Lynette Gould, De Beers Group, answered the questions posed by the Rough&Polished Agency:
In accordance with the forecast by IMF unemployment in the USA, Japan and EU will grow to reach the peak in March 2010. How will this circumstance affect the dynamics of demand for diamond jewelry in these countries and how will it influence the demand for rough diamonds in the short-term outlook?
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.
Recent market research from the US and China, also, confirm that consumers’ desire for diamonds remains strong. As economic conditions improve, emerging demand, coupled with the decline in long-term diamond supply, will form a positive foundation for future growth in diamond prices.
Summer upsurge of rough prices was evidently contradicting to the demand for polished goods which remained low. How could you explain such disparity of prices and what are the consequences to follow?
Rough diamond prices, particularly on the secondary market, overcorrected in Q4 2008 and Q1 2009 in response to the global economic crisis, to the point that the gap between rough and polished prices became uncommercially wide - in other words, rough diamonds were for a short time priced at unsustainably low levels due to short-term market imbalances, which have now corrected themselves.
Since then, during Q2 and Q3 2009, we have seen rough prices recalibrate themselves against polished values at a more normal and sustainable level.
Looking forward, we can learn from previous post-recession periods, where we observe the value of rough and polished diamonds has tended to increase rapidly as consumer confidence strengthens and prosperity re-emerges.
Gokhran of Russia is accumulating a large stock of rough. Does this circumstance comprise a threat to the market – in case of large-scale unload of stock on the market?
What Gokhran chooses to do with its stock, including the reasons why it might accumulate any goods rather than sell them, is entirely a matter for it to determine.
ALROSA reported the resumption of full production from September. How will it influence the market? Are there any other agreements pending by market players aimed at stabilization of prices?
Again, any reported resumption of production on ALROSA's part and any decision in repect of the sale of that production is entirely a matter for ALROSA. Of course, any additional availability of a natural product in finite supply will provide increased choice for purchasers. As far as the agreements that you mention are concerned, De Beers is not party to any such agreements; De Beers does now know if any such agreements between third parties exist.
What is the outlook for the recent marketing initiatives on diamond promotion taken by major companies given the current environment?
Despite the economic downturn, diamonds are still the ultimate gift of love. Research conducted in June 2009, on behalf of De Beers, revealed that seven out of 10 women think “diamond jewellery is the most romantic gift a man can give a woman.” Seven out of 10 women also agreed that even though they are on a tight budget, they would be happily surprised if he bought her diamonds
What actions does De Beers take in order to stimulate consumer demand in the USA? What about the other major markets?
De Beers and participating Diamond Trading Company Sightholders last week unveiled the highly anticipated Everlon™ Diamond Knot Collection. Everlon aims to maximise demand for diamonds during the crucial US holiday sales season by combining a unique new diamond concept with De Beers’ long heritage of strong fourth-quarter marketing initiatives.
From October, Forevermark, will be launching The Forevermark Encordia™ Collection in China, Hong Kong and Japan. Encordia is comprised of exquisite jewellery pieces, designed to symbolize the unique and emotional bond between two people.
At present total debt load of De Beers amounts to $4 billion. How is refinancing of bank debt worth $1.5 billion going on?
Discussions with our lending banks are ongoing, and we are confident we will be able to renew this facility.
Indian Government has allocated $4 billion worth of loans to support local cutting industry. Has this move affected the market?
My understanding is that the Indian Government has not allocated $4bn of loans to support the local diamond industry.
Indian Commercial banks, where government has a majority shareholding, (like SBI, Bank of Baroda, Corporation Bank) and several local (HDFC, Vijaya, ING Vysaya) and international private banks (ABN, ADB, Standard Chartered), to name a few (last count, there are 30 commercial banks) continue to offer $4bn trade finance to the diamond industry as a part of their normal lending activities.
The Indian banks support the industry by not demanding immediate settlements of overdue receivables by the Principal or seizing collaterals pledged in security of these payments, but allowing an orderly settlement of these dues.
The Gujarat Government has also offered unemployed diamond workers retraining facilities to develop skills to migrate into other industries.
The Indian diamond industry has responded to the economic slump by limiting rough purchases (Voluntary import restraint in December 2008), retrenching workers, bringing more equity into the business, adjusting their purchases and credit terms to manage their cash flow for the reduced level of demand, in fact without any state support.
Alex Shishlo, Editor of the Rough&Polished European Bureau in Brussels
