RAPAPORT… While much of the industry has been on holiday, a new
financial crisis has been revealing itself. This time, it’s not about subprime
investments or inflated property values but about something as basic as the
strength of two of the major global currencies — the euro and the dollar — and
the economies that are tied to them.
Opinions vary as to whether this currency instability will have a major
impact on the diamond trade.
Raymond Cohen of Kristall Smolensk Diamonds is among the optimistic industry participants. “I’m not
really worried. It’s very different than in 2008. It’s not about subprimes
anymore; it’s a speculative war on currencies and governments. As far as
consumption is concerned, I’ve not seen any weakening at all. On the contrary,
the demand we’re facing has been growing steadily since the beginning of the
year. All Kristall product has
been bought, which is a situation that we have never encountered in the past,
with our inventory sold even before it is sorted. The stock usually turns
between seven and eight times a year and right now, we’re almost at ten times.
The bigger and better stones are not to be found at the moment and my guess is
that investment funds are buying them. It would be in line with the fact that
at this stage, gold can’t be the only refuge value anymore. People are looking
for alternatives to gold.”
Overall Optimism
Generally, Cohen’s
comments reflect the common view in the industry. Globally, people expect things to be okay, since demand
for rough and polished exists and shows no signs that it is about to start
vanishing. Furthermore, the long-term impact of this most recent economic
crisis — and even its short-term effect — is still unconfirmed. Most players in
the diamond industry, in fact, have been reporting that business the past three
months has been “fantastic.”
Of course, not everyone is equally optimistic and the consequences are not always predictable.
Another Antwerp-based diamantaire, who preferred to remain anonymous, explained
that “Should this crisis confirm itself and take shape, there will be an impact
on our business, for sure. However, the question remains as to what’s going to
happen with the currencies. Inevitably, currencies go up and down but for how
long, and which currencies, is difficult or even impossible to assess. Assuming
the euro appreciates against the dollar, then it becomes attractive for people
from abroad to travel and buy in the U.S. In the same spirit, with a strong euro,
those who have some cash reserves in Europe might be inclined to buy more
diamonds, given that their relative prices, as expressed in dollars, would be
decreasing. Then again, the situation would deteriorate for the European export
industry, such as Italian jewelry, because their prices are expressed in euros
as well.”
How Rich Do You Feel?
“What matters here,” the diamantaire continued, “isn’t even
what’s real or not, but what people are feeling. If they feel poorer, then they
might be tempted to reduce their purchases. On the other hand, the more
uncertainty, the more attractive diamonds might look as investments.”
At the end of the day, this most recent economic crisis is
more a war of influence between Europe and the U.S. Contrary to what people see
at first glance, it may be the lowest-value currency that wins the game. That’s because while a lower-value currency
means higher debt cost, it also means a strategic
competitive gain. It’s a political game, of course, because currency moves can
also have a reversed impact from what might have been assumed in the first
place.
Fighting Famine
The United Nations has
declared a famine in the Horn of
Africa, where it’s been reported that
almost 13 million people are currently threatened with, if not already dying
of, starvation. The humanitarian problem is made even worse due to the ongoing
conflicts that are devastating the region. In response, the Antwerp World Diamond Centre (AWDC) initiated a series of actions to support the Belgian Consortium for
Emergency Relief, 1212. More information is available at www.1212.be.
Ari Epstein, AWDC’S chief
executive officer (CEO), commented: “Our organization wants to help the
people living in the Horn of Africa by raising money for the Consortium 1212.
To my mind, it is opportune that the diamond community shows that diamonds also
have a heart.” Consequently, the AWDC has
been inviting its members to increase
the amount on their invoices by 5 euros — about $7 — which the AWDC will then transfer directly to the
consortium’s fund. In addition, should the AWDC collect more than $3,500 from the
diamond sector by the end of September 2011, the AWDC will then contribute
another $3,500 in matching funds.
Caroline DeWolf, AWDC spokesperson,
confirmed that 1212 Belgium has already raised $4 million from Belgian
industry as a whole — and is still counting. “We hope that together we will
make a difference. Other countries have already reached nice amounts of money
to help Horn of Africa as well.”
The Marketplace
Polished:
- Round and princess cuts are selling very well in the H+, VS2+, 3-carats-minus range.
- Demand also is strong for K to P in the same quality and
weight range. This is probably the consequence of buyers downgrading because of
recent price increases. Buyers tend to hold on to a nice clarity and compromise
on the color.
Rough:
- Since buyers are
limited by the banks as to how much rough they can purchase, they look
twice before buying and want to physically
see the stones. This phenomenon has been reported even for the Diamond
Trading Company (DTC) boxes.
