Antwerp Market Report

RAPAPORT… At this stage of the year, there’s only a short time remaining before the industry can conclusively say what kind of year 2009 was. Basically, if nothing changes drastically during the year-end holiday season, the answer will likely be: “Yes, 2009 was indeed a year of pain and sacrifice — a year dedicated not so much to making a living as to limiting the extent to which company capital eroded.”

Philip Lehrer, Antwerp diamond dealer, summarized that “Even though figures tend to suggest that things are not as catastrophic as they have been, the reality of the street is that, at all levels, businesses have been cutting back. By and large, nobody has enjoyed 2009.”

Raphaël Rubin of Rubin & Zonen is very conservative in assessing opportunities going forward. “It’s no secret that the U.S. demand is very, very weak,” he said. “People are quite optimistic regarding consumption in India and China, that’s for sure. But, in my opinion, it would be a mistake to be overly optimistic and expect an impossible miracle. Make no mistake, without the U.S. consumers, it’s not possible to rely solely on the Indian and Chinese consumers to sustain and compensate us for the loss our industry has been undergoing in America. I am a strong believer in the underlying strength of the U.S., but I’m not looking at it blindfolded.”

What about Europe?
Charlie Berkovic of Charles Berkovic, a diamond manufacturer, elaborated on how “The European market has been changing rapidly over the past 12 months. First, it’s important to acknowledge the fact that in spite of what many keep claiming — at least as far as the polished is concerned — Antwerp has become the gateway to Europe but not to the world anymore. Obviously, it still is the world center for rough diamonds. The reasons for the shifts are very simple. The big companies all have subsidiaries in the major diamond centers so buyers don’t need to spend the money to travel to Antwerp or anywhere else to buy polished. Furthermore, the international and local fairs have been organizing in such a way that, at the end of the day, it’s the diamantaires who go to the retailers, and no longer the other way around.

Who’s using memo?
“The second major change is a direct consequence of the economic crisis,” continued Berkovic. “Whereas memo programs were known for decades in the U.S., their use has been growing at a fast pace in Europe since September 2008. Today, the lower end of the European pipeline is buying only if they have an order. Basically, this means that nobody’s currently willing to increase his stock unless, of course, the goods are given on memo. It turns out that most diamantaires do play along since, eventually, it seems fair to say that for one stone out of every two, the memo converts into a sale.”

Rubin added that “Another aspect of the business that has been changing drastically is that cash is once more king. People have been reducing the payment delays and started asking for as big a down payment as possible. The tricky part is that those who still can count on bank credit are in a position to create interesting leverages since money right now is quite cheap.”

Axel Beck of Beck Diamonds dared to say out loud what many whisper. “After the crisis burst, the prices of rough plummeted to ridiculous levels in January and February 2009,” he said. “At that point, people with unlimited credit lines began once again playing the speculation game on rough diamonds. The inflationary spiral was building up once more — and the market followed. Inevitably, the industry reached a stage where it was not possible to escape the fact that prices of polished were not moving, and even demand was not showing signs of growth. Most people in the industry hope that eventually this kind of self-defeating pattern will come to an end.

“If you ask diamantaires, many of them are afraid that a certain number of bankruptcies will result if things go on like this,” admitted Beck. “Having said that, I don’t see why it wouldn’t be salutary for our industry to show, at last, a certain number of major speculators the door and let them leave the industry. Once and for all, bankers should hold the speculator on a leash and stop igniting these merciless and unrealistic rushes on rough. I believe some bankruptcies would benefit those in the industry who work in a healthy, realistic way, as opposed to hyperleveraged speculators who act without any regard to real demand.”

While things continue to evolve rapidly within the industry, it appears that the public is not yet ready to return demand to higher levels. The future remains uncertain — and nobody is yet willing to predict how the tumultuous year of 2009 will end.

The Marketplace
Polished

• 1 carat+, H down, VS+ are moving well across the board, typically in Indian and Chinese goods.
• 1 carat+, F+, VS1+ are more difficult to sell.
• The weakness of the U.S. dollar is encouraging hope for increased sales in the euro zone.