The recent decision of the Flanders government to render support to the Belgian diamond industry has actually been the third similar move on the global market, after Russia and Angola. Those market participants whose diamond business appears to be quite a hefty part of their economies and which in their time delegated some of their market regulating capacities to the global monopolist, De Beers, have virtually no other choice. Even such countries as Botswana, absolutely loyal to De Beers, expressed their willingness to increase the value of their participation in anti-crisis solutions out of proceeds of their national budgets expanding their stake in the diamond corporation.
State guaranties are an instrument of support to the industry operating at rather high production costs in the diamond-mining countries and they are also instrumental to preserving the role of Antwerp as the traditional diamond center. In other words, the rough diamond marketers on the opposite sides of the diamond pipeline launched similar initiatives to preserve the market and clear it of speculative ballast.
In what way can this influence the prospect of market development?
It is evident that state guaranties extended to banks require that these banks are able to gauge the degree of credit worthiness and stability of their clients’ business for a sufficiently long period. In its turn, this will not stimulate market speculators to secure sufficiently solid guaranties of their future for banks since such guaranties imply long-term contracts with mining companies. No abilities and talents to operate on the open rough market will be sufficient for a bank’s credit committee. At the same time, legal obligations of a rough diamond producer may serve as guaranties that such a potential borrower will preserve its business.
Last April the Antwerp World Diamond Center (AWDC) announced that together with ALROSA it held consultations to form a pool of companies which could be potential buyers of Russian rough diamonds on the basis of long-term contracts (from 6 months to 3 years).
Later ALROSA said that in the end of May and the beginning of June it would sign the first contracts and that appropriate agreements on the price formula would be reached with potential buyers. The joint move by the AWDC and Flanders government which followed later and was aimed at supporting the industry should be considered as continuation of now evidently joint efforts by ALROSA and Antwerp, as the traditional diamond center, to overcome the consequences of speculative pricing and shape a stable market.
Certainly, the current stock on the free market allows selecting actually any kind of rough without turning to diamond-mining companies. It gives an opportunity to obtain rough diamonds at much lower prices, but it does not give the main thing – confidence in the future of this business. In the crisis year of 2009 Russia did not so far decrease its diamond output and did not offer any diamonds to the market. This gave it a chance to accumulate a significant stock of rough in the state repository which is able to produce either a negative or positive impact on the market. If in partnership with traditional diamond institutions Russia will make a predictable sales channel for itself, similar to that, which was offered by De Beers to the USSR, then such a framework will serve to bolster market stability. If this will not happen and Russian state functionaries will start issuing discordant orders to dump uncontrolled stock to the free market, this crisis will never end. There is not so much time left to see what happens…
Rough&Polished
