WFDB News Update: Capital Squeeze A Critical Diamond Industry Problem

The demand by rough diamond suppliers that they be paid in cash, coupled with the chronically lengthy terms of credit extended to clients, have created a cash shortage in loose diamonds and that has become a critical problem”, said Shmuel Schnitzer, who recently concluded his second term as President of the World Federation of Diamond Bourses (WFDB), in an interview with the editors of The |*WFDB Update*|. %% “You may recall that at the recent WFDB Congress I touched on the problems that we are experiencing in the world’s largest polished diamond market, the USA,” said Shmuel Schnitzer, WFDB Honorary Life President. “I said that we are going though difficult times. The JCK Las Vegas show in June was a good reflection of the situation: there is notable demand, but it is selective, focused and very specific, resulting in an erosion of profitability. My analysis of the situation remains the same as it was in June: Our main difficulty at the moment is a lack of cash flow in the markets. This, together with the decline in profits over the last year or two, hampers our activity. Obviously, the diamond industry is not detached from the world economy. Worldwide economic problems inevitably impact on our business, as well.” %% “It is possible to expand on this analysis a bit more. The industry is facing two major problems. Rough must be bought with cash, since all the large players demand cash payments. However, all sales in the downstream pipeline are arranged on credit, and this affects the profitability of the manufacturers. Now, if the market was booming, and goods could be turned over with reasonable speed, this would be tolerable. But in slower times such as we are experiencing now, the terms on which credit is available not only obliterate profitability almost completely; they are also getting longer and longer.” %%{{Lengthening Credit:}}$$ “In the American market, it’s often the case that credit is extended for, say 90 days, but the client simply takes much longer to pay his debt, So in practice terms can run up to 150 days and often much longer. The manufacturers and traders are left holding the bag.” %%{{ Tight Fisted Banks:}}$$ “Banks are reluctant to extend more credit for rough goods. They want to shorten the existing credit terms and are pressurizing us to repay some of what we have already borrowed. “All the players in the market need to understand that if this situation is perpetuated, we’re all going to get hurt. The whole pyramid will be affected, and as a result, diamonds will potentially lose market share in the luxury product market.” %%{{Rough Producers Should Give Credit:}}$$ “Of course you ask, what is the solution? Well, one of the solutions is that the diamond business must change its business model. I suggest we approach the rough producers and propose that they begin to extend credit to their clients. We must address the Diamond Trading Company, Rio Tinto, BHP, Alrosa, etc. It is time rough producers begin carrying a fair share of the credit burden. “A new credit structure would help grow our industry’s performance along the entire length of the pipeline, increasing cash flow, reducing turnover time and growing profitability. In short, it would grow our market and be of benefit to the entire pipeline, from miners to retailers.” %%{{ Common Nomenclature for Synthetics Advocated}}$$ In a press release, WFDB President- Ernest Blom reiterated the organization’s resolve that the diamond industry and the gemmological community develop a common strategy regarding the grading of synthetic diamonds, as well as common nomenclature, which would clearly differentiate between synthetics and diamonds of natural origin. His statement followed the announcement by the Gemological Institute of America (GIA) on October 6 that it would begin accepting synthetic diamonds for grading, starting on January 1.

Blom recognized the GIA for consulting with WFDB as it prepares for the release of its synthetic diamond grading report, and noted that the GIA Chairman, Ralph Destino and the head of its gem lab, Dr. Tom Moses, had agreed to delay the original release date at the 32nd World Diamond Congress in Tel Aviv in July, in order to address concerns that were raised by delegates during the Congress. “We have met and spoken with the GIA leadership on several occasions, including with its acting President, Donna Baker, since the Congress, and all have shown willingness to discuss the issues we raised, such as the creation of a different nomenclature for synthetics which would avoid them being confused with natural diamonds. We have great confidence in GIA’s commitment to the wellbeing of our industry, and we trust that, when it comes to the handling of synthetics, the organization is determined to do the right thing,” the WFDB President said. %% Blom stressed the importance of leading gem labs to develop a harmonized approach to the grading of synthetic diamonds. “Our interest, first and foremost, in agreeing that labs grade synthetics, is to provide accurate and unambiguous information to the jewellery consumer,” he said. “If different labs adopt different strategies, and use a variety of different nomenclature, then the consumer will be presented with a range of mixed messages. That is exactly what we need to avoid.”%% “It is my hope that the gemmological community will soon use a single standard for the grading of synthetic diamonds as will be proposed by the IDC following Congress’ Resolution,” Blom said. “We shall liaise closely with organizations such as CIBJO and IDMA to facilitate such a result. While synthetic diamonds are a legitimate product with its own market niche to fill, they must always be identified as synthetic diamonds, and when they are graded the documentation and terminology should be recognizable at a glance as referring to synthetics.” %%{{ First WFDB Booth at HK Fair}}$$ For the first time ever, the World Federation of Diamond Bourses (WFDB) had an information booth at the Hong Kong Jewellery & Watch Fair in September. The display space, provided by show organizer CMP Asia, was located in Hall 5 of AsiaWorld-Expo (AWE), the exhibition centre located next to Hong Kong International Airport. %% “This is the very first time that the WFDB has an opportunity to present its WFDB Mark program to the wider jewellery trade,” said WFDB President Ernest Blom. “The booth (Hall 5, booth no. A01), which was set up at a stand-alone location, allowed us to hand out information, and most importantly, explain to people what the WFDB and the WFDB Mark are all about.” %% “As always, the organization of the Hong Kong Jewellery and Watch Fair, at both locations, was simply perfect,” said Suresh Hathiramani, Chairman of the WFDB Promotions Committee, who is also President of the Singapore Diamond Exchange. “The fact that traffic was low at the AWE has nothing to do with the facilities and services, nor with transportation facilities, but rather with the state of mind of the visitors. AWE was simply not yet in their range of vision, as it were,” Hathiramani said. %% But a Belgian diamantaire exhibiting at the show said that this looked like a repeat of the Basel show a few years back, which was split between Basel and Zurich—also an airport location. “It did not work in Switzerland, and it will not work here.” %% Nevertheless, the WFDB booth had a good trial run. “We are pleased to announce that the Diamond Federation of Hong Kong, of which the Hong Kong Diamond Bourse is an integral part, will be in charge of administrating the WFDB booth’s movements and storage in Hong Kong, as well as coordinating the movement of the booth to other Asian trade shows, “ said Hathiramani.

{{Shanghai in 2008, Moscow in 2010}}$$ The 33rd World Diamond Congress will be held in Shanghai, China, in 2008, as confirmed by the General Assemblies of the WFDB and IDMA. %% “It’s a first for a World Diamond Congress to take place there,” said WFDB President Ernie Blom. “We’re honoured and pleased with the invitation. There’s no doubt that a few years from now, China will be the biggest consumer of diamond jewellery. We can learn a lot by studying this market.” %% As for the 2010 Congress, following its acceptance into the ranks of the WFDB, the Moscow Diamond Bourse (MDB) immediately claimed this honor. MDB President Lev Polyakov predicted,. “We are very confident about Russia’s future in the diamond business.”