A detailed summary of the 2009 antwerp diamond symposium
Stability in the diamond market, concerns over sharply rising rough prices, praise for the policies of diamond miners and banks and a “new normal” in the global economy were the main themes of the second Antwerp Diamond Symposium held on November 16. Although the mood of participants at the event, organised by the Antwerp World Diamond Centre (AWDC), was far calmer than at the first-ever symposium held last November when the global financial crisis was at its height, diamantaires nevertheless stressed that a full recovery was still some way off.
The symposium was opened by AWDC CEO Freddy J. Hanard who said the diamond trade’s stakeholders came together last year, to discuss a strategy in times of financial insecurity. Thanks to the decisions taken during the first diamond symposium, new strategic business models and practices had been developed. Despite a calmer mood in global markets, the 2009 symposium had been necessary due to changing world conditions which called for the diamond industry to come together to debate current developments. As the world’s largest diamond trading centre, Antwerp was the ideal meeting place for dialogue, he said.
“Many of you were here last year when we held the first symposium in an atmosphere of financial uncertainty. The symposium gave us all the opportunity to explore issues affecting us all and we made a great deal of progress. In the last year, the key stakeholders have come together and shown collective responsibility. This was satisfying for us at the AWDC because facilitating dialogue is an important part of our work. We have navigated through the challenges and we are stronger now.
“We are stronger now, so the question is: Do we need another symposium? The answer is yes because we are living in a changing world and we need to come together to understand the changes. Strategies and practices of businesses throughout the pipeline have changed. Mining companies have not been immune to the changes and have rethought their sales strategies,” Hanard stated.
“The gravity of the issues facing us should not scare us,” Hanard said. "If we act proactively we will succeed. We have the destiny of the industry in our hands. Are we looking for answers, results and predictions? We will not solve all of the problems today, but we can get an insight into how we can go forward. I do not doubt that the different messages carried out through this symposium, will be put into practice in coming months.”
Hanard was followed by Cathy Berx, Governor of the Province of Antwerp who revisited some of the comments she made at the 2008 symposium to illustrate the fact that Antwerp’s long history as a diamond trading centre should give diamantaires confidence about the future. Berx spoke about the massive government stimulus plans that have saved the global economy from sinking into a 1930s style Great Depression.
“During the decade leading up to the collapse of the markets in September last year, the dominant or dominating philosophy – depending on where you stand – was that government’s primary role was to ensure that business be allowed to do what it knows best, undisturbed. Today, with the benefit of hindsight, we realise this was an approach that was perhaps followed too zealously. More careful oversight in the financial markets, coupled with better managed checks and balances, may have helped the world economy avoid the crisis. As it was, the financial system was saved from the brink of disaster by massive injections of government capital. By staying away, government ironically found itself more involved in the markets than it ever had intended.”
Berx said it was “reasonable to expect” a recovery in the diamond markets during 2010, possibly beginning with the 2009 Christmas season. But she warned that it was generally accepted that the recovery would be slow. “Here in Antwerp we have seen that across the board, and not only in the diamond sector. Container traffic at the Port of Antwerp fell by 18.4 percent during the first nine months of the year, compared to the same period in 2008. However, it did appear to stabilise during the third quarter of the year.”
She warned diamantaires that governments agree there was an urgent need for new regulations on the financial community, but the process in bringing this about was proving slow due to the need for consistently applied financial regulation across the globe. “With the talk of new regulation, the banks clearly understand that they soon will be facing higher capital requirements. But by how much? It is difficult to say. As long as the banks don’t know the rules of the game, says [economist] Kenneth Rogoff, they will continue to be cautious in their credit policies. And that puts a drag on trade.”
Sales to rebound in 2010, but only moderately at retail
Symposium moderator Chaim Even-Zohar and economist Pranay Narvekar provided detailed statistics on sale figures throughout the diamond pipeline in the last two years and a forecast for 2010. However, Even-Zohar began with asking whether anyone would have believed in November 2008 that the industry would be in a relatively strong position just a year later.
“There are no more insolvencies, the main producers cut back sales to the market and received strong shareholder support for doing so,” Even-Zohar stated. The steep fall in prices was contained and the trend is up again, and manufacturers and cutters brought in $1 billion of equity to strengthen their positions. The diamond industry managed without large government bailouts. India had the courage to reduce costs and worker numbers some of whom were rehired when the situation turned around. There was successful and orderly debt reduction without distress sales.”
