By her own admission, Varda Shine has stressed a message of “responsibility” to the diamond industry in the past few weeks, and will continue to do so in the coming months, Rapaport says in the editorial posted on www.diamonds.net.
The message in itself is a responsible one for the Diamond Trading Company (DTC) chief executive officer (CEO) to provide – especially since she is currently the most senior De Beers executive visible to the industry, as the vacancy created by former CEO Gareth Penny’s departure remains unfilled. Market conditions and the political atmosphere make her message especially relevant.
Shine explained in a recent interview with Rapaport News that it is incumbent upon all players along the pipeline to play their part. “We believe the next 10 years are going to be fantastic for the diamond industry, but people need to act responsibly,” Shine said. “It will happen if everyone understands the role they play in the bigger picture, how we all pull together to make sure that we are working toward the goals we have set and that we can achieve.”
Central to that responsibility theme runs the manner in which the various players approach the rough market.
For mining companies, especially De Beers, assessing the level of production that will ensure the market is not burdened with an oversupply, or undersupply, remains a challenge.
Indeed, there appears to be a fine line that De Beers is walking, with the bullish demand for rough in the secondary market being influenced as much by the shortage of supply as by demand from emerging consumer markets.
Mining companies should also be mindful of how they sell their stones. The trend, set by Rio Tinto, De Beers and ALROSA, has been to set aside a portion of supply for sale at tender, or auction, and distribute the bulk of production through long-term contracts. While other companies, most notably BHP Billiton, are selling most of their goods at tender, it has been argued that these sales have had a somewhat negative impact on the rough market in the past, creating unrealistic price inflation and superficial demand.
However, curbing the effect these tenders have on rough prices would require a call for responsible behavior from diamond cutters and rough dealers. As Shine stressed, their buying should not be about acquiring more volume, but should reflect whether or not they can sell the stones further down the line. She added that banks also need to assess the responsible levels of liquidity necessary to sustain balance in the market.
The message is pertinent because while the market appears to be stable at the moment, there remains sufficient uncertainty to tip the balance. The industry’s tone remains one of caution as the buoyant rough market neither reflects the current demand for polished nor, more importantly, the demand for retail diamond jewelry.
Even as markets in China and India and the eventual recovery in the U.S. may present exciting times ahead for the industry, the short term prospects over the next six months to a year remain flat. As one New York-based wholesaler explained, “We’re not even thinking of Christmas yet. We just want to get through this week.” Indeed, retailers are avoiding broad, irresponsible inventory purchases and buying based on need.
Taking Shine’s message to heart, retailers will likely play a strong educational role in the diamond decade as consumers enjoy access to a wider spectrum of information, gain more luxury options and become increasingly brand-conscious and ethically aware. These consumer trends ultimately filter back through the pipeline and Shine’s concern appears to be that everyone needs to capitalize upon the positive and counter the negative.
These considerations should ultimately be on people’s minds at the Kimberley Process (KP) plenary meeting in Jerusalem next week, even if the ethical questions concerning Zimbabwe’s Marange diamonds — possibly overshadowed by economic conditions — have not yet entered consumer consciousness.
While additional sales from Marange are expected to be approved by the KP after the Jerusalem meeting, the goods will be accepted in some markets, but consumers may still object, especially in the U.S. and Europe, where government trade sanctions are in place for Zimbabwe’s state-owned goods.
As governments thrash out their final KP communications, it will ultimately be left to the industry to ensure that the Marange goods are legally traded and that consumer confidence is upheld.
Shine’s new focus could be taken as one of prudence — an appeal for the industry to hedge its bets against another drop in consumer demand, as well as a reflection of De Beers caution regarding the market. Responsible behavior would certainly go a long way toward circumventing the effects of another economic downturn or an ethical consumer backlash against the industry. Given the message, and the messenger, both appear to be valid possibilities amidst the current calm.
