(By Vasant Mehta): The most proper and simple word to describe the past seven odd weeks would be the word “different.”
The current experience is different from any upheavals that we have experienced at any time in our lives! There is a general sense of uncertainty in all of our lives. There is uncertainty, if not frustration, regarding the failure to find ways to overcome the virus. Both in our day-to-day social life and in managing our businesses, we remain somewhat in the dark. At the same time, governments around the globe are trying to find a balance between saving lives and saving the economy. But this does not prevent those same governments from planning for the future in the best interests of their citizens.
And what about our industry, the diamond, and diamond jewelry industry and trade?
Most of the stakeholders are in a ‘pause’ mode. Around the globe, and throughout the diamond supply pipeline, business activity has ground to a virtual halt. The demand for rough has dropped dramatically, manufacturing – in India and elsewhere – has mostly shut down, and polished sales were decimated.
But I do not think most of our industry members have been idle, because at times of crisis, one needs to look forward. In fact, this is the time to plan for the future!
During the past months, we have seen and heard a lot of well-regarded industry leaders and reputed industry analysts offering their insights and advice on what the future possibly may bring. Understandably, no-one has clear-cut solutions on how to cope with the current market situation.
Here are some examples of the comments that we hear now:
- “There is no need for rough in the manufacturing centers;”
- “There’s no point buying it or manufacturing it if you see the world is not going to buy it.”
- “The more this drags on, the more it becomes harder to sustain.”
- “There is an oversupply of polished diamonds in the market and pushing more diamonds into the market will lead to a decrease in prices.”
- “India needs to sell for a couple of months only from inventory.”
To do so, it may help to look back into the recent history of our trade and see how we coped when an economic crisis hit the supply pipeline – and affects all participants. Indeed, let’s look back at the most recent time when the resilience of the global diamond industry was put to the test: the economic crisis of 2008.
At that time, our industry faced a dramatic drop in sales of polished goods, companies were seeing their stocks of polished goods balloon, and manufacturers didn’t want to buy rough they could neither pay for, nor produce profitably, and increase bank debts.
At that time, the scenario was analyzed correctly by the leaders of the world’s largest manufacturing center that produces 90 percent of the world’s diamonds in volume – India. India’s role, by virtue of this volume and its stake in the industry, is that of the “caretaker of the industry.”
What was true in 2008, is also true today! With an inventory of polished worth more than $5 billion, and with its even broader jewelry manufacturing industry and a vast retail market, it is quite apparent that there is no need to produce, i.e., cut and polish, more goods, and to add to the already jammed pipeline.
In 2008, it was argued that the most important thing to be done was to increase confidence in diamonds and to assure price stability for polished diamonds. This was necessary not only to save our industry but also to arrest the free fall of prices – throughout the pipeline – which would have serious ripple effects globally. Hence the leadership of the Indian diamond industry decided to opt for “the tried and tested” – and the only – solution. It issued a call to “halt the imports of rough diamonds for a month.” That decision revived the global industry within months!
As you probably know, at this time, with the Covid-19 virus crisis still in full swing, the leadership of the Indian diamond industry subscribed to a similar policy and called for a moratorium on rough imports.
Unfortunately, a leading diamond producer – probably upset with the decision – reacted, hinting that alternative hubs for manufacturing that would gladly fill the void if India chose to scale back or halt rough imports.
Of course, neither the Indian diamond manufacturers nor any other manufacturers, for that matter, have intentions to hurt business of any stakeholders across the pipeline. But the fact is that currently, the midstream sector of the pipeline is left with near-zero margins.
Consequently, a search for alternative manufacturing hubs would be rather pointless.
Therefore, under the circumstances, it would make sense to either find another full-proof solution or to simply support the decision taken by the current caretakers of this section of the pipeline- if not of the entire industry.
Stay safe, stay healthy.
(The author is former chairman of IDMA, GJEPC)
(With thanks from IDMA Newsletter)