Rapaport Magazine


By Marc Goldstein
Outlook Uncertain

A medium-size player active in both rough trading and polished manufacturing and selling said recently that “Our trade is increasingly becoming like a soccer game. The global instability has brought us to a point where there’s no way of predicting what the next couple of months will be like. There are so many uncontrolled factors entering into play that it’s now just like a soccer game. How often do we hear the forecasters predict that in spite of a given set of elements, a particular team will lose, while another forecaster — just as renowned — will predict the exact opposite? The way it stands now in our industry, almost any prediction you make could turn out to be true.”

Market Forces
   Three uncontrolled elements contributing to industry instability have unfolded primarily over the past six months. The first was sales in Hong Kong, which were not as promising as expected — or perhaps hoped for — which isn’t such a good sign for the coming half year in that important market. Second, the European Union (EU) sanctions on Russia to bring political pressure on Russian President Vladimir Putin contributed to the fall in the ruble. But they also motivated Russia to negotiate a new supply agreement with India, depriving Antwerp of rough diamonds that might have been marketed in the city’s Diamond Square Mile. And third, there’s the turmoil of seeing Antwerp Diamond Bank (ADB), one of the two major creditors for Antwerp’s diamond industry, announce it was shutting down and taking with it much of the liquidity that had supported the trade. More than ever, the cash-rich companies in the city will certainly have an edge over those who are heavily dependent on banks.
   One sightholder, who asked to remain anonymous, said he expects the closing of the Antwerp Diamond Bank to be “less problematic than might be expected, for several reasons. It’s been confirmed that the diamond companies have a three-year to five-year window to find alternative financing sources. In addition, as I am part of the search process to find another lender to take over or replace financing for ADB, I can tell you that I’m optimistic.”
   Isy Mörsel of Dali Diamond Co., speaking about the search for alternative financing sources, said, “The producers must come to understand that leaving a decent profit margin to the manufacturers is becoming an absolute necessity. How can we attract outsiders to finance us if we don’t get decent margins?”

Enough Rough for Antwerp
   As for rough being diverted to India from Antwerp, the sightholder emphasized that “ALROSA is still distributing 67 percent of its rough through Antwerp. And the $700 million of rough that is being sold directly to Mumbai is part of an ongoing, preexisting agreement, which means that globally India isn’t receiving one dollar more of goods.” India’s advantage in acquiring Russian rough supply was mitigated further by the recent news that two major Indian players had been removed from the ALROSA sightholders list.
   When Rapaport List prices softened across the board between December 25 and 26, the market was more surprised by the timing than the decreases. One sightholder said most players had expected such decreases to be posted after January 1 and noted that doing so at the peak of holiday sales “probably caused some unnecessary additional panic in the market.” Still, the price reductions appeared to be reasonable and dealers said during the holiday period, when sales volume can be expected to triple in some categories, lowered prices might have helped to increase sales even more.

Global Impact
   Concern about China’s general economic health seems to be fading, which could augur positive results for the market in the new year. America’s demand for polished also appears to be reviving. Anthony Klein of La Maison du Diamant insisted that “Sales were better during this Christmas season compared to the rest of the year, which has not always been the case. Our average unit sales price has been increasing compared to the two previous years, gaining about 30 percent to 35 percent. In our opinion, the market seems to be shifting toward higher-income customers. The people who come to buy Boucheron jewels, for example, do not pay that much attention to the prices. They just hand over a credit card and that’s it. Those high spenders are definitely more present in the market than before. Brands also are minimizing discussion about prices and helping to close deals.”
   The biggest concern in the industry as 2015 begins is liquidity within the trade. Demand is there, waiting. Larger, better-quality stones are selling quickly at a profit. “This is also the case for smaller goods...when we can afford to buy and finance them, there are buyers out there,” said a manufacturer. A new round of cleaning out inventory is expected and supply also will be helped by an expected reduction in the sizes of the sights. The losers will be those who overspeculated without making sure they would be able to pay for the goods.

Article from the Rapaport Magazine - January 2015. To subscribe click here.

Comment Comment Email Email Print Print Facebook Facebook Twitter Twitter Share Share