A diamond is forever, this we know – for the ad parades tell us so. Meanwhile, experienced jewelry appraisal experts and gemologists worldwide must ask themselves within shifting market realities and evaporating profits what “forever” is really worth.
Titanic mining companies and massive retail competitors have placed a five-year squeeze on the global diamond trade’s family businesses that has raided and depleted many manufacturers’ once-lucrative profit shares, Business Insider reports. Layoffs falling upon 300,000 Chinese and Indian workers – almost one-third the two countries’ combined 1 million citizens employed in the gem-cutting trade – headline the fallout from a half-decade of rising costs and consistently inconsistent financing consumer demand plaguing the diamond trade worldwide.
The trade has always defied traditional supply-and-demand norms, high-end Israeli polisher Yoram Dvash explained. Dvash himself typically outsources rough stones to smaller Israeli polishers, but has had approximately 20 percent less volume in the past year to spread around. In the end, manufacturers across the globe are likely to share only an expected $100 million in profits this year out of the record-setting $80 billion spent worldwide in 2014 on diamond jewelry. Compare that to the robust $900 million split in 2010 or even the roughly $200-million share last year, according to Pharos Beam industry consultant Pranay Narvekar of Mumbai and Tacy Ltd.’s Chaim Even-Zohar.
“It’s out of love…”
A gem is precious and paid for as such, but to Dvash, there is tragically no definitely quantifying ardent craftsmanship such that it brings balance to his wages.
“Manufacturing is not just work, it’s out of love – taking the rough stones, with all their odd shapes, and bringing out the most precious thing in the world,” Dvash said. “But this love costs a lot of money. And rough prices have been going up and up with no connection to demand.”
That insight from a longtime craftsman is made perhaps the more depressing when considering the two most unfortunate realities of present-day diamond sales. While customers preferences in gifts turn from jewelry’s elegant, timeless glimmer to the trendy practicality of high-end personal gadgets – even watches have fallen at least partially beneath a rising tide of intelligent interactivity – major retailers the world over have nurtured their substantial profits on ever-falling margins.
World Federation of Diamond Bourses president Ernest Blom posed a sobering question to a Tel Aviv industry conference’s assembled delegates. The attendees had already lamented that the $6-million budget behind the Diamond Producers Association formed in May by the industry’s top mining companies wouldn’t offer any realistic fuel to revive consumer demand.
“Have you ever heard of a 20-year-old standing outside a store all night to buy jewelry?” he asked. “I haven’t. We have fallen behind the times.”
Costly mining, fewer buyers
As stones become increasingly expensive to pull from the earth, manufacturers face a shrinking overall pool of retailers eager to buy.
The most recently uncovered major deposit of diamonds was unearthed almost 20 years ago. Despite what the world’s few major mining operations claim are major investments in seeking out and providing substantial supplies of stones, production plummeted a staggering 26 percent between 2005 and 2013. Russian mining outfit Alrosa’s three just-finished underground mines worth $1 billion each may keep them in the lead globally in terms of volume. South African Anglo-American De Beers leads competitors worldwide in value with current projects currently costing in excess of $3 billion.
Manufacturers and retailers have few supply alternatives. The world’s few major mining companies are incurring massive expenses. In the end, the costs make landfall down the supply chain due to what Rapaport Group diamond-price authority Martin Rapaport claims is an astronomical pricing approach doomed to fail. What goes around will come around to De Beers and Alrosa when rough diamonds become cost-prohibitive to polishers and traders, he predicted.
Prices will fall. “Windfall profits” will cease, he said.
The first notes may already be playing. De Beers has adjusted for a weaker-than-expected 2015 output outlook, while Alrosa has cut its prices 6 percent already in 2015 so that “manufacturers have enough oxygen in order to generate profits and keep consuming,” though the Russian company foresees a late-2015 price rally.
Elsewhere in the chain, manufacturers and miners alike have watched leading U.S. mid-tier jewelry purveyors Signet Jewelers and Zale Corp combine in a $1.46-billion purchase of the latter. Chow Tai Fook Jewellery Group of Hong Kong also bolstered its market share – already the world’s largest by market value – with its $150-million purchase of U.S.-based Hearts on Fire.
What could make this turn more nerve-wracking? The pool of sellers isn’t the only thing shrinking. Jewelers are now using fewer and smaller stones. Manufacturers must tap into unfortunately falling profits to purchase and hold rough diamonds on tenuous financing until they can sell the stones. The escalating debt weighing down manufacturers hit $15.4 billion by 2014’s end without signs of leveling off, according to Narvekar and Even-Zohar.
Manufacturers currently risk further price-dives by servicing debt while working on diamonds for unfinished products not yet ready to hit the sale market, and that gamble has caused numerous banks such as Israel’s Bank Leumi (which closed its diamond business entirely) and Belgian KBC (which is phasing out its Antwerp Diamond Bank) to re-evaluate the commodity value of one of Earth’s most precious gems.
“There is little comfort for a diamond manufacturer or trader if the retail jeweler sells more diamond jewelry, when the pieces contain less diamonds. So much for the retail growth figures,” Even-Zohar said.