By Leia Michele Toovey- Exclusive to Diamond Investing News ^[1]

^[2]The crisis in the diamond industry has hit bottom, and the industry can now look forward to growth, according to DeBeers ^[3] 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 3^rd.

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 ^[4] 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 ^[5] 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.