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News & Highlight


  • Nissan Perla
  • Lawrence Ma
  • Erik Jens
  • Diamond Registry
  • de beers

Diamond sector under adjustment

While diamond polishers are hit by the imbalance of prices between rough and polished diamonds, the diamond industry at large is under the gloom of the stagnant economy that impedes buying sentiments in end consumers. In many aspects the industry has entered a phase of self-adjustment to accommodate the changing economy and consumption habits. Erik Jens, head of diamond and jewellery division at ABN AMRO Bank, Nissan Perla, founder of Olympic Diamond and platform for wholesale diamond price information Diamond Registry, and Lawrence Ma, chairman of Diamond Federation of Hong Kong, China recently shared their views with Hong Kong Jewellery.

Availability and flow of fund

Speaking about the situation in Antwerp, Erik Jens said the overall amount of funding available for diamond polishers is not an issue, not even if that amount would further reduce. He emphasised that the current dislocation in funding has more significant impact. “As the funding from KBC Bank (formerly Antwerp Diamond Bank which was closed in 2014) and Standard Chartered Bank will not leave the market overnight, there is time for polishers to adjust and look for alternatives. Not only for funding alternatives but also to reconsider the way business is conducted including the long credit terms,” he explained. Although more banks in Dubai have become involved in the diamond industry, Jens believes Antwerp will continue to play a key role in the diamond industry. “Antwerp has been an important location for the diamond industry for over 500 years, and the quality and knowledge gained over such a period is a key differentiator,” he said. He observed in both the United States and Antwerp new banks are eyeing cautiously to enter the market.

Lawrence Ma echoes Erik Jens comments: “Dubai’s importance as another international diamond hub has certainly grown significantly in the past decade. Its unique geographic and strategic location between and within the Middle East and India, Africa, Europe and Asia as well as its very proactive and supportive government and visionary industry leaders have attracted many diamond related organisations and talents establishing a foothold there. Its banking sector looking into further developing and participating in the financing of the diamond industry, especially in the more concentrated upstream area of the supply chain, is only natural.” Simultaneously, financial institutions in other centres like India and Hong Kong are looking to expand their existing market share. The essence is not availability of credit, as the banking system is not short of liquidity, but the sound business practices of the debtors. In the present consolidation phase of the economic and business cycle worldwide, cash flow and risk management, transparency, profitability and other important fundamentals of the debtor will be critical in the eyes of the creditor.

Ma also raised another aspect of the relationship between the banking sector and the diamond industry in addition to credit availability, especially in the midstream: from the opening of an account to its maintenance, receiving and sending out funds, the processes seem to become much lengthier and more tedious. Monetary authorities around the world have tightened the regulatory requirements of financial institutions in view of anti-money laundering, anti-terrorist and anti-corruption measures. Diamonds, having relatively high concentration of value and ease of transportation, and thus the diamond industry became an easy victim and is being regarded as a high risk in such aspect. The pragmatic solution to this situation is not only implementing “KYC - know your client”, but communicating between stakeholders to establish deeper understanding and trust, validated by sound professional practices.

Nissan Perla from Olympic Diamond, a wholesaler and manufacturer of loose diamonds, said nowadays diamonds become a lot more affordable to direct customers with the help of credit institutions that encourage credit buying. On the other hand, financing for businesses in the wholesale industry becomes more difficult as it requires excellent relationship with banks and financial statements that reflect positive annual earnings to secure long-term loan commitments from banks that could be withdrawn anytime. It results in much longer money business cycles that could take up to 90 days to clear transactions, which reformed the whole industry.

Perla added that financial crises in the past are still affecting the economy today. The diamond industry is considered a lucrative yet high-risk business therefore banks worldwide became more conservative, resulting in more rules, regulations and screening processes. In response to this, their company is branching out into B2C business to gain more flexibility and buoyancy in the macro market environment.

In relation to tighter loan requirements from banks, Erik Jens observed that many diamond processing clients are de-leveraging their balance sheets to aim for profitability instead of turnover. There is also some consolidation throughout the value chain with a focus on increasing cash flow. In general, banks are working closer with their clients. In his opinion, the diamond market is opening up and becoming more transparent. If this trend continues, more banks and investors will develop an interest in the industry. If the diamond producers, industry bodies, manufacturers and retailers could work closely together to improve the reputation of the diamond industry with regard to its trade, sourcing and pricing, finance would not be a problem and the temporary shortage in finance will be filled in time.

Upstream problems

During the 37th World Diamond Congress, Maxim Shkadov, president of International Diamond Manufacturers Association said high rough prices prevent diamond polishers from obtaining reasonable profit margins and polished prices must increase before rough prices increase and manufacturers should not buy rough if they do not see a projected added value.

According to Diamond Registry’s tracker, prices of rough diamonds have gone up by 40 percent in the last 40 quarters as of June 2016. The annual increase of polished diamond prices and value increased by 14.47 percent from 1960 to 2016, which is an equivalent of annual compound interest of 4.3 percent. While the asking prices of rough diamonds involve speculations partly based on the price of polished diamonds, the upward trend of polished diamonds helped push rough prices to its current level.

To Nissan Perla, the imbalance in rough and polished prices is the most pressing problem in the industry. In his view it is extremely important to keep an open dialogue with downstream retailers to upstream miners, because only in this way the whole diamond industry could be nourished back to health. “The solutions are either a variety of market forces work together to get rough diamond price costs down, or polished diamond price must go up to match the market equilibrium,” he said. Commenting on the sales of rough diamonds, Erik Jens observed “a longer-term trend of a fundamental change from supply-driven rough prices towards demand-driven rough prices.” The mid segment of the diamond industry is adjusting its purchase strategies and major mining companies are adopting a more accommodative pricing strategy in response to the market situation where China’s demand for finished jewellery dropped and the reduction in the profitability of the wholesale and retail sections of the jewellery industry in Asia.

Ma said, traditionally, sandwiched in the middle, many diamond polishing companies are making purchase at prices determined by a handful of rough suppliers at cash or very short credit terms and then selling the polished diamonds, after manufacturing process of one to two months, mostly with longer credit, to retailers at prices that are finally influenced by the consumers. This process makes cashflow management and financing an important and integral part of the manufacturers while their profitability has always been very sensitive to the consumer’s demand and rough supplier’s pricing policy. The world economy, and hence the diamond industry, has enjoyed decent growth from 2003 till 2014 despite a brief difficult period between 2008 and 2010. The correction or consolidation phase which began two years ago will continue. Stakeholders at all segments of the diamond pipeline should and are looking at the longer term collaboration and value creation aspects. Within the industry, credit can be created or optimised by the provision of longer credit from the rough suppliers and/or shorter credit terms extended to retailers while the financial institutions in different countries reshuffle their own level of participation. Moreover, the Diamond Producers Association (DPA) has announced that it will be directing its marketing efforts to the present and future diamond consumers on the intrinsic and emotional value of diamond jewellery. In his view, the unfailing truth is always: the value in the eyes of the customer. Retailers around the globe cannot afford not to communicate its unique brand, service and product messages to their existing and would-be customers. It would certainly be beneficial for the very resourceful entities at the tip of the upstream segment adding their efforts in this very important initiative to enhance future demand, shifting the demand curve to the right, which is always a good thing.

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