The fact that there appears to be less stock in the polished section of the pipeline is due to two factors: Year-end sales were good and the Indian polishing plants were closed for one month to celebrate Diwali. The big industry players expect that the direct consequence of the low inventory levels of polished in the pipeline will be an increase in the price of polished. The increase could reach 2 to 4 percent or even more. Ali Mackie of Mackie Diamonds confirmed that “Prices will have to go up, both in the rough and in the polished markets. There’s definitely not enough goods available.”
2008 ExpectationsExpectations for the new year are mixed for the big diamond markets, depending on economic stability, population demographics and the maturity of the market.
In Western Europe, many are still wondering why the market is reluctant to absorb more goods than it does. From Antwerp’s perspective, it is enough to have Western Europe as a stable, steady client that helps pay for the day-to-day bills. The empowerment of newly elected French President Nicolas Sarkozy is seen as a potential asset for those who believe in his ability to relaunch “machine” France and spread its influence throughout the rest of Europe.
In the U.S. market, sales of loose diamonds are expected to continue to erode in 2008, given the maturity of the market. The first six months of the new year should be soft, while hopes are that the second half will see a resumption of growth. The November 2008 elections are expected to have a positive impact on diamond sales for the all-important Christmas holiday season at the close of the year. In fact, it’s generally believed that things almost certainly will be better than they are now, no matter who the eventual winner is.
In reflecting on recent U.S. sales declines, a spokesman for Kiran Exports BVBA, a Diamond Trading Company (DTC) sightholder, said the company has realized over the past couple of years that it’s possible to more than offset the erosion of loose diamond sales in the U.S. market by selling diamond jewelry manufactured in India. Kiran’s experience would suggest that those who have access to cheaper labor enjoy considerable competitive advantages in the labor-intensive jewelry industry, where labor represents more than a negligible share of the total cost.
As for the Indian and Chinese markets, Freddy Hanard, managing director of the Antwerp World Diamond Centre (AWDC), explains that “At some point, those two countries will inevitably have to go through a period of relative setback. This is normal when a development phase is too strong. But once the current growth is digested, growth will resume at an even greater pace.”
In assessing other potential markets, industry observers say that Russia’s huge domestic potential should only keep growing and Brazil, with its significant natural resources, could be a rich potential market. It is not unusual these days to hear diamantaires speaking of their Brazilian clients.
Is the Worst Over?
The U.S. market remains the area of greatest concern and the general consensus is that “the impact of the subprime crisis is far from over,” said one diamond manufacturer. “Those who believe that its nasty influence on the stock exchange or on car sales is over are wrong.”
What has happened thus far is “only a little nightmare, compared to the hell that is awaiting around the corner,” said a representative of a European bank. “So far, the global loss due to the crisis is equivalent to give or take 20 billion euros [approximately $30 billion]. The bad news is that banks expect the real loss to lie somewhere between 100 billion euros and 500 billion euros [approximately $150 billion to $730 billion]. The potential damage could be four times what the world economy has already been through.”
What is needed is for banks to begin to assess the real ability of borrowers to repay loans. Once money starts being lent to people with weak or even no guarantee as to their capability of repayment, just in order to increase the bank’s turnover, it has an impact on the bank’s total portfolio value. Better to lend $50 to someone who’s going to pay when he says he will than $50,000 to someone who might never pay at all. Those who default on loans create a bubble that inevitably bursts and it’s the global economy that ends up coping with it and paying for the damages.
The Marketplace • Prices for 1- to 10-pointers in SI+ rose by 5 to 10 percent.
• Prices increased by 4 to 5 percent for 20- to 50-pointers, SI+.
• Supplies are short for 50-pointers to 1 carat in VVS-VS.
• Buyers are becoming picky in the aftermath of Christmas.
Article from the Rapaport Magazine - February 2008. To subscribe click here.