The situation on the market of rough and polished diamonds continues to be a hot stuff for many. If not the fate, then at least the foreseeable future of the whole global industry segment depends on it - from the largest diamond-mining companies down to the pettiest jewelry retailers. Lately, things started to change on this market. The New York Times wrote that ALROSA having surpassed De Beers as the world’s largest diamond producer was seeking to jump-start demand by selling gems under long-term contracts, six of which were signed, to wholesale buyers in Belgium, Israel, India and elsewhere. According to Xinhua, China has recently become one of the world’s major consumers of diamonds. The statistics say that the Shanghai Diamond Bourse turnover reached $1.37 billion 2008 while diamond retail sales exceeded $2.9 billion. De Beers, for instance, managed to raise diamond sales throughout China by more than 15% since October 2008 and is going to resume production at Jwaneng, a huge diamond operation in Botswana. Taking into account the above, Rough&Polished reached out to several industry participants and asked them to answer three questions.
Does it mean that the diamond market is gradually recovering?
Eli Izhakoff, Chairman and CEO of the World Diamond Council (New York):
Diamond-mining companies were clever to reduce supply preventing a price landslide. The diamonds, which were stricken in the diamond pipeline, are gradually selling - people get married, celebrate their anniversaries and buying gifts; not as before of course but many of them are purchasing diamonds. So the stocks are decreasing. The accumulated reserves will dry up soon and rough sales will start growing slowly, but steadily. Certainly, we’ll still feel uneasy for some time and some more diamond cutting workshops may turn out to be on the verge of bankruptcy. However, there are clear signs of improvement and right now I’m very optimistic.
Lynette Gould, Media Relations Manager, De Beers Group (London):
There are recent signs of improving demand for select categories of rough diamonds as cutting centre and retail inventories come down.
Philip Claes, Secretary General, Antwerp World Diamond Centre:
Trading conditions for the Antwerp diamond industry remain difficult, although the latest figures of April show evidence of rising demand and prices for rough diamonds.
Helen Sun, Deputy General Manager, EPL Diamond (Beijing Branch):
The diamond market is now in a period of major transition under the impact of the financial crisis. The pattern of the world diamond market is changing and we look forward to better performance in ALROSA in this environment. In May, the diamond market began to heat up and of course this was closely related to changes in supply and demand on the diamond market.
James Campbell, Managing Director, African Diamonds (Pretoria):
I think it is too early to tell. Although prices have improved by 10-20%, credit conditions have not improved significantly.
What is the situation on this market in your area?
Eli Izhakoff:
My residence is in New York, that’s where I pay taxes and live, but I often visit Ramat Gan spending there about 25% of my time. The crisis started in the United States and this country is hardest hit. But I have a feeling that it will be the United States where it will end in the first place and the situation is already improving. Just have a look at the stock market - it has clearly stabilized in recent months and the business is going much better than in the beginning of this year.
Lynette Gould:
DTC Sight volumes have been steadily increasing since December 2008, and De Beers is confident of a continued improvement in trading conditions as the year progresses. De Beers will emerge from this downturn as a more streamlined business, with reduced overheads and improved efficiency, in good shape for future growth.
Philip Claes:
Belgian polished exports fell 28.6 percent to 575,076 carats last month, and dropped by 45.7 percent to $599.4 million.
Meanwhile, there were falls of a similar nature in polished imports, with a decline of 26.9 percent to 669,696 carats in April, and a 42.7 percent drop to $668.1 million.
The statistics for the January-April period showed slightly lower declines overall. Polished exports fell 28.0 percent to 2.29 million carats, and by 38.3 percent to $2.63 billion.
Polished imports in the first four months fell 32.3 percent to 2.50 million carats, and by 38.7 percent to $2.58 billion.
Meanwhile, rough exports continued to fall, but at lower rate than in previous months, with a 17.9 percent fall to 9.96 million carats in April, while in financial terms there was a 36.8 percent decline to $609.8 million. In the first four months of the year, there was a 27.7 percent fall to 34.1 million carats, and a 57.9 percent drop to $1.70 billion.
Rough imports in April posted a fall of 9.9 percent to 8.77 million carats, and a 57.8 percent drop to $399.0 million. In January-April, there was a 7.1 percent decline to 38.2 million carats and a 58.8 percent fall to $1.59 billion.
Helen Sun:
The EPL DIAMOND company has been affected by the financial crisis to a small extent, and we are more optimistic about the market situation opening in addition to two new Diamond Houses Chain stores in Moscow a Beijing Branch in China, as well other EPL chain stores in Shanghai, Yakutsk and other locations. The company also intends to increase its investments during the next 5 years planning to set up 80 Diamond Houses Chain stores across the world, so that everyone can see and enjoy Yakut diamonds.
James Campbell:
Same as above in my reply to your previous question.
What is your forecast for the nearest two years?
Eli Izhakoff:
I am moderately optimistic toward the period till the end of the current year, but growth will start near Christmas time. We shall be back to business as usual by October-November next year. Demand will go up and production will expand – we have the honor of working with a unique and beautiful object, which is diamond, and it will stay as such in the eyes of people for ever.
Lynette Gould:
While the economic crisis presents challenges for the luxury goods category as a whole, diamonds are uniquely positioned to withstand and emerge from the short-term uncertainty because of:
Medium-term supply issues – the short-term reduction in diamond inventories and sales, coupled with a significantly lower level of investment in exploration and new mining projects, is likely to create a shortfall in previously forecast levels of diamond supply in the medium-term.
Base of demand – even in a recession people continue to get engaged, married and celebrate special anniversaries, and diamonds are inherently linked to the marriage tradition in the US and emerging economies.
Financial value - as the hardest mineral on Earth, diamonds represent a reliable hard asset for people migrating away from debt, risk and the complexity of Wall Street.
Historically, there has been incremental growth and low volatility in the prices of diamonds, making them attractive in the long term.
Enduring value - In uncertain times, research shows that consumers gravitate towards quality, they buy fewer, but better things – things that last, which are not disposable and that hold their value over time.
Going into the 2008 holiday season, diamond jewellery was still the #1 desired gift for the holidays in 2008 - twice as popular as consumer electronics.
In research conducted at the start of the 2008 holiday season, 62% of women would strongly prefer one wonderful gift – like a diamond – than several small ones.
Strong long-term fundamentals - diamonds are a rare and finite treasure of nature and, with future demand growth in emerging markets, demand is likely to significantly outpace what is forecast to be lower levels of diamond supply for many years to come.
With worldwide reserves at an all time low - diamonds are rare and getting rarer.
Current mines are expected to produce some 20% less diamonds in 10 years time.
There have been no new major diamond discoveries in more than a decade.
No major sources of supply are scheduled to come into production in the near-term.
It takes, on average, at least seven years from discovery to full production.
Demand for diamonds has been consistently increasing for many years, and this is expected to continue in the long term – particularly as more high net-worth individuals emerge in the developing markets.
Philip Claes:
This is difficult to tell. According to our estimates, 2009 and 2010 will remain difficult years for the diamond trade worldwide. We hope that by the end of 2010, trading figures will be back to the level of beginning 2008.
Helen Sun:
We believe the diamond market has bright prospects for development, especially in China. We hope to set up more stores of the Diamond Houses Chain in Beijing and other provinces and cities within two years.
James Campbell:
The medium to long term economics of the diamond industry are still very good, as no new supply is coming onto the market and even with modest economic growth, diamond prices will continue to rise and beat inflation.
Rough&Polished, New York – London – Antwerp – Beijing - Pretoria
