But under the pressure of supervisory observers from the government, banks around the world began to exercise caution in providing loans for the opaque diamond and diamond industry. The resulting reduction in credit causes market turbulence with far-reaching consequences for participants in the wholesale trade in precious stones, as well as for companies mining diamonds from the bowels.
Philippe Mellier, CEO of De Beers, the dominant diamond producer, calls it a "revolution" due not only to stricter loan standards, but also to changes in retail trade that force traders, cutters and polishers in such places , Like Antwerp in Belgium or Dubai in the United Arab Emirates respond more quickly to changing tastes and demand.
"This is a new business model for an industry that has remained conservative for 100 years," Mr. Meiller said over the phone from Gaborone, the capital of Botswana. This country is the place where De Beers, the largest diamond mining company, is located.
"The tension does not arise from demand, which continues to grow," said Mr. Mélier. "It's because of the change in the industry."
Changes in the diamond business are unlikely to be felt by engaged couples, which are the driving force of demand in the United States, accounting for 40% of global diamond sales. Retail prices are likely to remain stable or even fall slightly, although there may be small changes in the quality of diamonds in order to avoid price increases, analysts and industry representatives say. And buyers may have to pay more, as the production of diamonds and diamonds will reach a peak by the end of the decade.
But there is already a lot of pressure on the so-called middle segment of the diamond pipeline - a segment of processing raw materials and manufacturing products in the industry: these are companies in China, India, Belgium and other places that buy diamonds from those who manage mines, then polish and polish diamonds for Use them in jewelry.
The Changing Market
Having received orders from regulators to reduce risks, the Belgian KBC bank said last year that it would curtail the activities of the unit in Antwerp, which was once the largest in providing loans to the diamond and diamond industry. Leumi Bank in Israel reported last year that it is withdrawing from the diamond business, and other banks, including ABN Amro in the Netherlands, have tightened their lending standards.
"The situation in the diamond and diamond market is not at all positive, but really terrible," says Charles Wyndham, founder of Polished Prices, a London-based company that tracks the market. "The most urgent issue is liquidity."
Others show less pessimism and say that new creditors have emerged to replace banks that have emerged from the diamond-diamond business. At the same time, there is an arrangement according to which banks now study the diamond-diamond industry much more thoroughly, forcing it to streamline its operations in order to avoid the risk of being cut off from financing.
"There is enough liquidity for good companies that are transparent, profitable and acceptable to banks," said Erik Jens, ABN Amro's director of customer relations for the diamond and jewelry industries. - There are companies that are not, and they do not get money. It is obvious".
So far, the effect on De Beers has been hushed up. Last year was good for De Beers, no longer possessing the actual monopoly that it once owned, but the company still accounts for about a third of the world diamond market. De Beers, a member of the Anglo American corporation, a raw material producer, reported an increase in operating profit of 36 percent or $ 1.4 billion from $ 7 billion in sales in 2014.
But the difficulties were felt by other producers of diamonds. Petra Diamonds, listed on the London Stock Exchange and managing mines in South Africa, said on April 16 that sales for the first three months of 2015 fell 41 percent to $ 96.1 million. Petra explains the decline partly due to the problems experienced by wholesalers in obtaining loans for the purchase of rough diamonds.
De Beers responded to the tightening of lending standards by imposing new requirements on so-called sightholders - 85 companies authorized to buy diamonds from it. In March, De Beers introduced new three-year contracts, which require sightholders to adhere to international reporting standards, provide their financial documents for analysis by qualified auditors and reduce their dependence on borrowed funds.
"They need to be financially more stable, and then they will be able to attract the necessary money from banks," said Mr. Meillier, CEO of De Beers. He said that De Beers' long-term contracts with buyers make it less sensitive to fluctuations in the spot market, which hit hard on other suppliers.
Precautionary measures
The unrest in the diamond and diamond industry is an unforeseen consequence of the new rules introduced to avoid the recurrence of the financial crisis that erupted in 2008.
The Basel Committee, which consists of a group of major bankers and regulators from around the world, which holds meetings in the Swiss city of Basel, probably did not pay too much attention to the diamond and diamond industry in developing its new recommendations. It should be recognized that some wholesalers selling diamonds and diamonds may have been engaged in such matters that this committee seeks to prevent, including excessive dependence on borrowed funds. (Providing a diamond and diamond loan is itself risky, there are thousands of varieties of diamonds and diamonds, and it's extremely difficult to assess the precious stones used as collateral for a loan.)
In addition, the diamond industry faces many challenges. Sales in China, the largest market, declined in part because the anti-corruption campaign forced civil servants and their families to refrain from demonstrating wealth.
Forecasts saying that diamond and diamond production volumes will reach their peak by the end of the decade, pushing prices upwards, have their supporters and critics. Most of the diamonds in the world come from a relatively small number of mines located in Africa, Canada, Russia and several other places. ALROSA, the Russian diamond mining company, has become the largest in terms of volumes, although De Beers remains the leader in terms of value in dollar terms.
Mr. Jens of ABN Amro said that he doubted the forecasts of a growing diamond deficit. New deposits can be discovered, he said, and diamonds created by human hands, which are becoming increasingly difficult to distinguish from diamonds from diamonds extracted from the bowels of the earth, can meet some of the demand in the market.
http://www.nytimes.com/2015/05/14/fashion/reshaping-the-worlds-diamond-market.html?_r=3
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