By EuAsiaNews,
Antwerp, Belgium : Antwerp’s $43 billion diamond market is reeling from the effects of the global economic depression with complete recovery being a farfetched possibility in the near future.
Philip Claes, spokesperson of the Antwerp World Diamond Centre ( AWDC), the industry’s local and international representative body, said that the market showed telling indications of a crisis as early as October last year.
America’s traditional Christmas shopping season has historically proven to be the most profitable and busy period for the diamond industry.
But the banking and sub prime crisis in the world’s largest market for diamonds led to a 20% drop in sales in the country which normally consumes 50% of the world’s polished diamond supply.
“After a large magnitude of shipments were returned from the US in the New Year we knew there was a problem,” said Claes.
Chetan Choksi , CEO of Diminco N.V explained that the industry had stocked its highest ever level of inventory prior to the downturn.
“Everybody was caught off guard. Diamonds are a luxury commodity and make for discretionary spending so right now the industry is deeply affected; We are always last in, first out,” he told EuAsiaNews.
Dilip Mehta, CEO of Rosy Blue NV, one of the world’s largest diamond companies told EuAsiaNews, “the immediate impact was serious. What we are seeing now is a ripple effect.”
The problem centers on the procurement of rough diamonds (the raw material), which is the first stage of the diamond’s production value chain.
In the first few months post October 2008, demand for rough diamonds dropped by 70-80%, which in-turn led to a 50-60% drop in the wholesale polished output with retail diamond and diamond jewelry sales dropping by 20% in the month of February
The lack of demand led to a devastating crash in the prices estimated to vary from 25% to 40%.
The sweeping drop in demand has forced producers like diamond mining giant De Beers that controls 40% of the world’s supply of diamonds to control production until prices become stable and some sign of demand appears.
The company which has normally always maintained a monthly diamond mining site worth $ 600 million for its privileged sight holders (a select group given direct access to their rough production of diamonds) is now holding merely 20%.
As the oligarch’s appetite for luxury drastically dwindles, Russian producer Alrosa has halted sales to the open market and chosen to sell its stock to a state owned company.
On the relatively brighter side, there is a general consensus industry wide that the bottom has already arrived.
Mehta believes stability will come into the business in the next six months but a recovery to 2007 levels is difficult to predict.
A morose Claes adds, “some industry analysts do not predict a recovery till 2010.”
Consequently, the buzzing square mile that forms the world’s biggest rough diamond trading centre, home to some 1800 companies is suffering a tight liquidity crunch and period of inactivity that has left it drained of confidence and lost in uncertainty with the only general consensus among its multi cultured community being that business is terrible.
The repercussions of the economic crisis on the industry are dire and widespread; big diamond houses in Israel an important diamond centre have already started reporting bankruptcies while some 500,000 jobs have been lost in the Indian diamond-manufacturing hub of Surat, in Gujarat.
“As of right now Antwerp is still better off “, adds AWDC’s Claes. But with a whopping $ 43 billion of rough and cut diamonds passing through the port city that is home to some 300 Indian families mainly hailing from the town of Palanpur in Gujarat that are engaged in the trade , Antwerp’s diamond market is dangerously overdrawn and over exposed.
Claes adds, “everyone is hesitant to do business because they don’t know when they will get paid.”
The crisis has forced banks with credit problems of their own to maintain a tight vigil on client transactions and industry debt has reduced by 20% due to lack of turnover on the banks borrowing base.
Claes noted that the “banks are being extra cautious and studying each case individually before determining whether they want to finance the particular business or not. ”
In fact many believe that the industry will experience a rigorous shake out where the market will contract by 40%.
The industry that is already far too fragmented will consolidate according to veterans like Choksi and Mehta.
Choksi remarks, “we have only 5 or 6 producers, 3000 manufacturers and far too many players in the middle.”
“There will be a healthier deleveraged industry after this storm has passed,” he predicts and continues, “people will be more pragmatic, work for healthier profits and rebalance the risk reward ratio.”
Claes believes the crisis will encourage greater price transparency in the future. “Only the very strong will come out of this healthy,” he notes.
In the interim there are no genius solutions to remedy the situation. ” It really depends on the producers and their next step but for now we have received no good news from them,” Claes says.
In an effort to encourage demand for a luxury product that is unnecessary in the times of the credit crunch, DeBeers together with other producers and luxury jewelers like Harry Winston is engaged in generic advertising campaign to demonstrate the emotional value of the diamond.
One of this century’s most memorable slogans, ” The Diamond is forever” is synonymous with De Beers. Now it’s new slogan ” Fewer, better things” is an evocative expression of the depressing downturn.
Whether this desperate attempt will work remains to be seen, but for now as Rosy Blue’s Mehta aptly concludes, “it’s time to focus on your core business and go back to basics.”