However, most polished diamond prices are below those of January 2008, and there is still a mismatch between rough and polished. Confidence is still very low, and consumer confidence is lower than that of business confidence. Consumers are still not really back yet, he said. The industry is in a stability phase and not fully out of the crisis yet.
Presenting figures for the performance of the diamond business, he said retail diamond demand in 2008 was down 9 percent on 2007. He forecast that the 2009 figure would be down 9.7 percent on 2008, while in 2010 there would be a slight rise of 0.4 percent on 2009.
As for the cutting centres, polished demand in 2008 was $18.8 billion, but in 2009 would fall 27 percent to $13.7 billion, however it would rise by 25 percent next year to $17.1 billion. In the rough market, while sales amounted to $13.4 billion in 2008, they would drop to $7.5 billion this year and rise to $12.5 billion in 2010.
Meanwhile, Pranay Narvekar said the banks had supported the diamond industry “admirably,” particularly during mid-2009 which had been a critical period. In addition, the financial stimulus packages of central banks throughout the world had helped shore up retail sales. He said that the level of diamond companies borrowing was down by around 30 percent, and estimated the global diamond sector’s indebtedness at $11.5 billion.
He described the state of the diamond markets as being in stabilisation mode, and said that 2010 would see a “new equilibrium.” He said that new markets, including India, China and the Middle East, would emerge “as against the power of the United States.” American retail sales would continue to decline while emerging market sales rose. Unemployment in the United States and continuing uncertainty would further affect demand.
There would be large rises in rough and polished demand next year, and a need for refinancing would be felt by the end of 2010 as growth begins and the industry falls short. “The banks will need to support the diamond industry, and we will need to make sensible business choices. But will the banks want to pump in an extra $1.7 billion? The depreciation of the dollar will lead to an increase in the cost of doing business for all the large diamond centres. Debt-equity ratios will need to be kept in check,” Narvekar said.
Considering the ‘new normal’
Even-Zohar then explained what he meant by the “new normal” in the market. There would have to be corporate deleveraging with banks looking for better debt-equity ratios. In addition, the diamond industry had to understand that it was fighting with many other sectors for credit from banking institutions. The Basel II banking regulations which, even before the financial crisis, were proposing more stringent financial conditions for bank clients could soon be overtaken with a large range of new financial regulations. In addition, there was likely to be increased government intervention in financial and corporate affairs, while reputational issues were likely to become even more important.
Even-Zohar raised the issue as to whether more “recycled” diamonds were likely to come on the market, saying that the recycling of even a small part of existing diamonds was likely to have a significant effect on the market. He gave the example of the gold market where recycled gold this year was equal to 60 percent of new mine production. “There is hard evidence to suggest that considerable recycling has already taken place, although it is difficult to state how much exactly.”
Tim Dabson, DTC Executive Director for Beneficiation, also dealt with the new normal, speaking about market shifts caused by changing demographics, the growing strength of India and China, and the rise ethical consumerism. In the United States, between 1997-2007, the number of Americans in 55+ age group almost doubled, and since that is an age group who know and like diamonds, the development was encouraging. On the other hand, the percentage of younger consumers has steadily fallen. “Do we know the iPod generation? Will diamond jewellery be important to them? If not, how do we adapt to that.”
In the Indian and Chinese markets, although diamond jewellery sales are rising, the aspect of value for money is more than twice as important for their consumers as it is for their counterparts in the United States, and more important than the symbolism of love and commitment. Meanwhile, the issue of ethical consumerism was a “subtle” problem since different consumers saw the issue in different ways. “Business ethics and transparency, labour practices, environmental issues: people are affected by different issues when making diamond jewellery purchases, and we must not ignore this issue.”
In an energetic address towards the end of the symposium which left the audience in an upbeat mood, industry analyst Ken Gassman presented a different approach the new normal. “Is the jewellery business going out of business,” he rhetorically asked, replying that humans having been making and wearing jewellery for 50,000 years. “The crisis of the past year is not going to derail the jewellery industry. Will consumers stop shopping? Definitely, the answer is ‘no’. The number of jewellery sales has been rising since December 2008.”
He said the problems affecting the industry are well-known: a lack of credit, falling demand, and conspicuous jewellery consumption going out of fashion due to the depth of the recession in the United States. On the other hand, however, the economy is recovering, there are more people in shopping malls, jewellers are seeing higher conversion rates, and the bridal jewellery sector remains strong. “Are people delaying weddings because of the recession? The answer is ‘No’.”
