The world financial crisis could not avoid having its impact on the rough and polished diamond industry. The Rough&Polished experts were posed the following questions:
1. In what way is the industry (including its mining, diamond, cutting and jewelry branches) being influenced by the financial crisis and how will it be influenced by it in the future? What kind of forecast may be given for the industry in the mid-term under crisis conditions?
2. In what way may the industry “make it” through the crisis incurring minimal losses?
3. What kind of preventive measures should have been (and be) taken by the industry to avoid the negative consequences of the financial crisis?
The Rough&Polished experts voiced their qualitative opinions regarding further developments. The picture offered to our readers’ attention may hardly be called unambiguous.
Nikolai Pokhilenko, Corresponding Member of the Russian Academy of Sciences:
In my view, the world financial crisis will influence the rough and polished diamond complex in the following way - At first, when people will be trying to protect their assets against very unstable currencies they will consider gold and diamonds as a possibility to invest “hiding” their money. This is why a short-time burst in demand is not excluded. If the crisis will go its way, then a global decrease in economic activity and downfall will bring a general decline in sales and demand with corresponding price abatement, which will affect small and mid-size gems in the first place.
Richard Wake-Walker, co-owner of International Diamond Consultants Ltd.:
What are the major ramifications of the world financial crisis in the field of diamond business, e.g. production, manufacturing, retail?
Until August, the diamond industry had come through relatively unscathed. Indeed our rough price index rose all year until the end of August.
Then De Beers (as usual) misjudged the market and tried to sell too much, both in August and September, without taking into account the new realities. Perhaps this coming week, at the October Sight, they will behave more responsibly, as they are still the largest supplier of rough to the market, and still have an effect with their distribution policies. DTC boxes are now mostly trading at a discount on the open market, having been in the black over the last two years.
What is your prognosis for the Diamond Pipeline in middle-term prospects?
Good. I remain optimistic that in the medium to short term the diamond industry will thrive, despite some inevitable short term volatility. Supplies will not be excessive in the next 10 years, and the industry should be able to get back on track quite easily once the current crisis is over. It is a fact that there are too many mediocre businesses in the diamond industry, and the crisis will have a positive effect if some of those companies disappear.
What measures should be taken by leaders of the diamond industry in London, New-York, Antwerp, and Moscow?
There is very little that industry leaders can do. (In any case there is no leadership in the diamond industry today.)
Events are completely outside the industry's control. However, all producers should reflect the situation and not try and keep prices of rough artificially high.
Dmitry Zverev, owner of Euro Custom Design Jewellery Ltd (Canada)
“The world financial crisis” – this is in Russia. There no crisis at all in the developed countries of the world, which include the United States and Canada. There are indices which sagged on the stock market and there problems with some financial institutions, but these are their problems. They are not related to or affect the economy, which is functioning smoothly. Prices for any goods neither go up nor down, jobs are not cut, nothing is collapsed as it should be under crisis conditions. Every day I buy foodstuffs and do not notice any changes in their assortment and prices. Almost every day we buy polished diamonds from our suppliers in Antwerp and New York and I do not see any changes in prices and supplied amounts. Everyday I see and hear the enormous construction site in the center of Vancouver, right near my house. This is a new subway line being built from the airport to the downtown area, which has not been halted or slowed down even for a second. No one can imagine that its construction will be slowed down and it will not be committed in time – by the Olympic Games in 2010.
But the main thing is that our customers who used to come to us to order diamond rings did not stop doing it. There is no delay in foot traffic; on the contrary, there is a regular pre-Christmas buying spree. The level of bridal orders is very steady, which is a backbone of our business.
And if economy is functioning and customers are ordering rings at a steady rate, it means that I will also buy gems from my suppliers at a steady rate. It also means that the “diamond pipeline” will be pumping without fail. The dollar will not disappear and will not go to pigs and whistles; no other currency will edge it out or replace it. This is why neither I nor my colleagues have any bad feelings about future. On the contrary, all of us have many new plans and projects.
Nikita Lobanov-Rostovsky, financial expert (Great Britain, London)
Investors who are guided in their investment strategy with the purchase of tangible assets (as opposed to service) will certainly take the opportunity for investing in diamond-producing companies which are currently selling on average at 40% discount as compared to last-year's values, as opposed to investing in wholesale or retail of jewellery. Hence, now is the time to buy shares in ALROSA.
Every financial crisis leads to disturbing monopoly trade arrangements (e.g. OPEC). There will be breakers along the chain starting with decreased production, smaller margins for wholesalers, and equally so for retailers.
As a proponent for the break-up of De Beers monopoly, you will now witness the disturbing consequence of that action. Of course, for the consumer this will be good as prices will go down but that will also correspond to less available cash among consumers.
Arthur Androsov, Doctor of Engineering Science, Department of Rough and Polished Diamonds Complex Economy, Institute for Regional Economy of the North
1. The financial crisis will have its impact but not to the extent of disrupting the economics of the mining industry of the Republic of Sakha (Yakutia) and in particular that of the rough and polished diamond complex. Russia and Yakutia have sufficient raw mineral reserves.
2. Crises are an inevitable phenomenon (they happen approximately once in ten years), so we just have to be ready for their manifestations.
3. It is necessary to provide a sufficient amount of raw materials in the industries, to regulate raw mineral prices on the raw mineral market on the basis of in-depth study of demand and supply, to develop diversification at enterprises and to work out a plan of anti-crisis measures.
John Helmer, MineWeb observer
For diamond consumers, the economic crisis will curtail demand for diamond jewellery, and thus transmit its impact up the production chain to manufacturers and miners. As all diamantaires understand, diamond demand correlates with GDP (Gross Domestic Product) growth. So, slowing or negative GDP growth makes inevitable a slowdown in diamond sales and diamond prices. The October sale and price data to date show that growth recorded over the past 52 weeks, or since January 1, is now being sharply eroded. According to the PolishedPrices.com index, “fine quality diamonds are bearing the brunt of the losses. All diamond sizes have recorded double digit losses over the past fortnight.”
The global loss of liquidity will also impact negatively on the solvency of the cutting sector, and of junior diamond explorers and miners.
But for ALROSA there are unique opportunities, if not in the short run, then soon. For as a wholly state owned company, without an IPO yet or a market capitalization and share price set in the international markets, ALROSA has avoided exposure to the vicious cycle of share-value leveraged debt. It has privileged access to state financing. It can fain in the mining sphere at the expense of others.
Flun Gumerov, President of Almaz-Holding
No doubt, the financial crisis has already affected our business in a very negative way. I think that the industry management should go over to “manual control.” For this purpose, it is necessary to establish urgently and without any delay a social council consisting of federal authorities, public organizations and deputies of the State Duma to maintain competitiveness of diamond and jewelry producers - to solve jointly and expeditiously the vital problems of the industry: counteracting illegal turnover of precious gems and metals, illegal import, and decreased consumer demand.
Today Russian cutters and jewelers are offered bank credits at 25-30 percent per annum. This runs counter to common sense.
In my opinion, monetary funds should be allocated by the state not only to back up the financial sector, but they also should be extended to the processing industry and retail trade to stimulate demand.
