Tens of millions of diamond debts
The closed diamond manufacturer, which also had an operating office in Antwerp, left debts that are estimated at tens of millions of dollars to banks and rough diamond suppliers, according to market reports.
The massive debts left by a large, failed player in the middle part of the diamond pipeline are always troubling the diamond and diamond industry, and concerns are even growing in connection with the beginning of the most recent crisis. Large debts left by closing companies mean that those who owe money may have difficulty in executing their own payments, which can cause a chain reaction of failures.
Such failures in business affect the entire diamond industry and give rise to even more fears about the future. In addition to the general concern that companies may not fulfill their financial obligations, and the affected companies in particular, there is a constant concern that the lost money will not be restored. The fear is that banks will reduce the allocation of their diamond and diamond industry funds to the amount of lost money. By and large, if banks lend billions of dollars annually, tens of millions can be a small amount, but every dollar is important, and no one wants to face reduction in support by banks.
Closure and bankruptcy
In recent weeks, there have been reports of medium-sized and even medium-sized companies closing their production and leaving the business. This happens mainly in India; But there were a number of additional closures, including bankruptcies, in Tel Aviv and Antwerp. Some of the closed companies had debts to suppliers.
The recent major closure in India was not only expected, it also led to the fact that diamond suppliers began to exercise caution. This is explained by the fact that this company, in general, has debts to the suppliers of diamonds. Although diamond mining companies sell only on account of immediate payment, suppliers in the secondary market, traders and buyers first-hand sell, mainly on credit.
The loan is the engine that provides the movement of diamond sales volumes from direct suppliers to the secondary market. The interest for the loan is the source of most of the profits currently in the middle of the diamond pipeline. Due to recent business closures and fears that payments for diamonds will not be made, the past and future credit transactions suffer.
Issues related to credit
This raises the question: What should suppliers do in the secondary market? Some transactions will be cash (immediate payment). Some loans will still be provided, although for shorter periods. There is a high probability that in some cases traders will simply refuse to buy diamonds from diamond mining companies in order to completely avoid the risk of granting a loan. Their concern is based not only on the ability to pay, but also on the information that a growing number of sets of diamonds from which it is impossible to obtain profitable diamonds. This replenishes already large reserves.
From the point of view of the diamond manufacturer, if the price of diamonds is too high, then the diamonds run off and there is a financial risk of selling to other diamond producers - why should they buy diamonds first? This concern may lead to an increase in the number of returns to the main diamond mining companies, if they do not significantly reduce the supply.
Hong Kong
The Hong Kong Jewelery & Gem Fair, held in Hong Kong in June last week, opened with the general unhappiness of wholesalers who sell diamonds. The exhibition was attended by over 2,200 companies from 45 countries and regions. Tens of thousands of visitors came at a time that is considered a recession in this region.
This important exhibition, when it is organized in June, is usually not active, and this year is particularly sluggish. Traders reported that there was less business compared to the June exhibition last year, although it did not become a complete collapse.
Demand from mainland China was below expectations. The business itself in Hong Kong is a combination of lower visitor spending from mainland China and the growing spending of investors in the stock market, who fork out and want to enjoy their profits.
This determines the greater part of the business that took place at the Hong Kong Fair. She began sluggishly, at the beginning of her there were several deals. With such low forecasts, the general feeling was: "We got what we expected, and maybe a little more," as one of the fair participants said.
Fair Deals
Most of the major buyers were not at the exhibition. The presence of smaller Chinese retailers gave a fairly large number of transactions, although their amounts were smaller compared to last year.
At first, buyers offered low prices, but the exhibitors kept high prices, especially in those areas where there was a shortage recently, for example, diamonds weighing 1 carat VS-SI quality. Buyers who placed pre-orders had to pay the price that wholesalers demanded. The deficit of diamonds weighing 1 carat is clearly due to a decrease in the production of diamonds. Moreover, since this is a compromise between size and price, anything larger is beyond the budget of consumers today, and 1 carat still remains an acceptable size for wedding rings.
In general, the price of a round cut diamond weighing 1 carat slightly increased in the last two months. The most popular at the exhibition were diamonds of 1 carat quality VS and SI of all colors and 0.10 carats of all quality categories, colors, as well as pointers, especially 0.25 carats of purity VS-SI.
It was reported a very small number of transactions for large expensive stones. The greater demand for stones weighing 2 carats and above accounted for the medium and low categories of color and quality.
Traders fantasy diamonds complained that there were too many participants offering fancy yellow diamonds, but they managed to keep the prices of brilliant (Vivid) and saturated (Intense) brilliants yellow at a high level. There were difficulties in selling fancy yellow diamonds of all categories of quality and shades, if the stones were not flawless.
Many exhibitors expressed their dissatisfaction with the exhibitions in general and said that they could probably receive the same amount of sales or even more, being in their offices. It is not clear whether this is a long-term conclusion or only a feeling that has arisen from the current weak market. Time will tell if they will refrain from participating in future fairs, or even skip the forthcoming exhibitions, and will submit applications for the stand, when the situation on the market improves.
Caution in the diamond market
After a limited number of returns on the last De Beers site, which is large for this period, and in the light of recent business disruptions at large diamond and diamond centers, the rough diamond market continues to be cautious. Purchases at tenders are very concentrated and at reasonable prices, all this is done to ensure that diamond producers remain in profit and concentrated on a product with real demand.
Since polished prices seem to have stabilized, the current low prices reflect the lower cost of retained diamonds' stocks, made of expensive diamonds. Diamond manufacturers learn to recognize that erosion of capital due to falling prices will persist for some time. They carry out the necessary regulation of management costs, overheads and prices.
Change in Demand for Diamonds
Demand in the wholesale market for diamonds is low, but stable. For some products, demand is falling, and some products are sporadically growing interest. There is still a small demand for so-called American goods - HIJ round cut diamonds and SI-I purity weighing one carat and lower. The trend in the shift in demand towards cheaper diamonds from this group is continuing, and it is expected that it will be long.
Prices are mostly stable with the end of the exhibition in Las Vegas. It is expected that they, in general, will remain at the existing level before the holiday shopping season begins.
Demand in the Far East, in India and the Arab countries of the Persian Gulf - and to some extent also in the United States - shows a contradictory trend. On the one hand, the demand for expensive goods is stable, and in some places even strengthens, and on the other hand, the demand for goods considered to be typical shifts towards cheaper products.
Brief information from the Presidential meeting
Presidents of diamond exchanges around the world held a meeting in Israel last week with the International Diamond Manufacturers Association (IDMA) to discuss pressing issues: declining profits, species marketing, declaring [synthetic diamonds] and diamonds grown in the laboratory.
As for the erosion of profits - this is the most acute issue, then diamond producers can do little about it now. Diamond companies set prices for rough diamonds, and retailers accept or reject diamond prices, leaving diamond manufacturers in front of the existing dilemma. One practical step is to support the initiative of species marketing, what the association of diamond producers is going to do - which they did. However, they nevertheless deplore De Beers' decision to use the winning slogan "Brilliant is Forever" for its own initiative in retailing Forevermark, rather than allowing it to continue to be used for species marketing.
The issue of the announcement and diamonds grown in the laboratory was touched on both in connection with reports about the mixing of synthetic diamonds with natural diamonds and in connection with the secret processing, which temporarily improves the color of the diamond.
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