Diamond Industry

Diamond Industry

The diamond industry is facing challenges and they are numerous for the upcoming year.  The inaugural World Diamond Conference took place in New Delhi, India.  Over a two-day period in December diamond industry leaders focused on the most pressing challenges facing the diamond industry.  With a focus on the closing of the 2014 quarter.  Delegates urged the diamond industry to improve its financial transparency.  Moreover, the intention to improve practices to become more credit worthy.  And to invest in marketing to boost consumers desire for diamonds.  The intention being that the diamond trade will continue to be profitable.  Thus ensuring sustainable growth.  Organized by the World Diamond Mark Foundation (WDMF) and India's Gem and Jewelry Export Promotion Council (GJEPC).  The conference concluded that the manufacturing and trading sectors have struggled to maintain respectable profit margins throughout 2014. The conference message was driven home in December as polished diamond prices fell, further squeezing manufacturers already tight profit margins.  The RapNet Diamond Index for 1 carat laboratory graded diamonds decreased 1.3 percent during December 1st-27th.  Polished prices were under pressure, with sellers reducing prices to raise cash as liquidity continued to dry up.  The lack of capital in the market also came under scrutiny in New Delhi.  Delegates stressed that the trade needs to spread the debt burden of the industry beyond manufacturers.  Including dealers, wholesalers, and retailers.

Credit in the Diamond Industry

As diamond industry challenges increase, many are looking for credit. Erik Jens, chief executive officer of ABN AMRO Bank's Diamond and Jewelry Group, questioned whether polished suppliers can request better payment terms.  Additionally,  he mentioned that from retailers if goods sent on memo are still feasible in the long-term.  Suggesting cash payment up front for rough is the only solution.  Furthermore, Jens added that changing such practices would improve the "bankability" of manufacturing diamonds on the market.  As well as its reputation with lenders.  He questioned whether memo is still a viable option for dealers in the long-term.  Suggesting cash payment up front for rough is the only solution.

Reducing Inventory

Reducing inventory and making sure that all business transactions value will also be essential to prove the industry's reliability is essential.  Howard Davies, head of commercial development at DeBeers mentions.  The banks have no choice but to insist on these measures, given their own compliance requirements.  These rules are outlined by new regulations such as the Basal Accords.  Davies explained that DeBeers is insisting on financial compliance from site holders as it negotiates new long-term site contracts that will take effect in 2015.  He stressed that the diamond industry needs to "normalize" its reporting practices.  And also, move away from the unique trust afforded in an industry where deals conclude with a handshake and the greeting "mazal." These rules are outlined by new regulations such as the Basal Accords.  Davies explained that DeBeers is insisting on financial compliance from site holders as it negotiates new long-term site contracts that will take effect in 2015.  He stressed that the diamond industry needs to "normalize" its reporting practices and move away from the unique trust afforded in an industry where deals conclude with a handshake and the greeting "mazal."

Diamond Industry facing Challenges

The diamond industry challenges also face weak sentiment.  While few dealers argued against that point, manufacturers countered that there not only being squeezed by reduced bank credit. Rather that rough prices remain high in a declining polished market.  DeBeers maintained relatively stable prices at the December site, which closed with an estimated value of $600 million.  Rapaport estimates that DeBeers rough sales rose 14% to more than $6.5 billion in 2014, boosted by price appreciation and a stronger than usual second half of the year.  Anglo American reported that diamond prices rose about 7% during the year to November 28, based on the beers rough rice index. Prices on the secondary market were about 4 percent for 2014 according to Rapaport estimates.  Prices declined in the final months of the year, including in December.  Overall rough trading on the secondary market was slow.  Almost all boxes were available at a loss and on generous credit terms.  Additionally, a significant number of boxes were remain unsold.

De Beers and Forevermark

The diamond industry challenges also come from the domestic market.  The diamond industry recognized in New Delhi that it needs to invest in marketing to capitalize on its growth potential.  Alex Popov, chairman of the WDMF, stressed that diamonds have fallen behind.  Leather goods, travel and elective health procedures, and will soon be surpassed by electronic goods, in a ranking of the most desired luxury products.  Stephen Lussier, CEO of DeBeers Forevermark, adding that the diamond industry is not investing as much as competing industries.  With regards to marketing and as a result is losing market share.  He noted, however, that overall industrywide investment in marketing has actually not decreased.  He notes, when the dollars spent on DeBeers shift to brand focused marketing and advertising they take major jewelers into consideration. Popov explained that the goal of the World Diamond Mark which launched in Turkey and Dubai, is to restore diamonds to the top of the most desired list of luxury products, and accomplishment that will hopefully benefit all segments of the pipeline.  Through its generic marketing program, the WDM hopes to be the guardian of the idea that the diamond itself is a brand.  As an initiative of the World Federation of Diamonds Bourses, Popv noted that the campaign is drives trade rather than the mining companies or retailers.  The hope is that approach will enable manufacturers and dealers to reap the benefits of the initiative and that it will ultimately translate to better profit margins.  Indeed, if the message on the conference was received, the industry will renew its focus on raising consumer demand for diamond and improving his own creditworthiness in 2015.   http://www.debeers.com/ http://en.wikipedia.org/wiki/World_Diamond_Congress http://www.jckonline.com/diamond-news