RAPAPORT... Ironically, it has taken years to get the Antwerp Diamond Mile to a point where, against all odds, everyone agrees with one another. There’s not a single soul in this historic diamond center who is not preoccupied by the future of the business and, in particular, its immediate future.
As far as the recent year-end is concerned, let’s cut to the chase. Alain Benyacar of BCB International summarized it bluntly, “The end of the year was not a bad one; it was a catastrophic one.” Shoshin Choksi of Swati Gems went even further, “The year-end is continuing even as we speak.” Rumors as well as confirmed information are coming from the most remote corners of the world, all concurring and carrying the same disappointing news. U.S. holiday retail sales were down by anywhere from 30 to 50 percent. The same applies to Europe. The trade from manufacturers to wholesalers plummeted to only 10 percent of the level of 2007.
It’s been reported that the situation with rough is now much more severe than in December. Indeed, it seems that the big companies that had been continuing to buy cheap — with the belief that the market would start to be restored as early as February — have put all purchases on hold. People don’t show even the tiniest beginning of a sign of optimism unless, when you ask for their opinion about the business, you refer to the second half of 2009. The traditional after-season stock replenishment that’s usually taking place in February appears to have been postponed to July, the idea being that the lower end of the pipeline must first sell something before it is willing to refurbish its inventories.
Request to Banks
Today, more than ever, the risk of big bankruptcies is considered extremely reasonable. The problem is that this time, the big speculators have been hit on several fronts — diamond trade, real estate and the stock exchanges — which has severely weakened a couple of major diamond companies.
The danger today is threefold and can be summarized by three simple questions. The first: Will there be further reduction in the Rapaport price list and can the industry withstand it, given that the list already is being heavily discounted?
The next cause for concern: Are the producers going to accept an increase in their stockpiled goods or will they instead decide to force the goods down the pipeline, or temporarily close down some mines?
And lastly: What will the banks do next? It’s no secret that, in spite of appearances, the bankers are extremely nervous right now and are seeking ways to further secure and guarantee their credit lines. One of the explored options clearly is attempting to get more diamonds as collateral for each loan that is granted.
The situation is of great concern to both major and middle-sized companies, to such an extent that sources from within the Antwerp World Diamond Centre (AWDC) confirmed that a list of requests and suggestions was being prepared for submission to the major bankers. The list reportedly urges the bankers to act with extreme caution in alleviating the pressure on their own operations because the slightest move on their part could cause major, devastating, systemic bankruptcies of diamond dealers. Informal talks suggest that, since two major bank executives are scheduled to retire in four months, the industry could benefit from a hands-off period during the time leading up to those retirements, with the understanding that nobody wants to leave a total mess to his successor. That “time-out” also might give the battered market time to settle down.
A Matter Of Trust
Raymond Cohen of Smolensk Diamonds explained that one of the major keys to invigorating diamond business is the restoration of trust at all levels of the pipeline. “Currently, things are moving in a highly targeted manner,” said Cohen. “People buy only what they absolutely need and nobody does major business transactions anymore. In order to see a minimum of trust returning, it’ll take no less than three months. If it’s true that by cutting his prices, Rapaport managed to break the permanent upward speculation circle on diamonds, his move has also introduced an additional element of distrust in the game. Indeed, if you take the 30- to 90-pointers, for example, those are goods that are traditionally used to moving very well, regardless of the crisis. But this time, trust seems to have abandoned their range as well. Restoring trust is almost the ultimate prerequisite if we want to give business resumption a real shot.”
The Marketplace
In rough:
• Nice goods smaller than 2 carats are still moving. The reason is that, after the violent reduction in prices they have been through, it could turn out to be profitable to polish them and sell the polished in about two months. That presumes, of course, that prices do not continue to drop.
In polished:
• Melees, 4-per-carat and 5-per-carat are doing well because they are 20 to 25 percent cheaper than in September 2008.
• Premiums on triple EX goods are vanishing.
• The 5 to 15 percent premiums on oversizes are gone as well.
Article from the Rapaport Magazine - February 2009. To subscribe click here.