RAPAPORT... A world diamond symposium, organized by the Antwerp World Diamond Centre (AWDC), brought together mining companies, manufacturers, bankers and retailers on November 17 to discuss the industry’s response to the global financial crisis. The audience of approximately 500 discussed ways the diamond industry could regain, sustain and even develop customers’ confidence in their product. Freddy J. Hanard, AWDC chief executive officer (CEO), said the symposium was organized because of the need for a comprehensive and coordinated industry response.
The three main recommendations for surviving the current crisis were that the supply of rough must be reduced in order to protect prices, diamantaires must be prudent in minimizing and managing their inventory and diamonds must be more aggressively promoted in order to capture a larger percentage of the luxury goods market.
The first recommendation appears to be happening already. Representatives of both De Beers and ALROSA said that they had decided independently to reduce production by some 30 percent, with ALROSA willing to go as high as 40 percent, according to ALROSA President Sergey Vybornov.
Conspiracy Theories The first reaction of many symposium attendees was to read between the lines that obviously a decision had been made to maintain prices by limiting quantities supplied. It was whispered that the absence of BHP-Billiton and Rio Tinto representatives was a sign that the industry could not afford to have the four major producers present at the symposium at the same time, with each of them announcing very similar new supply policies. Such an occurrence would certainly imply the existence of a cartel. Even though both ALROSA and De Beers claimed they were not in a position to comment on their competitors’ pricing and supply policies, there was a sneaky feeling that some kind of “understanding” has been reached by the four major diamond producers. Of course, there is no proof of that, or the European Community (EC) and U.S. antitrust, antimonopoly forces would certainly be reacting.
Any allegations of price-fixing or supply collusion are less likely to be raised in the current economic environment, where a global gesture toward supply reduction from diamond producers is more than welcome by the trade. In light of depressed demand for diamonds, miners’ customers have been begging them to reduce supply and even praying for the cancellation of as many sights as possible.
Chaim Even-Zohar, principal of Tacy Ltd. consultancy, told the symposium audience that demand for diamonds at retail will fall by approximately 10 percent in 2009, translating to a 20 percent decrease in demand for polished diamonds at wholesale and a 35 percent decrease in the amount of rough required.
Generally, the symposium speakers appeared confident that the industry will survive this most recent turmoil. Referring to another recent crisis for the industry, Gareth Penny, managing director of DeBeers Group, said, “Look at what we’ve achieved with blood diamonds [setting up a successful global industry initiative, the Kimberley Process]. I’m confident that we can do the same as an industry to create a global diamond demand.”
Bankers Talk ToughOn the banking front, Victor van der Kwast of ABN AMRO joked that “You can get a loan, but you will have to beg.” Banks are clearly signaling that they’re not going to support nonprofitable purchases or additional inventory when so much inventory is already piled up.
Paul Goris of Antwerp Diamond Bank warned that bank clients can expect additional monitoring of their asset levels and that the industry is entering “a period during which asset protection must take precedence over asset growth. We know that there will be difficulties ahead and that inventories might go up. However, we’re still willing to support our clients and help them generate business. But we must all work together and unite in responsible and prudent behavior.”
On the subject of inventory pileups, producers indicated that they will give some slack to their clients and allow them not to buy what they don’t need. As Penny explained “Our clients can choose whatever they need in our boxes and exercise right away our return policy and return the unwanted rough on the spot.”
The third symposium recommendation on capturing a larger share of the luxury market also appears to already be getting support. The marketing arms of both De Beers and ALROSA said they are committed to aggressive generic advertising campaigns, in the U.S. especially, in order to regain market shares. The impact of De Beers fourth-quarter generic campaign in the U.S. is expected to be felt as early as this holiday season.
Penny concluded, “It’s about all of us. Not a single group can do it alone. There’s a feeling of a collective effort that we want to make. I don’t want to put a positive gloss on the situation. I know obstacles lie ahead, but this is our time, and I know we can succeed. The competition is not in this room, but outside.”
Article from the Rapaport Magazine - December 2008. To subscribe click here.