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Diamond Business Fundamentals Remain Sound Despite Financial Meltdown

Nov 17, 2008 12:38 PM   By Press Release
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RAPAPORT...  Antwerp, November 17, 2008 – More than 500 members of the international diamond sector today participated  in a highly charged forum, which took place in the main auditorium at the Antwerp Province House. Called the Antwerp Diamond Symposium, those gathered at the meeting discussed the impact of the global financial meltdown on the diamond business ,and considered alternative strategies that can be adopted by the industry in its wake. The symposium was organized by the Antwerp World Diamond Centre (AWDC) on behalf of the world diamond industry.

The dominant message that was delivered to participants was that the current downturn in the market is related predominantly to financial liquidity and not to the fundamentals of the diamond business, which are sound. Addressing the symposium, the major diamond producers announced that they will be reducing rough supply to the market over the short term, and they declared their support for an all-industry body that will be responsible for the generic promotion of diamonds to consumers.

In the opening address to the symposium, Freddy J. Hanard, chief executive officer (CEO) of the AWDC, stressed the need to develop a hands-on approach to dealing with the crisis. “Regardless of the length of this recession, it is clear that we need to take action now, and we must do [so] with a belief that we can succeed. After all, our industry has prospered for centuries. This by no means is the first crisis in our industry, and yet we have always endured and succeeded. This knowledge should at least provide us all here with a great degree of confidence,” he said.

Hanard said that a comprehensive and coordinated industry response was essential. “Above all, we live in an interdependent world. We cannot look to one single party to provide a solution for the entire industry. We have to be proactive. Like never before, we have the destiny of the industry in our hands,” he stated.

Summarizing the dimension of the crisis from the perspective of the diamond industry, seminar moderator Chaim Even-Zohar estimated that demand for diamonds at retail will fall about 10 percent over the coming year. This, he said, will translate to a decrease in demand for loose polished diamonds at wholesale of about 20 percent, and a 35 percent fall in the amount of rough diamonds required. “Let us keep things in perspective” Even-Zohar said, “under current circumstances, a 10 percent fall in demand at retail is not the end of the world.”

Gareth Penny, managing director of the De Beers Group, confirmed the severity of the current situation, but pointed out that while polished diamond prices are correcting, they have not collapsed. “Market conditions are repressed because of liquidity, but the attractiveness of the product we deal in has never been higher,” Penny said. “We are dealing with a short-term problem. Diamond reserves are at an all-time low, and there has not been the discovery of a major diamond mine for years. We should not forget that we are not in the commodity business. We deal in an irreplaceable treasure that is getting rarer all the time.”

Penny said that De Beers has decided to reduce rough production so that it coincides with prevailing consumer demand. The decision to do so was De Beers’ alone, he stressed. He also expressed his company’s support for the industry effort to promote diamonds generically.

Sergey Vybornov, the president of ALROSA, said that his company, too, had decided to reduce the volume of rough that it releases to the market, and also to increase substantially the amount of funding it earmarks for promoting diamonds generically. He said that news can be expected in December about the establishment of a “Diamond Guild,” which is expected to manage the all-industry marketing effort to promote diamonds.

Stephen Lussier, De Beers’ marketing head, revealed that, despite the current market situation, the company had just undertaken its most ambitious fourth-quarter advertising program ever in the U.S. “Consumers are cutting expenses, but there are areas in which they will not compromise. That is the part of the market in which we are involved. We believe that we can convince them, especially at a time like this, to bundle spending opportunities in order to receive that one item that really means something.”

Avi Paz, president of the World Federation of Diamond Bourses, said the first step in establishing consumer confidence is defending the industry’s confidence in itself. “We have to make sure that the market is not flooded with rough. This, of course, requires that the rough producers act with due care, but it also means that we have to act responsibly, and only buy those goods that we need,” he said.

Providing a banker’s perspective, Paul Goris, the chairman of Antwerp Diamond Bank, said that the coming few weeks and months will be critical. “It is a period during which asset protection must take precedence over asset growth,” he noted. During this period, he said, the banks must be careful not to bring the industry to a standstill. They most likely will not increase facilities, but at the same time facilities should be cut.

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Tags: Alrosa, Antwerp Diamond Bank, Antwerp World Diamond Centre (AWDC), AWDC, Banks, Consumers, De Beers, Gareth Penny, Production
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Rome is burning while i play the fiddle
Nov 18, 2008 12:44AM    By Nero
An industry that worshiped Huns and Crooks is finally being brought to it's knees.
Oh the sweet sound of the air coming out of the burst buble of the big stone dealers.It is music to my ears.
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