Whose Onus is it to Save the Diamond Industry?

Lab grown diamonds

I have been asking many diamond industry leaders about the prospective threat of synthetic diamonds to the natural ones since last 7 years but most of them have failed to assess it. Now (not all of a sudden) when the global diamond industry has been facing crisis since a few years (with peak period at present) many of them blame the increasing circulation of the synthetics (as one of the reasons) for the present dire status of the industry.

The global diamond industry is battling poor demand of polished diamonds in key markets including the US, the Middle East, China, Hong Kong etc. High priced rough diamonds have squeezed the profit margins of traders. If we talk about the Indian industry, inventories choked with diamonds worth over Rs. 300,000 crore, financial insecurity prevailing in the industry due to many cases of defaults reaching Rs. 2,000 crore since November ’14, much narrowed bank finance, reduction in the credit period from 180 days to 60 days by the rough diamond dealers in Antwerp and the severe liquidity crisis are some of the factors leading to the present dismal status of the global industry.

Industry analyst Mr. Chaim Even-Zohar of Tacy Ltd. says, “It was a record amount when the global diamond industry spent USD 80 billion on diamond jewellery last year but the manufacturers are expecting to share profit of just USD 100 million in 2015. That is half last year’s total and down from $900 million in 2010. 300,000 Chinese and Indian workers have been laid off out of nearly 1 million employed in gem-cutting in these two countries, where most manufacturing is done.”

A report published in bbc.com says that mining companies Anglo American and Lonmin are cutting thousands of jobs as commodity prices fall. Sources from Anglo say the Company would cut 6,000 posts from office and other roles not directly related to production.

The Company, which has some 150,000 employees globally, said employee numbers would be reduced by 35% after the job-cuts, which would also be accompanied by asset sales. Anglo posted a pre-tax loss of $1.9bn for the six months to 30 June.

Industry sources in India say, “Rough diamond prices have swelled by 65% during last three years, while on the other hand, the polished diamond prices have either remained stagnant or reduced by 15 to 20%.”

It may be because of the same reason that about 65% of the rough were rejected by De Beers’ sightholders at the Company’s July 2015 sight. One of the sightholders said that even if De Beers offers the same goods at 5% reduced price, it will not be affordable to them.

What worsens the situation further is that the global diamond manufacturers and dealers are at mercy of just a handful of miners, which control most of the world’s diamond production. So they don’t have any choice but to pass on high costs further down the supply chain. No major diamond mine has been discovered during last two decades. The miners say they have to invest heavily to keep supplies coming. According to an estimate, production in 2013 was down by 26% since 2005. Now it has risen but very slightly.

Coming back to India, space booking date for the ambitious project of Surat Diamond Bourse (SDB) has been postponed for the third time in a row recently because of the prevailing ‘poor’ conditions over the industry. According to SDB Committee, some 12,000 players had shown interest a month ago to book an office space there but none of them turned up on the booking date last week to book a space, a Times of India report says.

So, it’s not the only issue of synthetics being mixed with the natural ones, there is a gamut of issues (mentioned above) which has ‘rotten’ the entire supply chain of the global diamond industry. Of course, doyens know well the worsening condition of the industry, but it would not be easy for a few leaders make it healthy again. The need of the hour today is that the global industry leaders should come together on a one common platform urgently to introduce some short as well as long term measures to address these issues, because it is not problem only of India, Israel, Belgium, Botswana or South Africa, it is a problem of the entire global diamond industry.

Posted by Suresh Chotai