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Antwerp Diamond Symposium 2009
Participants talk of recovery and a ‘new normal’ in the market
By: Diamond World News Service
Dec 15 2009 11:36AM
Reference: 4442  

Moderator Chaim Even-Zohar and the chairpeople of the industry workshops that were held November 15 to discuss the topics to be raised at the Antwerp Diamond Symposium.
Moderator Chaim Even-Zohar and the chairpeople of the industry workshops that were held November 15 to discuss the topics to be raised at the Antwerp Diamond Symposium.
Stability in the diamond market, concerns over sharply rising rough prices, praise for the policies of diamond miners and banks and a “new normal” in the global economy were the key messages conveyed by the speakers at the second Antwerp Diamond Symposium on November 16. The event was organised by the Antwerp World Diamond Centre (AWDC).

In his opening speech, AWDC CEO Freddy J Hanard said the diamond trade’s stakeholders came together last year, to discuss a strategy in times of financial insecurity. Thanks to the decisions taken during the first diamond symposium, new strategic lines came about. Antwerp is not only a trading place, but also a meeting place for diamond dialogue. He said another symposium was necessary because of the changing world conditions.

“The gravity of the issues facing us should not scare us,” Hanard said. “If we act proactively we will succeed. We have the destiny of the industry in our hands. Are we looking for answers, results and predictions? We will not solve all of the problems today, but we can get an insight into how we can go forward. I do not doubt that the different messages carried out through the symposium, will be put into practice in coming months.”

Sales to rebound moderately in retail

In 2010, said moderator Chaim Even-Zohar and economist Pranay Narvekar, the retail market would post a 0.4 percent rise. However, because of destocking in the pipeline that has taken place this year, the modest increase in retail sales will result in a 25 percent increase in polished sales in cutting centres to $17.1 billion. Recovery is underway, but it will be slow.

Meanwhile Pranay Narvekar said the banks had supported the diamond industry “admirably”, particularly during mid-2009, which had been a critical period. In addition, the financial stimulus packages of central banks throughout the world had helped shore up retails sales. He said that the level of diamond companies borrowing was down by around 30 percent, and estimated the global diamond sector’s indebtedness at $11.5 billion.

Describing the state of the diamond markets as being in stabilisation mode, Narvekar said 2010 would see a “new equilibrium.” While American retail sales would continue to decline, sales in emerging markets in India, China and Middle East rose. Unemployment in the US and continuing uncertainty would further affect demand.

There would be large rises in rough and polished demand next year, and a need for refinancing would be felt by the end of 2010 as growth begins and the industry falls short. “The banks will need to support the diamond industry, and we will need to make sensible business choices. However, will the banks want to pump in an extra $1.7 billion? The depreciation of the dollar will lead to an increase in the cost of doing business for all the large diamond centres. Debt-equity ratios will need to be kept in check.” Narvekar said.

The ‘new normal’

According to Even-Zohar, in the ‘new normal’ in the market, there would have to be corporate deleveraging with banks looking for better debt-equity ratios. In addition, the diamond industry had to understand that it was fighting with many other sectors for credit from banking institutions. The Basel II banking regulations, which, even before the financial crisis, were proposing more stringent financial conditions for bank clients, could soon be overtaken with a large range of new financial regulations. In addition, there was likely to be increased government intervention in financial and corporate affairs, while reputation issues are likely to become even more important.

Tim Dabson, DTC Executive Director for Beneficiation, also dealt with the new normal, speaking about market shifts caused by changing demographics, the growing strength of India and China, and the rise ethical consumerism. Pointing out that while between 1997 and 2007 in the US, the doubling of the number of Americans in 55+ age group and the development in the diamond market was encouraging; the percentage of younger consumers has steadily fallen. “Do we know the iPod generation? Will diamond industry be important to them? If not, how do we adapt to that.”

In the Indian and Chinese markets, although diamond jewellery sales are rising, the aspect of value for money is more important for their consumers and more important than the symbolism of love and commitment. The issue of ethical consumerism was a ‘subtle’ problem since different consumers saw the issue in different ways. “Business ethics and transparency, labour practices, environmental issues: people are affected by different issues when making diamond jewellery purchases, and we must not ignore this issue.”

Industry analyst Ken Gassman presented a different approach the new normal. He said jewellery sales in November – December this year would be slightly above those of the same period last year albeit well below the same months in 2006 and 2007. By 2011, they will have recovered. He also made a 10-year forecast for jewellery sales, seeing growth of 4 to 5 percent due to the bridal market, rising incomes, financial recovery and an expanding market. He also said that he did not entirely agree with Tim Dabson’s comments about the disinterest of the younger generation in buying jewellery. “I see that younger shoppers of all ages have cash to spend, and all ages want diamond jewellery. Younger people buy almost as much as the 34-year-olds. They like buying jewellery, but they may not be buying diamond jewellery.”

