“Summer heat brings price pressure,” Rapaport Monthly Report described the recent diamond price trend. The report analysed, after the JCK Las Vegas show, diamond markets were relatively quiet, and the June Hong Kong show met the low expectations of the trade and sales reflected a cautious Far East market and the weak dealer sentiment. Manufacturers’ profit margins were being squeezed between stable rough diamond prices and declining polished. They retained excess inventory with the lack of money liquidity and flexibility, which influenced the industry’s healthy operation.
According to Israel’s Ministry of Economy, during the first six months of 2015, Israel’s net diamond account declined 17 percent year on year to US$920 million. The US and Belgium markets experienced the same condition and even worse. For the United States, during the first five months of 2015, rough diamond imports plunged 70.9 percent to US$96 million, and rough exports slumped 73.6 percent to US$62 million, based on Rapaport’s data. The Antwerp World Diamond Centre (AWDC) revealed that, during the first half of 2015, Belgium’s imports of rough diamonds declined 10 percent in carats and 19 percent in value, exports of rough dropped 15 percent in volume and 21 percent in value year on year. AWDC noted a global trend toward fewer purchases of rough diamonds, and will be consistent with other diamond trading hubs like Dubai and Mumbai.
Supply control
“The recession of the diamond industry especially for manufacturers was mainly from the upstream. If suppliers keep the rough supply volume low, the polished prices will consistently increase. However, somebody sold rough overly for the profitability without any supply control. The consumption of diamond every year in the world is in a certain base. Selling rough regardless of the demand will cause the instability of the prices,” said Kobi Itzchaki, managing director of Dalumi Group, one of the top five diamond manufacturers in Israel. He also stated to Hong Kong Jewellery that the retail prices must be high even under the fluctuations of rough and polished prices, for the unique and value-added aspects of diamond products, adding that “diamond should be expensive” concept has been deep-rooted in customers’ minds.
“The amount of rough diamonds suppliers sell is the key to keeping the prices balanced,” Itzchaki emphasised. Actually, suppliers did reduce rough supply in response to the recent weak demand and maintain the prices. Rapaport estimated that De Beers’s rough sales fell by approximately 28 percent year on year to US$2.5 billion in the first half of this year. Moreover, De Beers has allowed sightholders to defer as much as 25 percent of their total allocation, after they allowed a similar deferral in the first quarter this year, to reduce supply. Even so, there might be a high possibility that De Beers will still hold prices steady.
“Reducing rough diamond prices is not the solution to the lack of profitability in the industry's midstream because it will hurt market confidence,” said Shmuel Schnitzer, president of the Israel Diamond Exchange (IDE). “In the short term, we need less rough from producers so that the market can correct itself. However, I’m not sure that the miners can afford to maintain this solution long-term,” he said during the presidents’ meeting of the World Federation of Diamond Bourses (WFDB) and the International Diamond Manufacturers Association (IDMA) in Tel Aviv, Israel in June 2015.
Industry leaders at the meeting agreed that major rough diamond producers should reduce rough sales to help bring profitability to the industry's midstream and stability to the diamond pipeline. Ernie Blom, president of WFDB indicated that the relationship between rough and polished is symbiotic. Suppliers should not chase short-term profits at the expense of the long-term sustainability of the industry.
Responsible prices
A couple of decades ago, manufacturers could only buy rough diamonds from De Beers’ Diamond Trading Company (DTC). However, things have changed a lot under the industry structure. Giant rough suppliers’ control over the wholesale diamond market has diminished and shifted to other newly emerged suppliers, owing to the market penetration. This structure forces practitioners to sell rough with responsible prices, which is vital to industry’s stability.
“It is a different game now. Even if somebody sells rough with a high price, they have to follow the trend if other suppliers cut the price,” said Daniel Illovic, managing director of Taché Asia Limited whose mother company, Taché is an Antwerp-based diamond manufacturer and jeweller established in 1957 with branches all around the world.
Regarding the supply reduction some suppliers have done recently, Illovic expressed his concern that those suppliers have obligations to sell rough anyway for shareholders’ interests, whereas keeping the prices balanced is the key to changing the situation. “A responsible price of rough is what we need to stabilise the market otherwise what suppliers caused will harm themselves in the future,” Itzchaki noted.
For the midstream trade, with the purpose of shrinking existing inventory and raising liquidity levels, some manufacturers even sell polished diamonds for prices lower than their costs. Illovic said that if manufacturers do this, at the end of the year, they will have deficits, which is also harmful for the industry’s normal operation.
Future shortages
Some insiders of the industry predict shortages in certain categories considering the relatively stable rough price, tight supply, and reduced inventory in the midstream. “In the near future, as I see, approximately around September when the demand will be stimulated for Christmas and Chinese New Year, there will be much less goods in the market. By that time, polished price will increase again,” Illovic elaborated. When the market is awake, only large companies with sufficient inventory win the battle.
Ways to survive
Illovic said, in tough time like right now, every company is moving back into their core business, and doing what they are good at. He felt that the quietness of the Asian market is mainly due to the China market situation. China is transforming from an industrial economy to a service-based economy. With the growing population of middle class citizens and their increasing salaries, after the transition, China market will have a great potential. “Once the China market is booming, other countries in Asia will be influenced. It’s a tandem effect,” he added.
“Changes in the market are much faster than before. To do a better business, you have to be aware of everything, regardless of external and internal factors, outside and inside of the industry, your clients, technology, and even the stock market,” said Itzchaki. For Dalumi, he stressed that they care much about customers and their needs with a view to the long-term development in a tough time, while some others may look for new markets and build new customer relationships.
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