Gassman said jewellery sales in November-December this year will be slightly above those of the same period last year albeit well below the same months in 2006 and 2007. By 2011, they will have recovered. He also made a 10-year forecast for jewellery sales, seeing growth of 4-5 percent due to the bridal market, rising incomes, financial recovery and an expanding market.
He also pointed to the phenomenon of female self-purchasing as a reason for optimism. “There are more young women working, and the gap between men’s and women’s salaries is closing, particularly women in the 25-30 age group,” Gassman said. “By 2050, there will be 60 million more women in the U.S. market. They want lower price points, fashion-oriented jewellery and they want flash for cash.”
Gassman also said that he did not entirely agree with Tim Dabson’s comments about the younger generation not being interested in jewellery purchases. “I see that younger shoppers of all ages have cash to spend, and all ages want diamond jewellery. Younger people buy almost as much as the 25-34-year-olds. They like buying jewellery, but they may not be buying diamond jewellery.”
Sales and pricing strategies of the rough producers
Chaim Pluczenik, managing director of Pluczenik Diamonds, who headed the workshop on rough supply the day before the symposium, reported that speculation in rough was on the rise. The shortage of rough in the market was also having a clear impact on prices.
“It is asked what are the reasons for the lack of rough,” Pluczenik told the symposium. “The consensus is that in the first quarter of this year the supply of rough to the market dropped sharply. Manufacturers are asked to buy only what they need in order to prevent rough prices from rising sharply.” He also said that there were many question marks surrounding the issue of tender goods. “Tenders do not allow manufacturers to have a steady supply of goods,” he commented.
“We can see the end of the tunnel, but we are not there yet,” Pluczenik said. “We must be careful in our practices. We should thank the producers for their action in reducing the supply of rough to the market. Due to them, we managed to come out of recession much faster than other industries.” He also had priase for the banks, saying they did not reduce credit and were flexible in their approach to the diamond sector. “Without them, we would not be where we are today.”
Chris Ryder, Marketing Director of BHP Billiton, denied that tenders were causing damage to the industry by leading to speculation. "Tenders simply reflect what is happening in the market. At BHP Billiton, we do not think that we are smarter than the market, we follow it. We do not believe we can outperform the market, and we aim for a win-win situation for us and out customers. We are pleased with the level of acceptance by our clients with the system we use. We aim to follow the market and realised that we cannot outperform it, so we try to work according to the spot price of the day, every day.”
Ryder said BHP Billiton had three criteria for its diamond sales: clarity, transparency and competition. “We are clear about what we are doing, and customers appreciate that. We believe that transparency helps the whole market. We also want customers to make money due to their core competencies, not because of being able to buy cheaper diamonds,” he said, adding that BHP Billiton was “bullish” in the long term.
Since Russian diamond firm Alrosa, which accounts for about a quarter of annual global output, was the only producer not to cut back production this year, the symposium was keen to hear the views of company vice-president Sergei Ulin. Saying it was too early to speak of a recovery in the market, Ulin said the past year had shown how it was possible for the industry to come together and act collectively. “Reducing output [to the market] was supported by Alrosa even though it meant substantial losses for the company,” Ulin said. "Alrosa output was not reduced in the first half of this year, but we did not sell diamonds [commercially] either.
Ulin had good news for the symposium, which was warmly received, when he said that the miner did not have any plans to dump rough goods on the market. “Rumours that [state minerals depository] Gokhran will flood the market with goods are simply not true,” Ulin said. “The company will approach its inventory in a responsible manner. This is not the time to rush for a quick profit.”
Ulin said that by mid-2009, Alrosa’s debt had risen to more than $5 billion, and the firm aimed to cut it to $3.8 billion by the end of this year by selling off non-core assets, increasing income and cutting employee numbers.
Patrick Coppens, marketing manager of Rio Tinto, said the firm had been very careful with its sales policy since the start of the year, and had identified an improvement in the market since April. The rising rough prices were due to a lack of goods. He said the firm was cautiously optimistic in the short-term, but that the long-term fundamentals for the industry were strong.
Rio Tinto Diamonds has restructured its marketing distribution system and removed five select diamantaires and now has 20 customers, as the company see further declines in its production capacity. Coppens did not elaborate on the names of the five diamantaires. “We have cut our long-term customer base from 25 to 20 companies due to the fact that our production has fallen and will continue to change in the near future. Coppens explained that Rio Tinto is moving to a tender system, or a “mechanism that is driven by market dynamics,” for a small part of its production, while the main part will be provided to ensure a long-term supply for its clients.
