Diamond industry warns of drastic change
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PrintBy Leia Michele Toovey- Exclusive to Diamond Investing News
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Traders, cutters, and retailers are all warning that the diamond business’ struggles will cause a restructuring of the entire industry. Diamond expert Martin Rapaport says top-end demand from the rich and super-rich has dried up completely and only smaller gems for engagement rings are keeping the market alive. The sector’s debt is a “clear red flag,” bearable with current low interest rates, but not if they creep high. One broker said that trade is at one tenth of the usual levels.
The lack of equity world-wide is especially nerve wracking for the diamond industry. The diamond business is centered on debt, even when times are good. Due to the high value of even a small amount of diamonds, large loans are taken out to front the costs. Normally, handsome profits are made when the goods are sold, and then the loans are easily paid back. Now, this is not the case. Not only is a lack of demand preventing sales, plunging prices have left many companies uncomfortably overdrawn. The global industry’s debt peaked at $14-$15 billion in mid-2008 according to banks and industry groups. Cut and rough prices have fallen by around 15 and 50 per cent respectively from mid-2008 peaks so anyone holding diamonds as prices collapsed is facing problems.
Many will not be able to last much longer. “The market will be smaller and debt will have to fall,” said Victor van der Kwast, international diamond and jewelry group head at ABN AMRO, one of the main names in the business. He said a 30-40 per cent market contraction was possible. RBC Capital Markets analysts Des Kilalea and Patrick Morton said in a report last week that De Beers’ sales for the first two months of this year were about $200 million, well below the $1 billion recorded in the first two sights of last year. Industry website Polished Prices, which publishes a daily and weekly index of prices for diamonds between 0.3 and three carats, said in its latest weekly update the index was 13.2 per cent lower than a year ago and had slid 5.5 per cent since the beginning of this year.
Consumers now need convincing to buy a diamond. Many say business is at its worst at least since the early 1980s when a speculative bubble burst, prompting a wave of bankruptcies. However, the current situation is worse when you add the global panic facing consumers. Consumers are simply not buying anything, especially diamonds. In the United States, some 80 per cent of the working population is worried about losing their jobs. This concern has forced them to snap shut their purse strings.
An unprecedented joint effort is underway to coax consumers to open their wallets. Producers De Beers, Russia’s Alrosa, Rio Tinto, BHP Billiton and Harry Winston Diamond Corp have come together to discuss plans for a joint marketing effort. De Beers used to foot the bill for generic advertising: “A Diamond is forever” was its most memorable slogan. The new message to encourage purchases is going to be “Fewer, better things.”
Meanwhile, the central bank in India, the Reserve Bank of India is lending a hand to diamond industry participants. The task force’s recommendation on lending against the stock of polished diamonds held by units in their inventory was one of the major demands of the Surat diamond industry that has rekindled hope among the diamantaires, especially small and medium manufacturers. Sources said that in addition to helping the business, the task force has also laid special emphasis on measures to assist around 413,000 skilled diamond workers. As per the official figures by the state government’s department of labor, around 1,232 units out of the total 2,500 have downed their shutters in Surat, leaving around 200,000 diamond workers jobless in the past six months.
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March 10th, 2009 at 9:09 pm
Recently, a pink coloured diamond weighing 0.70ct was submitted to DCLA laboratory for certification and colour authentication. The colour was described as 3 PP on a diamond report issued by another Australian-based laboratory.
After routine examination however, DCLA discovered that when the diamond is viewed under high magnification with reflected diffused light, a patchy iridescent coating is visible on the surface. This coating is also easily visible on the pavilion facets of the diamond when viewed through the table. However, when the diamond is observed under magnification with regular diffused light, the pink coloration appears evenly distributed, particularly when viewed face up.
The pink colour is the result of a coating rather than from natural lattice defects in natural pink diamonds. Surface coating is the process of adding a thin layer of coloured foreign material to all or part of a gemstone’s surface, with the intent of either masking the underlying body colour or enhancing a desirable colour. Most often, this coating is applied to the pavilion and/or girdle of the diamond; the way that light refracts as it passes through a diamond creates the illusion of uniform colour distribution.
The durability of diamond coatings vary considerably, depending on materials used and methods of coating applied. Most recent advances in technology employ a very thin optical or chemical film which is more durable than older methods, but still readily worn away by heat, scratching, abrasion, polishing, and just everyday wear.
Coating is a deceptive practice; we do not know the number of coated pink diamonds which have entered the marketplace, but the DCLA has seen a number of treated stones of late. Of particular concern is when such treated diamonds are accompanied by seemingly legitimate reports or paperwork.
DCLA screens every diamond submitted to the laboratory for all known treatments, and will not issue a diamond certificate for treated or synthetic diamonds.
March 12th, 2009 at 8:17 am
diamonds are worthless.