Diamond Manufacturers Only Financing The Pipeline & Not Making Money

Guest Blog Maxim ShkadovThe year 2015 is coming to a close and in my capacity as IDMA president, I would like summarise my views on the current diamond market situation.

As you all know, during the past three years of my tenure, I have tried to defend the interests and wellbeing of our association’s constituents: the global diamond manufacturing community. More than once, I have stood up and cautioned that the cutting and polishing sector is working with a zero or negative margin.

The premise of my arguments always has been that diamond manufacturing does not create added value and that the role of our sector had been relegated to financing both the upstream and downstream supply pipeline.

I also have cautioned numerous times that the current market structure reminds me of a big bubble that, day by day, is growing bigger and bigger and that it finally would burst.

Among others, I have warned time and again that huge quantities of goods in the market would be detrimental to the overall health of the industry and would create what I have called a ‘disconnect’ between rough and polished prices.

Incessantly, I have tolled the bell, arguing that the presentations made by the various diamond market analysts are baseless and that there simply is no 20-25% of added value to be had in the cutting and polishing of rough diamonds. It is no use to analyze turnover figures, without looking in detail at the price levels and the cost of rough; the cost of financing, the rough purchases and the manufacturing; the terms of payment in the polished market, the memo-ing out of goods, and so forth. Read the whole post here.

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How King Tut’s Tomb Inspired Art Deco Jewellery

Guest Blog Noga RavedAncient Egypt influenced much of European culture and style. It particularly impacted the perception of jewellery and moved European appreciation away from just gold and silver to coloured gemstones. Specially interesting is the story of how the opening of the tomb of the ancient Egyptian pharaoh Tutankhamun sparked the development of the art deco movement in jewellery.

Between 1798 and 1801, Napoleon Bonaparte launched a military campaign in Egypt and Syria, ostensibly to protect French trade interests in the area, undermine British access to India and establish scientific enterprise in the region. Despite initial victories, Napoleon and his Armeed’Orient were forced to retreat by the British, who among other things defeated the French fleet at the Battle of the Nile.

Napoleon’s Egyptian campaign triggered an interest in ancient Egyptian culture, which later developed into an obsession termed “Egyptomania.” European and American scholars returning home brought back with them many ancient artefacts that were displayed in museums and caused a great stir of interest. What primarily sparked the imagination was the coloured jewellery, which gave birth to European interpretations of the Egyptian style.

Despite being adapted to conform to modern fashion, this jewellery was full of common Egyptian symbols and imitated ancient decoration techniques, to an extent that they looked more “Egyptian” than the originals. Many collectors and adventurers travelled to Egypt and found there a plethora of antiques available for purchase. That is how many scarabs made their way to Europe, as their diminutive size made them easy to transport.

However, at the end of the 18th century, public interest was focused primarily on the Classical Greek and Roman cultures. It was only in the mid-19th century that the Egyptian style began to exert a profound influence on the jewellery industry. In 1859, the funerary coffin of Queen Ah-Hotpe was discovered, which contained some of her gold jewellery. As historians were busy examining the find, jewellers were busy at work.

The opening of the Suez Canal in 1869 brought Egypt anew into the public consciousness. At that stage, the revival of Egyptian jewellery focused on gold jewels, in accordance with the archaeological finds of the time. There were very few attempts made to replicate the sophisticated ancient techniques and colours. The main focus was on substituting out the familiar motifs of Victorian jewellery. Deer heads and lotuses were replaced with a Sphinx or scarab, alongside the use of granulation, filigree, and metal-wire weaving.

Scarab-inlaid jewellery became particularly popular in Victorian England. Ancient scarabs were used frequently in modern Egyptian-styled jewellery, considerably increasing  their value and public interest in them. Read the whole post here.

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Time For The Diamond Industry To Take A Tough Stand

Sanjay Kothari Guest BlogThe diamond industry is in grave danger. Not because demand is down or profitability has been almost completely squeezed out, but because it has lost its moral compass and is spinning out of control into free-for-all battleground where rules, decency and dependability don’t matter.

The majority of the diamond industry is being branded in the public eye because of the doings of a few rotten apples among us. But it is our own fault for staying silent and not taking strong action against these people, making an emphatic public statement that we are an ethical and dependable industry that will not tolerate wrongdoing of any sort.

Three major issues threaten us today. Read the whole report here.

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DTC Stops Buying Botswana Goods, May Lose $105M If Prices Correct 15%

VINOD KURIYAN

Having sold only $50-$100 million in rough before specials and auctions at it November Sight, De Beers’ rough trading arm DTC International, which is contractually obligated to purchase 100 percent of the Debswana production, behaved like any other diamantaire and refused to buy any more rough from Debswana!

This is revealed in an investigative report by industry analyst Chaim Even-Zohar. He adds that with the reduction in bank finance and the extended closure of the Indian production industry for the Diwali holidays, it is unlikely that the December Sight will be much better than the previous one.

Chaim Even-Zohar

Chaim Even-Zohar

This may just be a signal that a drastic cut in rough supply to the market is likely to be extended through the first half of 2016, Even-Zohar adds.

The key to understanding these dramatic developments, says Even-Zohar, is the little-known DTC International purchase agreement with Debswana. As per the agreement, purchase prices from Debswana are based on Standard Selling Assortments (SSA) (i.e., the DTC International price book) that are in effect at the time of the sale of Debswana goods to the DTC – the trading arm of De Beers. When the SSV price is clearly wrong, non-aligned with reality, it’s not just that De Beers cannot sell — it is also locked in on the buying side where it is committed to purchase at these same prices. When De Beers is able to sell at higher prices than SSV, it needs to share the excess with Debswana. However, if it is forced to sell below, the hit comes squarely out of De Beers’ own bottom line.