Des Kilalea, RBC Capital Markets Equity Research Analyst, spoke about the issues affecting mining and why it took so long for diamonds to come on stream. He said companies did not have much incentive to explore for diamonds, and the largest miners have cut back their exploration budgets. "Mining is a long-term business, it takes a long time to get the product, and we know that it can take seven years for a mine to start producing, and that enables us to know what the diamond situation looks like for the next seven years.
Anish Aggarwal, managing director of Gemdax, told the symposium that there were three factors that had an impact on rough demand: normal diamond sales through the pipeline, industry financing and market speculation. Aggarwal pointed out that speculators are legitimate participants in the pipeline who have a direct influence on the market. As a result, Aggarwal called on the diamond sector to consider and control market speculation and finance as separate activities.
The importance of the Belgian market overseas
A key speech to the symposium was delivered by Thomas Leysen, chairman of the Belgian Federation of Enterprises. He said that unsustainable growth had come crashing down in the financial crisis last year.
“A return to sustainable growth means the world must address some of the fundamental imbalances,” Leysen said. “The U.S. must continue to deleverage, and rebalancing must take place meaning China has to consume more.”
Leysen said that global financial mechanisms, such as the G8, had to more accurately reflect the new economic balance of power in the world, and this would likely change in the coming decade
He provided the perspective of a business leader from outside the diamond sector. “During my travels abroad as part of state delegations, we see that the diamond industry provides Belgium with both glamour and importance,” he said. “It is a calling card for our country and its image. Antwerp has weathered the crisis well, in part through the diversification of markets. The results will take time to come to fruition, but it is heartening to see that the process has started.”
But he said the diamond industry in Belgium has operated independently of the rest of the business sector. "I feel that the diamond sector has been seeking more interaction with the rest of business in Belgium, and we, in the Belgian Federation of Enterprises, are ready and prepared to help you with contact with the government, authorities and civil service.
On the issue of Corporate Social Responsibility (CSR), Leysen said the diamond industry must “stay one step ahead of public opinion” and had to continue to fight to maintain its reputation. "Formulating CSR policies is an important step, and I have been impressed with the seriousness with which the industry has addressed the issue.
The bankers’ view in the new economy
Dilip Mehta, CEO of the Rosy Blue Group, who headed the workshop on financial issues, reported that diamond firms appreciated the efforts of financial institutions to stick with their clients during one of the most difficult years the industry has ever known. As with the diamond producers, the slump in demand had also called for responsible action by the banks involved in the diamond trade, and they had gained the gratitude of diamantaires by keeping credit lines open. Although the banks had also pressed diamond firms to take tough action, they nonetheless showed a great deal of understanding of the requirements of the sector.
Victor van der Kwast, CEO International Diamond & Jewelry Group, spoke on the theme of ‘The Diamond Industry in the New Economy’. He said the choice for the diamond trade was to sink, float or swim, and called for sustainable recovery with smart and responsible behaviour. He said that without the responsible behaviour of the financial institutions and the producers, there would have been a “massacre” among diamond firms. “We are committed and remain committed to the diamond industry.”
He said it was still too early to say if a recovery was underway. The availability of credit was not easy, and banks were being forced to make tough choices over the clients they wanted to retain. “It is important that new banks come into the diamond industry. We are not a lender of last resort, and cannot give credit to everyone, so it is important that there are new players.”
He said there were still many uncertainties in the global financial situation. Markets are volatile, gold prices are shooting up, U.S. diamond demand is still low, 30 percent of U.S. jewellery stores have closed down, global retail sales are down 20 percent, U.S. unemployment is still high and house prices are falling. Capital is scarce and getting more expensive, banks are withdrawing from the market, and the number of new entrants is limited. In the plus column, however, bridal jewellery demand is still strong, the industry decline has proven to be less severe than first forecast, and there is renewed optimism regarding jewellery sales.
He urged diamantaires to “sell diamonds with credit, not sell credit with diamonds.” He said they should look for solid margins, the collection of receivables was key and stock management was vital with inventory levels kept low since “stock stinks.”
Meanwhile, Pierre de Bosscher, chairman of the Antwerp Diamond Bank (ADB), said access to lines of credit were being kept open, and the ADB would continue to look for a balance between risk and reward.
