It may be too early to make any definitive, reliable projections of how the year-end is going to unfold, especially given the roller-coaster ride the diamond industry has been on recently, but the first signs are already being distilled in the pipeline.
Successful Auction
One of those signs is the results of the Gem Diamonds auction of Lesotho rough in Antwerp on October 20. All the goods were reportedly sold, at prices that were 10 percent to 25 percent higher than expected. Across the board, goods costing from a few dollars to $20,000 to $30,000 per carat found buyers. Part of the appeal of the sale undoubtedly was Lesotho’s reputation for high-quality rough. The auction also was helped by the general shortage of rough in the marketplace. According to polished manufacturers, the premiums paid on the rough are now far too high and the spread with the polished, far too wide to make it profitable — or even interesting — to buy and polish a lot of goods currently. The size of the premium is such that it is reviving rumors that the game as a whole is becoming really biased. Indeed, many in the industry believe firmly that Far East–based companies get an unfair advantage from relatively cheap, fresh money, which they can then pour into the diamond industry very quickly. “If money doesn’t cost you that much, it’s easier for you! And as long as such a discrepancy exists, the game won’t be fair!” said a diamond manufacturer who prefers to remain anonymous.
Diamantaires’ Disadvantage
A second sign of how the year will end for this diamond center may be seen in the constant discussion — and loud complaining — being heard about the various reasons Antwerp is losing ground in the global industry. Diamantaires in this city believe that Antwerp is at a significant disadvantage compared to other diamond centers because it is required to obey more severe rules and adhere to tougher standards. Jacky Lewy of Natural Diamond Corporation explained that “I deplore the fact that, due to the restrictive attitude of the European Commission (EC), Belgian diamond dealers and manufacturers are banned from doing business with certain countries, such as Zimbabwe. That leaves those sources to competing centers — such as Dubai, Israel and India — where such excessive and rigorous restrictions are not being implemented. The Belgian diamantaires are once again handicapped by these restrictions and our industry representatives are once again — as they have been so many times before — unable to help us maintain a decent level of activity, as well as a prominent position on the global scene.”
Opinions are being offered as to how this pivotal, traumatic year will play out. Kaushik Mehta of Eurostar Diamond Traders offered his assessment. “The total of 2010 will be better than last year definitely, but not as good as it was in 2007 and 2008. The big picture won’t be spectacular, however, although we’re approaching, bit by bit, year after year, the level of 2007-2008. Geographically speaking, the picture is even clearer. The U.S. and Europe will be flat this year. On the other hand, the Middle East has completely collapsed, whereas China and India will see their total sales gain more than 10 percent each.”
Risky Business
Samuel Scheffer, independent diamond trader, elaborated. “If things appear to be better than last year, it will only mean that the figures are tricked. To start with, if the retail end varies around 3 percent up or down, it will have a very marginal impact on diamond business as a whole. India, China and Thailand represent about 15 percent of the world consumption, while the U.S. is still 45 percent of it. If, in fact, India, China and Thailand retail numbers grow even by 10 percent, it will only mean a 1.5 percent increase in global retail sales, which would have a negligible impact on the pipeline trade. So, this is not what’s going to affect our business.
“In my opinion, the major risks lie in the following factors,” continued Scheffer. “How’s the overall consumer spending going to evolve? Are there still more foreclosures to be expected in the upcoming months? What about the likelihood of a double-dip scenario, where a second economic drop follows the 2008 drop — is it realistic enough to be taken seriously?” There’s no doubt that in case of a double-dip scenario, diamonds won’t be the main center of interest for consumers, who will focus instead on more basic needs, such as jobs and food and housing.
Another diamond manufacturer said he is concerned about the exchange rate between the U.S. dollar and the euro. “Sometimes the exchange rate fluctuations are good for us, but sometimes it’s the other way around,” he said. “And there’s no way we could figure out to what extent this will affect our season this year.”
The Marketplace
Rough:
• Cheaper goods are in strong demand.
Polished:
• All commercial goods are selling well. On the one hand, resistance to high prices in very strong. On the other hand, the rough available to produce polished goods is very difficult to find.
Article from the Rapaport Magazine - November 2010. To subscribe click here.