“It may be quite an archaic clause reflecting a monopolistic (cartel) mindset that rough market prices will always go up — and neither fluctuate nor decline steadily,” Even-Zohar says. He adds, “There always has been, what insiders call, a ’40-day adjustment clause’. Suspicious (and probably rightfully so) that the DTC may earn some additional margins through unannounced price or assortment changes, the contract stipulates that when the prices in the DTC Price Book are of officially changed upwards, there is a 40-day retroactive correction (adjustment) of the price paid by the DTC to Debswana for the diamonds purchased in that period. It pays to Debswana its share on price gains of recently purchased stocks. Nowhere, I was told, is there a similar clause for sharing the losses incurred through price reductions.” Read the whole post here.

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Drastic Rough Diamond Price Cuts Will Result In Billion-Dollar Losses

Vinod Blog BylineThere’s absolutely no argument that rough diamond prices are much too high today. Manufacturers are having an extremely difficult time selling the polished coming out of this rough as buyers are simply unwilling to pay more. That this is mainly because diamond miners have only looked at their own bottom lines and ignored the warning signs in the production pipeline is also an uncontested fact. That this has considerably weakened and destabilised the diamond production pipeline is also undeniable.

However, calling for an immediate reduction of between 30- and 50 percent in rough prices is a hasty, unthought-out and counterproductive step. It will immediately result in huge losses for the diamond processing industry running into the billions of dollars. Going by last year’s diamond pipeline value estimates, rough sales by the mines totalled $16.7 billion and polished that came out of it was estimated at $22.3 billion. Much of the rough sold this year and the resulting polished is still lying either unprocessed or unsold in the inventories of diamond processing firms. There aren’t any official estimates, but any random fraction you select will give you an inventory value in the billions of dollars at any given moment.

The fact that an immediate 30- to 50 percent reduction in rough prices will cause catastrophic losses doesn’t really need any underlining. Read the whole post here.

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Skewed Perceptions: $550,00 For A Cartoon, 70% Discounts For Jewellery

Vinod Blog BylineThe perception of value isn’t simply a matrix of rarity, beauty and high price. It is in fact, one of those undefinable issues.The jewellery retail industry doesn’t seem to know what it is right now. Cartoon collectors on the other hand, seem very sure about what value is. And they’re willing to put their money down on their perceptions.

Would you, for instance, pay half a million dollars for an original cartoon drawing? Particularly one that has major issues such as stereotypical racial perception and the promotion of big game hunting among other things? The asking price for an original plate of Tintin Au Congo, the original French version of Tintin In The Congo, by Belgian cartoonist Georges Remis who wrote under the pen name Hergé, is $550,000.

The artwork from the cartoon featuring the boy-adventurer Tintin has a very good chance of realising its asking price. A double-page strip from the Tintin adventure King Ottokar’s Sceptre sold for $1.7 million last month at Sotheby’s in Paris. The previous year, the original art for Tintin and the Shooting Star set a record when it sold for almost $3 million at the Brussels Antique Fair.

Meanwhile, US retailers are loudly promoting 70 percent discounts for jewellery over the holiday season. It’s almost as if they don’t really believe in the value of their own product. Read the whole post here.

GEMKonnect is very pleased to announce the launch of the second phase of its online initiative with our website http://www.gemkonnect.com going live. In addition to posts from our guest bloggers in the ‘Expert Speak’ series, our website will also carry industry-related news and information. The Expert Speak blogs will run simultaneously on both platforms for the time being.

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The Lost Chord — Why The KP Simply Must Reconnect With Civil Society

Vinod Blog BylineAnd it lay on my fever’d spirit with a touch of infinite calm.

It quieted pain and sorrow like love overcoming strife,

It seem’d the harmonious echo from our discordant life.

It link’d all perplexed meanings into one perfect peace

And trembled away into silence as if it were loth to cease;

I have sought, but I seek it vainly, that one lost chord divine

The lines above are from Adelaide Ann Proctor’s famous poem A Lost Chord — later set to music by Sir Arthur Sullivan and sung by musical greats like Enrico Caruso among others.

In the light of the recently announced boycott of the Kimberley Process (KP) by the Coalition of Civil Societies (CSC), the diamond industry needs to embark on a search to find that all-important lost chord. Without it, even the best efforts of the newly appointed marketing team of the Diamond Producers Association will not be able to “uncover how the unique promise of diamonds can connect with a new generation”.

The perception of the diamond as a product is a composite of attributes the consumer associates it with as well as an assessment of the diamond industry in general and what it stands for in society. As Vallabhbhai Patel, one of our previous bloggers observed, it is necessary for the diamond industry to be seen as a force for good around the world.

The Kimberley Process is the diamond industry’s assertive statement to the world that it is  a force for good and will act promptly and vigorously to right any wrong. Civil society — and its approval of the KP — are an essential part of the process. So whether or not the CSC’s accusations against the diamond industry and the leadership of the KP hold merit, the industry’s reputation has taken a beating with the boycott. Read the whole post here.

GEMKonnect is very pleased to announce the launch of the second phase of its online initiative with our website http://www.gemkonnect.com going live. In addition to posts from our guest bloggers in the ‘Expert Speak’ series, our website will also carry industry-related news and information. The Expert Speak blogs will run simultaneously on both platforms for the time being.

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