The Collapse Of Diamonds: Forgotten Forever?

By Author: Gianni Rezzonico
Total Articles: 62
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The traditional stability of prices of diamonds, expertly managed by the leading operator in the sector, the South African De Beers, has suffered a further collapse of the financial crisis of 2008.
The same De Beers, which controls about 40% of the market for these stones
valuable, saw net profit fall by 99% to 3 million dollars in the first half of 2009. The company sipping the publication of financial data, being privately owned by three shareholders: the mining giant Anglo American (45%), the Oppenheimer family (40%) and the Government of Botswana (15%). It was however reported that De Beers is getting an injection of capital by such shareholders in the above proportions, amounting to one billion dollars.
This funding, the second within the last twelve months, takes a matter of urgency. The company is short of cash, and expire in March, 1.5 billion dollars of bank finance. The renegotiation of the latter promises problematic, because the diamond market, despite the slight recovery in recent months, has not followed the euphoric return of precious metals.
Under these conditions, De Beers is able to ...
... increase the stock waiting for better times. Nor can prolong the time the closure of the mines, Dodge tried for a few months at the height of the crisis, but finished strong pressure on the governments concerned.
If this is the state of health of the first producer, the rest of the industry does not enjoy better health. While the other three major producers Alrosa, Rio Tinto and BHP Billiton, who along with De Beers controls 90% of the diamond, are very diverse and therefore have their backs covered by the good performance of other raw materials, it is feared that the operators secondary one can arrive at the terminus.
The alternative to entice cutters with generous offers is also impractical, given the high indebtedness of the latter. All that remains is hope for recovery in consumption, but also from this point of view, the prospects are not encouraging, the U.S. consumer, traditionally the best score of the stones glittering with more than 40% of world consumption, no longer seems willing to overdo it, even If the recent Christmas sales were slightly above expectations thanks to retail prices fell by over a third from 2007 levels. China, on the other hand, represents a growing market, but its contribution is for now only 8% of the world market.
Prospects not exactly rosy, then, but the sector has already proven to be able to adapt to changing consumer sensibilities. With the certification, for example. The 75 countries participating in the Kimberley Protocol, named after the famous resort of South Africa where the first diamonds were discovered in the black continent, guaranteeing the origin of the stones. Excluding such stones from areas of war, or extracts from informal mines where there are human conditions and environmental Dante's inferno. But there is another measure, advocated by some operators for some time but never implemented in good years, which could encourage potential buyers hesitant. Is that of transparency, not of stone but of their price. This is a tall order, given the difficulty of reducing the diamond to "commodity" fungible. There are thousands of varieties of diamonds, and their business is the preserve of a few. De Beers is still using the auction system, to which were invited the usual "sightholders," a hundred chosen and faithful customers who can not even buy the stones they want but a mixed-mixed. The crisis is, however, are a challenge to these mechanisms, opening the way for a transparent market.
Moreover, the industry has seen an increased interest in alternative investments in the financial field, but so far eluded the diamonds in this new market. Investment opportunities were limited to the stones themselves, but only to those of great value, or the actions of the mining conglomerates. The latter, however, have limited interest in the field, at best 5% of turnover. Remain the securities of small capitalization, with all the specific risks and low liquidity. In fact diamonds are the only raw material is not listed on commodities exchanges. To break this industry, through the World Federation of bags of diamonds, has adopted towards the end of last year a "recommended retail price (SRP, suggested retail price) for the main categories of polished diamonds. This initiative represents an important milestone for the creation of a market for investment in diamonds, but to succeed it needs the accession of the operators. From this point of view De Beers seems to have blunted the objections that diamonds are comparable investments in works of art rather than commodities. The new market will remain a niche market, difficult to standardize and smaller than gold and platinum, and must also face the risk of a major distortion in the prices of jewelry, just as happened to gold. In any event, the opening of a new sales channel is unavoidable, so do not spend much time until the launch of the first ETC (Exchange Traded Commodities) on diamonds.
Gianni Rezzonico