The ripple effect - How American economic struggles are spreading through the diamond industry

By Leia Michele Toovey- Exclusive to Diamond Investing News

Here at Diamond Investing News, we have been following how the financial crisis has been impacting the industry.  For a brief summary over the past few months, it was not until the end of September that dropping revenues became an issue with diamond industry participants.  This late issuance of a warning was due to the fact that as the economic crisis was spreading through mid- grade diamonds, sales of top quality gems, and the prices fetched for them were on the rise.  The industry was being buoyed by the purchases of the wealthy, an economic class that had yet to feel the “money pinch”. Unfortunately, under the surface a crisis was brewing- the smaller, mass produced diamonds that catered to the masses were sitting on shelves without buyers.  A handful of jewellery companies went bankrupt- leaving the miners and financiers who supported them out in the cold.

Fast forward to the end of October and Diamond Investing News reported that diamond trading activity had witnessed a recent drop-off as buyers face extreme uncertainty about the viability of current price levels. We had said that traders did expect the prices of gems to deteriorate in the coming months, but no one had any idea as to how much of a change to expect. At this time is seemed as though the current had shifted and the industry had finally acknowledged the crisis.

Last week, at the Middle East China diamond and jewellery summit, industry leaders were optimistic about the future of the diamond industry. The summit, started  last Sunday in Dubai, was organized by the Dubai Multi Commodities Centre (DMCC).  Speaking at the conference, Varda Shine, Managing Director, Diamond Trading Company, the marketing arm of DeBeers stated, “We cannot escape from the fact that these are tough times for the world. But it is in such times that you find out what you are made of – and nothing is made of tougher, more enduring value than a diamond. It is clear that, in the coming years, markets across the Middle East, China, Hong Kong and the rest of Asia will play an immensely important role in ensuring that this industry continues to witness sustained growth.”

Over 800 leading international traders and retailers from the diamond industry gathered to discuss opportunities available in emerging markets such as the Middle East, China and Hong Kong. It is these markets that the industry is leaning on to prop up the demand of the coming months.  Whether or not they can be relied on is anyone’s guess; however these countries have been witnessing their own economic slowdown, with China mirroring the U.S. in issuing a government bailout last week. Across the globe, the value of company’s stock has dropped, as well as the value of commodities.  Does the diamond industry really think its immune is the question. I still remember when the globe was confident that the U.S. recession would remain the problem of America.  But the fact is, when you have such an economic powerhouse suffering- it is hard for those effects to not spread.  We all know the analogy that if you throw a rock into a pond, the ripples permeate throughout. I would liken the U.S. recession to throwing a boulder into a pond.

The leaders participating in the conference did acknowledge that the price of rough diamonds have tumbled in reaction to the financial crisis. However, many consider it a technical correction that was overdue after prices skyrocketed over the past months.

Diamond prices may become easier to track. Polished Prices is responding to worldwide calls in the diamond industry to make its diamond prices available free of charge for use by the trade.  For a three-month trial period, Polished Prices will make available diamond prices with a multiple sourced price list.  This price list will be a direct copy of the data received from the industry. Polished Prices does not correct or ‘smooth’ diamond prices but merely reports the data that it has received. None of Polished Prices members buy or sell diamonds as a matter of principle; Polished Prices welcomes data from any bonafide company. The more companies that contribute to the diamond price list the more accurate reflection Polished Prices can provide.

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