In a wide-ranging interview, Dilip Mehta, the CEO of Rosy Blue, and a major figure in both the Antwerp and the global diamond industry, tells readers of Antwerp Facets Online how he sees the current state of the diamond markets and what we might expect looking forward.
How would you characterize the state of the diamond industry, both in Antwerp and globally, at the moment?
In looking at the situation of the diamond trade today, I would say we are still in a period of stabilization. I know the global economy is improving, but progress is very slow. And it is for this reason that I continue to urge colleagues to be cautious in their approach to business.
The U.S. market continues to be the main focus of concern for the diamond and jewellery industries. What is the state of affairs there?
The United States, still the world's important market, is growing, but it is not clear whether this is due to the U.S. government's enormous stimulus programme or if the private sector is pushing it forward. I think most people agree that that it is probably the former. Unlike after previous recessions, the U.S. economy is not shooting ahead and creating jobs on the scale needed to reduce the long unemployment lines, and that is a concern because people who are not working will, quite naturally, buy only essentials.
Although the situation in the United States is slowly improving, there are fewer stores than there were in the third quarter of 2008, so growth is only modest. The comparison of this year with 2009 looks good on the face of it, but the comparison should really be with 2008 or even 2007 to understand where we are now.
Are there countries and regions that are showing signs of improvement from Rosy Blue's point of view?
Outside of the United States, the emerging markets are doing well apart from Russia and the CIS states. In Japan, business is still at a low level. It lost its number two status as a diamond centre to China. I don't see the situation improving there for some time to come.
What are you seeing regarding diamond prices? How close are they to the levels that were seen in 2008? What is the level of demand for goods?
The last 18 months, since the third quarter of 2008 when the global financial crisis began, have been a period of stabilisation. The industry cut back and destocked from the third quarter of 2008 to the third quarter of 2009. Diamond prices are not back to their historic highs of 2008, but we are seeing that they are at around 75-80 percent of those levels.
Demand at the retail level is still much lower than it was in 2007. The wholesale level is seeing more activity than retail because destocking has ended, and restocking has started. In addition, there is quite a lot of new business in China, and that is pulling a lot of goods through at the wholesale level. We are seeing about 80 percent of the levels of goods sold in 2007 being sold now.
Some diamantaires and bankers have spoken about the possibility of a new bubble being created in the rough diamond market. Is that your feeling, too?
People have spoken about a bubble being formed in the rough market due to prices shooting up, but I don't know if that is the case. There is annual production of around 100 million carats and that seems to be about right to fill demand. Producers have cut output so the flow of rough into the market is well controlled and has led to much-needed stabilization. Manufacturers and others in the business have the confidence that prices will not fall.
However, some people have become overexcited and may be paying more than they should be doing for rough diamonds. Rough prices are at their mid-2008 levels in general. Overall, rough prices are at least 5 percent ahead of polished price rises. But turnover is low and supply is dry.
In polished goods, prices of lower end diamonds are even higher than they were in mid-2008, but larger stones are 20 percent lower.
As competition becomes increasingly cut-throat there is more talk of falling margins. Are they continuing to shrink?
An unfortunate consequence of the current state of the markets is that margins are disappearing. Many people are actually losing money, in fact. If rough prices keep rising and polished fails to rise further then there will be huge pressure on the industry. Some of the diamond business today is operating on hope, and that is not a business plan. People are buying rough in the hope that polished prices will have risen by the time the diamonds are manufactured. Diamantaires feel they need to keep working and keep their plants operating and active.
There were relatively few bankruptcies as a result of the global economic recession and that surprised many in the industry. Some economists are predicting a new crisis, what do you think would be the outcome of that?
It is not something that one really wants to think about, but we must be aware that if there is another financial crisis, as some analysts are forecasting, then there will be a very large shake-out in the industry. That is because many of those who managed to survive the 2008-2009 crisis will not be able to survive another one; they do not have the financial room for maneuver. But we should not be pessimistic and prophesy such events. Instead, we should be optimistic while keeping a cool head and do only those things that fit in with a serious and sensible business plan.
Manufacturers should not jump into deals just because they look tempting. They should not speculate either. Thinking that diamond prices will rise because they have been rising for some time is not a sensible policy. Prices could turn around and the manufacturer will be stuck with a large stock for which he is not able to get even the price he paid for it.
There is not enough clarity yet in the business world. The situation is not back to normal yet. The crisis in Greece and the effect it has had on the euro shows just how fragile the situation remains.
Small and medium-size firms make up the bulk of the membership of the Belgian diamond industry, as they do in every other centre. They face continuous problems of managing to survive. Is there a way of aiding them?
I am often asked about the fate of the small and medium-size firms and if steps can be taken to help them. There is room for everyone because our industry has a wide range of requirements and the smaller companies are able to fill them. The reality is that people need to think long and hard about what they specifically can bring to the diamond business.
There are no easy solutions. We cannot regard this as one size fits all. There are many companies that are in the business of converting rough diamonds into polished goods, but we must all think about what we can do to provide added value, while keeping our feet firmly on the ground. The diamond industry is not an island; we are all inter-connected. The macro-economic picture is telling us that the global economy is still fragile so sensible business policies are called for.
From your standpoint in the Antwerp diamond industry, what is your opinion of the state of debts to the banks?
Regarding the debt situation, the levels of debt have fallen, of course, because volumes have fallen as a result of the financial slowdown. My feeling is that the banks are feeling much more comfortable, although naturally they still have concerns. The situation has improved, but I imagine they are choosing their customers much more carefully.
Finally, how do you believe the Antwerp diamond industry should act in the future?
Looking ahead, as I have said here several times and in other places as well, we need to keep a cool head. We have come out of a highly volatile and dangerous period. We cannot know what is yet to come and it is for that reason that we must be sensible and moderate in our business dealings. We also must find a way of working together and presenting a united face to the world by overcoming any differences we may have to ensure that the Antwerp diamond industry remains the world's most important trading centre.