Sales and pricing strategies of the rough producers

General concern was expressed at the 30 percent increase in the price of rough diamonds that has been witnessed over the past six months, during a period in which no corresponding increase has been reported in the average price of polished diamonds. To maintain its recovery, symposium participants were warned, it is important not to create another price bubble. Chaim Pluczenik, managing director of Pluczenik Diamonds said that speculation in rough was on the rise and the shortage of rough in the market was having a clear impact on the prices. He also praised the banks, saying they did not reduce credit and were flexible in their approach to the diamond sector. He also said that there were many question marks surrounding the issue of tender goods. “Tenders do not allow manufacturers to have a steady supply of goods,” he commented.

Chris Ryder, Marketing Director of BHP Billiton denied that tenders were causing damage to the industry by leading to speculation as “Tenders simply reflect what is happening in the market.” He also said that his company had three criteria for its diamond sales: clarity, transparency and competition. He further added that BHP Billiton was “bullish” in the long term.

Alrosa Vice President Sergei Ulin earned the warm applause of the symposium audience when he declared that, despite the difficult economic circumstances, the Russian authorities did not intend to flood the market with rough diamonds in effort to turn a quick profit.

Patrick Coppens, marketing manager of Rio Tinto, said the firm was cautiously optimistic in the short term, but that the long-term fundamentals for the industry were strong. Rio Tinto Diamonds have restructured its marketing distribution system and removed five select diamantaires from their 25 customers as the company sees further declines in its production capacity. He also explained that the company was moving to a tender system, or a “mechanism that is driven by market dynamics,” for a small part of its production, while the main part will be provided to ensure a long-term supply for its clients.

Des Kilalea, RBC Capital Markets Equity Research Analyst, said companies did not have much incentive to explore for diamonds and the largest miners have cut back their exploration budgets. “Mining is a long term business. It takes a long time to get the product. We know that it can take seven years for a mine to start producing, and that enables us to know what the diamond situation looks like for the next seven years.” Anish Aggarwal, managing director of Gemdax, told the symposium that speculators are legitimate participants in the pipeline who have a direct influence on the market. As a result, Aggarwal called on the diamond sector to consider and control market speculation and finance as separate activities.

The Bankers’ view in the new economy

Dilip Mehta, CEO of the Rosy Blue Group, said that diamond firms appreciated the efforts of financial institutions to stick with their clients during one of the most difficult years the industry has ever know. The slump in demand has also called for responsible action by the banks involved in the diamond trade, and they have gained the gratitude of diamantaires by keeping credit lines open.

Victor van der Kwast, CEO International Diamond & Jewellery Group, said financial institutions are committed and remain committed to the diamond industry. He further said that while the availability of credit was not easy and banks had to make tough choices in choosing clients, it was important that new banks come into the diamond industry.

Meanwhile, Pierre de Bosscher, chairman of the Antwerp Diamond Bank (ADB), said access to lines were being kept open, and the ADB would continue to look for a balance between risk and reward. He also called for companies to show full transparency, to make every effort to promptly collect receivables, timely submission of financial statements, and higher solvency.

The rising importance of Corporate Social Responsibility

The concept of Corporate Social Responsibility (CSR) is about how businesses align their values and behaviour with the expectations and needs of stakeholders. CSR improves access to capital, sharpened decision-making, and reduced risk and costs. More than that, it boosts consumer confidence in the industry’s products.

At the symposium Dr. Gaetano Cavalieri, CIBJO president, described CSR as an industry doctrine in the new economy, and outlined the structure of the World Jewellery Confederation Education Foundation (WJCEF), which CIBJO has created in order to instil knowledge about CSR in the jewellery business. He also said a growing number of consumers were less likely to buy simply for the sake of spending money. Instead, they were looking for a purchase to make them feel good about themselves. Companies who are able to promote their products as ethically manufactured would be in a strong position to attract such shoppers.

A critical need for generic diamond marketing

After the withdrawal by De Beers as the sole financier of global diamond promotion, the International Diamond Board (IDB) had been established to find a joint platform for industry players to advertise and promote gems. Krisztina Kalman –Schueler, managing consultant at Gorham & Partners, said there was evidence that consumer spending is increasing, however, customers are still cautious about diamonds due to lack of advertising and confusion around value. A new and credible model was needed which could add value and set the right incentives along the entire pipeline with the final goal of increasing and protecting consumer demand. Diamond Category marketing is essential for healthy long-term demand and market share, especially post-recession. She said the role of category marketing was more than co-operative advertising. It needed to cover PR, digital marketing, market intelligence, industry reputation and other issues.

Need to act on the messages heard at the symposium

Concluding the symposium, AWDC CEO Hanard said, “The value of this symposium will not end when we leave this hall. As happened last year, the messages that go out to the global diamond industry from here will be heard and acted upon.”

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