“We will not fail to continue to promote Antwerp as a diamond centre,” he stated. “All players must strive to play their role in the pipeline efficiently. As a fully committed bank, we will contribute to the goal and avoid financial speculation, over-paying for goods and over-stretched and unethical positions.”
The ADB chairman called for companies to show full transparency, to make every effort to promptly collect receivables, timely submission of financial statements, and higher solvency.
The rising importance of Corporate Social Responsibility
Iris van der Veken, chair of the working session on CSR, explained that the concept was about how businesses align their values and behaviour with the expectations and needs of stakeholders. She said that CSR improved access to capital, sharpened decision-making, and reduced risk and costs. However, more than that, it boosts consumer confidence in the industry’s products.
“An increasing proportion of consumers are willing to pay price premiums for products and services marketed by companies with proven and sustained track records of doing good,” she siad. “Consumers either have increased trust in your brand-or you lose them. “
She said the industry had the tools, and the organizations so there no further excuse, and it time to join hands and find constructive solutions.
Meanwhile, Dr. Gaetano Cavalieri, CIBJO president, described CSR as an industry doctrine in the new economy, and outlined the structure of the World Jewellery Confederation Education Foundation (WJCEF), which CIBJO has created in order to instil knowledge about CSR in the jewellery business.
He said a growing number of consumers was less likely to buy simply for the sake of spending money. Instead, they were looking for a purchase to make them feel good about themselves. Companies who are able to promote their products as ethically manufactured would be in a strong position to attract such shoppers.
A critical need for generic diamond marketing
With the withdrawal by De Beers from its long-time role as the sole financier of global diamond promotion, the International Diamond Board (IDB) has been established to find a joint platform for industry players to advertise and promote gems. Kaushik Mehta, the managing director of Eurostar Diamond Trading and vice president of the AWDC, who headed the workshop on generic marketing, reported to the symposium that some players see diamonds as simply a commodity and so no generic marketing was needed.
“Do we really need a generic marketing policy to sell out product or should we just see it as a commodity?” Mehta asked. “Some people said we only care about our margins while others said that generic marketing is needed. I do not believe that seeing diamonds as a commodity will help take us forward. This is short-term thinking.”
Chris Ryder of BHP Billiton, one of the founding members of the body, agreed, saying the IDB could be a vehicle for driving demand. Category marketing can boost consumer confidence by reducing reasons for not buying diamond jewellery, while creating reasons for people to buy jewellery, he explained. He added that the IDB has CEO candidates ready, that there is broad support in the industry, and the organisation was ready to be incorporated.
Krisztina Kalman-Schueler, managing consultant at Gorham & Partners, said there was evidence that consumer spending is increasing, however, customers are still cautious about diamonds due to lack of advertising and confusion around value. Buying for love, pride and commitment remains the key driver for buying diamonds, but it urgently needs reinforcement.
Kalman-Schueler said a new and credible model was needed which could add value and set the right incentives along the entire pipeline with the final goal of increasing and protecting consumer demand. Diamond category marketing is essential for healthy long-term demand and market share, especially post-recession. She said the role of category marketing was more than co-operative advertising: it needed to cover PR, digital marketing, market intelligence, industry reputation and other issues.
Sector bodies and their category marketing are generally initiated and funded by the largest producers, and attract other players in the pipeline by proving the value of investment, Kalman-Schueler stated. “The recommended model for diamond category marketing based on our experience leverages the producers’ investments into consistent marketing programmes through financial and operational contribution of other players in the pipeline combines common category ‘brand’ positioning and guidance to other players in the pipeline so they can use this platform to drive sales by promoting individual products.”
Acting on the messages heard at the symposium
Concluding the symposium, AWDC CEO Freddy J. Hanard said that after the panic and near-collapse of a year earlier, the diamond industry as found a “renewed spirit.” Diamond companies have had to search for resourcefulness in order to survive over the past 12 months and had done so admirably.
“It is fair to say that we have exceeded our own expectations this year,” the AWDC CEO stated. “We have weathered the storm to continue producing, and we have heard from many speakers that the long-term outlook is good. We recognise that our industry is undergoing significant change, and we have the courage to succeed in that.”
“We, at the AWDC, facilitated this symposium in order to promote global dialogue. The AWDC is committed to playing a global role since Antwerp is a leading centre not just in terms of history, trading and banking, but also as an intellectual centre.”
“The value of this symposium will not end when we leave this hall,” Hanard said. “As happened last year, the messages that go out to the global diamond industry from here will be heard and acted upon.”