The diamond business in Antwerp – is it in crisis? This question is now often posed by observers.
They are worried about the “state of health” of the world’s diamond trade hub in the environment of the global financial and economic crisis. Its health has already led to a free fall in diamond sales and prices tarnishing its image.
As if to confirm that the situation is really fraught with problems, the Antwerp World Diamond Centre (AWDC) and its commercial subsidiary, HRD Antwerp, announced they would lay off several dozens of their employees.
According to Philip Claes, a spokesman for AWDC, the diamond sector is now facing a drooped market accompanied by decreased import and export and lower demand for diamond certificates, which are the two main sources of income for AWDC.
So far Antwerp occupies the first place in terms of diamond sales being ahead of India and Israel. Last October rough diamond export from Northern Jerusalem, as Antwerp is sometimes called, went down 36% compared with the same month in 2007. In money terms, this amounted to $619 million.
Meanwhile, following the results of 2007 Antwerp’s diamond export increased 15% vs 2006.
According to the Belgium press, experts set forth several reasons, which “brought Antwerp to its knees”.
The first of them was related to slumped diamond prices reaching the bottom after August 2006. “These days there are quite a few trade sessions held in Antwerp,” - complains the AWDC spokesman. “We are really witnessing a dramatic drop in business activity.”
Thus, diamond export from Antwerp to the United States, the world’s biggest gems market, decreased last year by 14%, while diamond supplies to the world fashion market – Italy – by 13%.
Meanwhile, the experts of RBC Capital Markets, the London-based branch of Royal Bank of Canada, expect that diamond prices will start their rebound not earlier than the middle of 2009.
The crisis has generated “uncomfortable” situation not only for Northern Jerusalem processing every eight out of ten rough diamonds and harboring four out of 25 diamond bourses in the world.
As expected by Israel’s Ministry of Industry the country’s diamond export in 2008 will reach at maximum $6.5 billion. Last October, however, exports declined 46% compared with one year ago.
No better is the situation in India. In November 2008, a group of diamond processing enterprises in this country decided to suspend rough diamond export for one month.
Another reason why the diamond business in Antwerp ran into serious difficulties was the growing competition on the part of Dubai and Mumbai, as analysts believe.
Of no less importance is the moral damage done to the image of Antwerp’s diamond business by police raids to reveal fraudulence among merchants.
Thus, in mid-October 2008 the police seized €150 million worth of unregistered rough diamonds from one of such merchants. In this connection traders express their fear that law enforcement actions may completely paralyze business, “drying up” the channels of rough diamonds supply.
On their part, the Belgian police say the pin-point check-ups in the trade network are not directed against those who “play a fair game.”
Ten traders have wound up their business in Antwerp in the result of police investigation, which, as AWDC fears, may lead to a further decrease in the number of enterprises operating in the diamond industry.
“Five minutes after a police raid, everyone in Antwerp knows the news and it takes another ten minutes to spread it across the whole world – so you get calls from New York, Dubai and India from those people who want to be sure that Antwerp is still a safe place for doing business,” complained the AWDC spokesman.
To achieve a cardinal improvement in the currently adverse situation on the international diamond market, observers believe it necessary to coordinate the efforts of all the participants of the world’s diamond industry. This is the only way they will be able to weather out the crisis period.
According to the Belgian press, only debts to banks owed by diamond enterprises amount to about $15 billion. This being the case, it is noteworthy that the amount of reciprocal lending between diamond enterprises is at least twice as much that figure.
How to navigate the diamond industry out of the crisis is something viewed by its major players in their own ways.
For instance, De Beers, which accounts for 40% of the world’s diamond output, according to the Belgian mass media, is contemplating the idea of diamond “Exchange Traded Funds.”
The purpose is to introduce “a mechanism of liquid investments” which would help investors to take part in the diamond market.
“We cannot exclude that in the inflationary environment investors will take interest in a rare product,” believes Stephen Lussier, Executive Director of De Beers.
The fairness of this evaluation is confirmed by one argument of economists saying that the measures globally coordinated by national governments to save the banking system and to overcome the consequences of the world-wide economic crisis may bring about substantial acceleration of inflation as soon as the economic downturn will be negotiated.
According to experts, diamond prices in case of inflationary acceleration as a rule increase two times as much, whereas Exchange Traded Funds allow investors to buy securities backed up by diamonds owned by the Fund’s managing director.
On its part, the Rapaport Company called by the Belgian mass media a “tariffs supplier” intends to launch an online diamond bourse, Rapaport Diamond Exchange, which will be based on a system of cash transactions.
“We should introduce a market of cash payments for diamond transaction as soon as possible since the credit market of the diamond industry is going to hell. We cannot operate as before,” Trends tendances, a Belgian magazine, quotes Rapaport’s spokesperson.
It says in conclusion that the online diamond bourse which is going to offer rough diamonds of all sizes and quality certified by the Gemological Institute of America “is not a very good piece of news” for AWDC.
Alex Shishlo, Rough&Polished European Bureau Editor, from Antwerp
