DeBeers hails bottom has been hit
Email this article By Leia Michele Toovey- Exclusive to Diamond Investing News
The crisis in the diamond industry has hit bottom, and the industry can now look forward to growth, according to DeBeers managing director Gareth Penny. Mr. Penny relayed this message to a room full of diamond merchants, manufacturers, and leaders at the Diamond Town Hall Meeting on June 3rd.
The economic downturn hit the jewelry market particularly hard, as consumers across the globe abruptly tightened their purse strings. Even Warren Buffet proclaimed that his jewelry interests “just got killed” in the midst of the crisis. The ripple effect in the industry was wide spread due to the sectors prolific use of credit.
In America, over 1,000 jewelers went bankrupt; most of these held outstanding loans with banks and diamantaires. Even the giant companies were not immune. Luxury retailer Tiffany and Company Q4 2008 profits plunged by 75 per cent. The fourth quarter, due to the Christmas holiday, is typically the jewelry industry’s most profitable.
Speaking to the near 500 participants at the conference, Gareth Penny gave a presentation on the state of the industry, during which he stressed that “diamond inventories have fallen to levels which have justified increasing the mining production of the De Beers mines after it had been reduced by some 90 per cent in the first quarter of the year.”
The industry at this point, is bruised and battered, with those still holding on hoping for a swift recovery before they too collapse. Penny told the audience that he sees clear signs that a recovery is on its way. “The demand for De Beers rough diamonds is picking up”, he said. Apparently, applications for the next DTC sight were well above $700 million.
Penny presented the audience with a historical DTC rough price trend chart showing that after each of the last four major recessions in the United States in the 1970-2009 period, rough prices have steeply risen in the five years following the recession. Mr. Penny is convinced that retailers should have worked through their excess stocks and that the 2009 Christmas season will be better than that of 2008. “I think that it’s a pretty reasonable assumption from where we are sitting now,” said Penny cautiously, taking comfort from the rising US stock markets and the improved confidence indices.
Meanwhile, the JCK Vegas show ended with mixed reviews, with exhibitors who strategized to meet current demand trends emerging as the clear winners. Low expectations for the show were met; attendance was down from last year and the level of orders reflected the recessionary environment. The show was all about lower price points – the lower-color and quality goods did relatively well. Branded bridal goods also proved robust, particularly for designers who created lower-priced lines to enable retailers to buy more and spend less. The show proved difficult for high-end jewelry manufacturers who did not adjust pricing to reflect market demand. Similarly, sellers of larger, high-quality goods, had a difficult time.
Industry expert Martin Rapaport, from the Rapaport report, delivered an animated message to the audience. He took a stab at the amount of credit that the industry has survived off, and cautioned that change is necessary. He said the jewelry industry simply cannot sell to people on credit anymore, and that diamonds at all levels of the trade must be sold to “real” buyers who actually have the money to pay for them. “You need real people with real money,” he said. “We can’t memo our way out of the recession.” He called out the U.S. market specifically as being one that relies too heavily on credit to finance its jewelry trade. “People in the jewelry industry in the United States of America don’t seem to be willing to put their money on the line,” he said. He urged the industry to “just say no” to memo and encouraged dealers to sell diamonds for cash and simply avoid those who are not liquid enough to buy the stones.
Rapaport also remarked on where future demand for diamonds lies. Demand in the U.S. market “stinks,” while demand in India and China is “rocking and rolling”. Diamond jewelry sales are down 11 per cent in the United States, according to Rapaport, but up 3 per cent and 5 per cent in India and China, respectively.”The new game in town is China and India,” he said. Overall, Rapaport said he views the current recession not as a crisis but rather as a new reality. The diamond industry, he said, must learn to change with it–to figure out how to sell diamonds to a consumer whose mindset has shifted–or risk being left behind.
Tags: Debeers, diamond, diamond industry, diamond prices, dtc, economic downturn, investment diamonds, jewelry, jewelry industry, jewelry interests, jewelry market, mines, polished diamonds, price trend, rapaport, recession, recessions, recovery, rough, rough diamonds, rough price
June 10th, 2009 at 9:11 pm
With all respects and high regards for Mr. Gareth Penny, it can be concluded that there is more of an attempt from his side to instill vigor in the diamond sector, perhaps for company’s own business interest.
According to him, the crisis in the diamond industry has hit bottom, and the industry can now look forward to growth. Well, there can be no other happy information than this. It is also readily acceptable that diamond inventories have fallen to levels which have justified increasing the production activities at mining and polishing levels. No one can deny that equilibrium of demand and supply is essential to get the industry going without interruption.
But what is the solution if ‘Demand’ on the other hand, has drastically fallen to due to economic slowdown. Without analyzing this, how can one say that bottom is hit? Ignoring the problem is not a solution. It cannot be denied that the recession is always caused on account of a lack of ‘effective demand’. Real income (purchasing power) determines real consumption to the extent that income determines consumption. Marginal propensity to consume a particular product or service depends on the disposable money in the hands of consumers. These are such factors which if not taken into consideration, there will again be an unwanted situation of overproduction. Has the demand increased in the existing markets like US, Japan, Europe or what? It is also necessary to reevaluate if the demand for diamonds in the country like India or to some extent may be China, has really increased where the country’s economic growth is largely an export-lead growth? So, when the exports have taken a nose-dive due to economic break-down, how can one assume that these countries are the growing markets for a luxury product like diamonds.
“Confidence” is another extremely important factor. It is admitted that in America alone, 1000 jewelers have become bankrupt. Unemployment rate is constantly rising? Did the confidence come back at both B2B and B2C levels?
What is required at this stage is strong and selfless leadership to direct the industry with a wise economic planning. Concrete and sustainable growth can be obtained only if the future is designed admitting the mistakes of past. Wheels of industry must run in the interest of each and every segment from mines to market that equally deserves lasting growth. Greed of few should not become woes of millions. Time has witnessed the tragedy of polishers in India who are (were!!) the foundation stones of the industry.
June 26th, 2009 at 12:14 pm
Yes, Mr. Penny has a vested interest, but he’s also been around long enough to have been through several cycles. Of course he wants to be positive when he can, but probably not to the point where it might damage his reputation.