The global diamond trade is bracing for a slowdown due to the on-going worldwide credit crunch, with diamond cutting centres and merchants around the world expecting sharp declines in business even in the normally buoyant Christmas season.
People in the diamond industry say signs of a slowdown are already visible in the global diamond industry. Youri Stevenrlynck, Chief Executive Officer, Dubai Diamond Exchange (DDE), said: "During any financial turmoil investors resort to parking their money in gold as a safe haven. While gold prices have gone up substantially, the same perception does not prevail in the diamond market. Diamond sales are down in the US, the largest diamond market in the world."
According to him, diamond merchants, traders and exchanges all over the world are cautiously watching the financial turmoil.
"All eyes are on the year-end diamond sales. A large chunk of the total annual diamond sales figure is formed by the last quarter sales. The current financial crisis may cause a decline in the annual diamond sales," Stevenrlynck said, adding that even 9/11 failed to dampen diamond sales as much as the present situation is expected to do.
"After 9/11, everybody thought annual diamond sales would come down. However, diamond consumption was not affected. So far diamond sales in Dubai are not affected but if the US sales come down, the cutting centres in India will feel the impact."
It is a tense period for diamond merchants and companies, who have offices and shops in the US, Antwerp and India. During critical times and high inflation, only some big investors may buy big carat diamonds as an alternative investment. Unlike large-scale gold purchases as a safe haven, diamonds are not popular among retail investors for the same purpose. Investing in big diamonds is also limited by the liquidity factor, which is running very low at present.
ABN Amro, a leading financier of the diamond trade, was acquired by a consortium of Fortis, RBS and Santander in October 2007. In the first week of October this year, the Dutch government purchased Fortis' stake in ABN Amro, which included ABN Amro Netherlands, the International Diamond and Jewellery Group and ABN Amro Private Banking Belgium. Fortis and RBS are reportedly victims of the financial crisis. ABN Amro has been closely related to the global diamond and jewellery industry for about a century.
"The financial crisis has not affected the local banks operating in the DDE," Stevenrlynck said.
The exchange, an emerging hub for diamond trade, had recently recorded remarkable growth in the diamond business due to high oil price that created ample liquidity in the region. But diamond traders are keenly watching the oil price movements. Stevenrlynck said the assurance given by the UAE government about the safety of bank deposits will boost investor confidence in the UAE banking system.
Rajesh Rathod, Manager, Arpee Gems DMCC, exporter and importer of loose diamonds, said. "The diamond trade is in turmoil because nobody knows what will happen tomorrow. Consumers who want to buy diamonds are waiting for prices to come down because they see prices of other commodities such as gold and oil coming down. In the case of diamonds, raw material costs cannot come down and therefore there cannot be a fall in prices."
According to Rathod, many diamond firms in the UAE and India have offices in the USA where the Christmas diamond sales generate the maximum business for small polished diamonds. In an atmosphere of economic recession and growing unemployment, spending on luxury products is the first thing to be slashed by consumers.
Sajith Kumar, Vice President, JRG Commodities, said that unlike gold, which investors consider a safe haven during crises, diamonds are not actively traded commodities. "Due to differences in standardisation, diamonds are not actively traded in the UAE or other commodity markets."
In India, a major manufacturing centre of the diamond and jewellery industry, diamond workers in Surat, Ahmedabad and other cutting centres went on strike recently demanding wage hikes to compensate for high inflation, which was agreed upon by their employers. Also, share prices of jewellery and diamond companies listed on the Bombay Stock Exchange fell sharply. Indian diamond exporters who have taken dollar loans now have a tough time because of the rupee's rapid depreciation.
An industry source said: "About 50 per cent of the world's polished diamond sales is in the US market. The volume of jewellery and diamond exports from the export units in Jaipur, Rajasthan, is down by almost 50 per cent because of the global recession. The volume may come down further if the problems continue. Indian diamond cutting units, which expanded capacity in anticipation of a big growth in US market, have started cutting down expenses by retrenching excess staff."
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