Rapaport Magazine


By Marc Goldstein
Industry in Need of Governance

While everyone is preparing for the summer vacation, forecasts for the second half of 2015 are not very good. Even with factors inherent to global economies, the state of chronic imbalance between the middle and the end of the diamond pipeline — coupled with the way the major players are acting — does nothing to improve the situation.
   Who’s to blame? Here is a look at the state of the industry from the perspective of the different players.

The producers
   One manufacturer, who asked not be identified, explained, “Why do you think that the inventory of all the major suppliers has lost about 10 percent in value over the past year? It has been more than a decade since anyone has done anything serious about generic marketing. Now, the producers have started a new joint endeavor, the Diamond Producers Association (DPA), to promote diamonds, beginning with a $6 million campaign. The elephants have given birth to a mouse!” He believes generic advertising should become a priority. “It’s common now to hear sightholders admit that it’s the consumer who drives the market, and not the rough that controls it anymore. Today, sightholders stress that market share is less important than profit in the long run,” he elaborated.

The bankers
   It’s obvious that banks, too, have some improvements to make.The problems of liquidity and financing are important, but also critical are Indian banks giving far too much credit to businesses that knowingly keep buying at rising rates. Even for major Indian players, such behavior is not understandable in terms of acceptable business practices. Dirk De Nys of IGC Group explained, “Our perception is that over the years, more people have been asking us to ship goods directly to Surat, where fast-growing manufacturers are willing to pay premiums on boxes that even we sightholders would lose money on.”
   One well-informed Indian source, who asked to remain anonymous, said that over the past year, some $400 million to $500 million has vanished in India. But there were not enough bankruptcies declared to account for the amount of money lost. The source added that some of these “unspoken” bankruptcies were resolved via settlements. As a result, banks were repaid in full, while many diamantaires had to swallow major losses.
   The source further explained those actions created a false impression that businesses have healthy balance sheets while in fact, they are losing money. “What kind of message is then conveyed to the reckless players if not, “Just go on, we’ll cover you and others will pay!” said the source.
   “Not enough bankruptcies? This must be music to the ears of a producer I know who believes in consolidations at all costs, even if it takes cascading bankruptcies, provided that in the end things get healthier and become sustainable. But at what cost? Cash-rich people can think in such Machiavellian terms, but what about the other ones?” said a DTC sightholder, speaking on condition of anonymity.
   Raj Mehta of Rosy Blue insisted, “Today, more than ever, the global diamond industry needs alignment. This concept applies to everything: manufacturing, supply, demand and finance. Everybody is, or will soon enough be, impacted, and must, or will have to, act accordingly and responsibly.”

The manufacturers
   Today, the new manufacturers’ motto should be, “We polish according to what the business is.” And more and more, both the major as well as the smaller players agree that the times when one could buy without thinking are over, and those who purposely overpay for goods are seen as selfish and dangerous for the industry as a whole. “The fact that people are refusing more and more what they don’t need makes undeniably more sense in the market,” said De Nys. “If we’re in for major changes, it is better they be smooth rather than violent ones. It is better to refuse goods when you don’t need them rather than paying for it and risking substantial losses after polishing. Plus it just won’t be possible for many small players to support substantial losses should there be a domino effect of major bankruptcies — official or not — as well as business closings in India or anywhere else in the world.”
   Shashin Choksi of Swati Gems concluded, “All parties concerned, from miners, rough traders, polishers and manufacturers, polished distributors to jewelry manufacturers and retailers, bear the responsibility to invest in generic marketing. There are plenty of reasons to sell our product, but the average customer thinks more about “i”products — iPads and iPhones, etc. — than about buying diamonds. Moreover, the media has tarnished our product based on the wrong doings of a handful! We should have reacted from within the trade, instead of watching them destroy our precious diamonds’ image. Now, we’re all ending up paying the bill, one way or another!”

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

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