indian domestic sales. The drop was so sharp and so
sudden — by 10 percent in one month — that it caused something of a
“crisis in confidence” because people didn’t know what would happen next. “I think we’ll have a good start in 2012 polished wise,
due to the pipeline being dry,” he said. “As far as rough is concerned, there
seems to be a multibillion-dollar rough overhang. So it will take more time for
the recovery to reach the rough market.”
It is no secret that the
euro situation is making people even more uncertain and the consequence is that
they’re buying only if they have confirmed sales, which has definitely had an
impact on European domestic sales. “Wealthy individuals are important buyers
for us, so you can see the importance of the financial crisis on our trade,”
said Mehta. “In India, you can’t borrow in dollars easily anymore because of
the shortage of that currency. Consequently, the cost of financing for Indian
companies went up. People who borrowed rupees to buy dollars before the
depreciation will profit when they sell the goods and collect dollars but
Indian companies are now forced to borrow in rupees at a much higher cost.”
Confidence Shaken
“The bottom line,”
concluded Mehta, “is that all this movement shakes confidence. Fortunately, we’re not back to the pessimistic mood of 2008 because retail is performing okay. But
there is concern that our industry is going to be badly hit by the uncertainty
in the euro zone. That concern will probably
influence Christmas sales but, as a selling season, Christmas, while important
in Europe, is not the dominant season it is in the U.S.”
André Warcel of Warcel
Diamonds says that Mehta’s concerns are the concerns of the entire industry and
no one is exempt. “Our core business is mainly fancy shapes, which is a quite
specific article. However, we are confronted with the same kind of issues as
the rest of the industry when it comes to the year-end season and the euro
crisis. As far as we’re concerned, Diwali was a little soft. We’re seeing
business resume slowly. The shortage of nice stones is starting to become apparent,
bit by bit, and that leads to some optimism. The Christmas season should be
okay. People have been postponing their purchases as late as possible, and that
late-as-possible moment is now approaching very rapidly.”
Greatest Turmoil
Italy is, of course, currently the place of greatest turmoil.
While Italy is far more stable than Greece, the potential impact of its crisis
could be far more devastating to Europe as a whole. Massimo Saracino of
Italgems explained that “Our market is mainly Italy. Obviously, with all the
uncertainty raised by the Prime Minister Silvio Berlusconi succession and the
euro weakness, the Christmas and year-end sales won’t be fantastic. In my
opinion, it will follow the general European trend, but without being really
any worse.
“However, there’s another
issue currently in Italy,” said Saracino, referring to credit terms being extended. “The length of credit
terms has been increasing to such an extent that
our Italian dealers are now giving six months to their client retailers
and manufacturers to pay for the goods they’ve received. This lengthening
process started about two years ago, but the process has been speeding up over
the past 12 months.” There is concern that if retailers encounter more difficulties in selling their goods in the
current economic environment, they will demand even longer periods to pay their
wholesalers, and the terms for repayment will stretch out even further.”
Saaracino also noted: “Our professional clients wish for more
pricing stability throughout the diamond supply chain. The happy days of growth
probably won’t be until 2013, but, hopefully, they will arrive in the beginning
of 2013.”
The Marketplace
Polished:
• SI-pointers — 3 per carat to 3-grainers — in D to G
continue to move well.
• Princess 4-grainers and 6-grainers to 2-caraters are in
short supply in commercial goods in VS-SI, D-H.
• Demand is strong for 3-grainers in fancy shapes.
• Well-cut stones in F-H, VS or best-quality SI are easier
to sell. This means that there was actually a slight downgrade from clean
goods, apparently to offset the price increases.
Rough:
• Cheaper qualities seem to be moving slower, which has been
the trend since September.
Article from the Rapaport Magazine - December 2011. To subscribe click here.