Chaim Even-Zohar, the veteran investigative diamond trade journalist in a comprehensive memo submitted to IDEX Online, on April 22, 2020, called on the Indian government to stop all imports of rough diamonds for three months so that the country’s cutters and polishers can recover from the corona virus crisis. The call was made following an amazing statement made in a Financial Times article by a leading player in the diamond industry, Stuart Brown, the ex-joint managing director of De Beers and current CEO of Canadian miner Mountain Province Diamonds, stating the very obvious, “We need India to open up. Until the manufacturing opens up there, there will be no demand for rough diamonds.”
According to Even-Zohar, India can use the global crisis, to seize the initiative, and become the game changer in a suffering industry, by taking a simple step, once the corona virus lockdown is lifted, in the form of a three-month moratorium on the import of rough diamonds, that will help over-stocked producers stuck in the uncomfortable mid-stream to dispose of their inventories, consisting of US$ 1.5 to 2.0 billion worth of rough diamonds and around US$ 5 billion worth of polished diamonds. By selling for a couple of months from the inventory alone and using part of the proceeds to settle the bank debts, will give a boost to restore the lost confidence the Indian Banks had placed on the diamond sector, which was badly eroded by the corona virus lockdown and consequent standstill of diamond markets.
For how long the moratorium would last, should be decided by all stakeholders in the industry depending on how long it takes for the diamond markets not just to stabilize but also to pick up. In any case the tendency for Indian sight holders to rush to the monthly auctions of De Beers, Alrosa and other producers, competing with one another to get rough diamonds at a bargain, must be discouraged if India is to clear up its inventories and help the markets to pick up again. The diamond producers themselves, such as Botswana, Russia, Canada etc. will be compelled either to reduce or stockpile their output or risk a free fall of prices, like the fall of the international oil prices.
The factors that militate against a fast diamond market pick up are a rise in the ranks of the unemployed worldwide, the expected reduction in salaries, and the consequent reduction in the consumers’ excess net disposable income and a shrink in the luxury wallet, making diamond jewelry certainly not the first item consumers will buy in the post-corona era. Apart from this, the diamond manufacturers and traders of polished diamonds may have to compete with the liquidation sales of bankrupt high street jewelry retailers, including some retail chains.
Stuart Brown believes that producers would be dependent on the activities of the manufacturers to restore the diamond markets once the corona lockdown is over, but even then he thinks that none of the cutters or polishers will resume their activities unless manufacturing margins are assured.
It has been suggested that in the absence of willing midstream lenders such as banks, the producers themselves should come forward to extend credit to the manufacturers, after double-checking or even triple-checking the financial strength and credibility of their clients, like in the good old days when the producers knew that the sightholders they were dealing with were solid, dependable and trustworthy companies. Thus the mining companies can assist in sharing the financial burden of the manufacturers, given the fact that they undoubtedly have more access to financing sources than their client manufacturers.
The memo also goes further to emphasize the need to maintain stability in polished prices that will affect every player in the pipeline, but also stresses that stability in rough prices is no less crucial, stability in conjunction with profit margins.
Another crucial factor that poses a threat for the revival of natural diamond market after the lockdown, is the competition posed by synthetics, for which there is a growing consumer preference in India. By now all diamond producers around the world should be well aware of the fact that all diamond manufacturers in Surat, whether big or small, have alternatives to natural diamonds, which previously they did not have and there is an increase in demand among consumers for such synthetic alternatives. Apart from this, the lower prices of synthetics and the lesser risk involved in not getting a worthwhile margin of profit, from the polished product are added advantages that can lure manufactures to opt for the synthetics instead of the natural roughs. Hence, if the producers are to survive in this competitive market, they should restore profitability to the manufacturers which is significantly higher than the added value and profits made from the man-made product.
The relationship between diamond producers and the Indian manufacturers had been a longstanding one, going back to the last century, a relationship that benefitted the producers more than the manufacturers, that created enormous wealth for the producers amounting to tens of billions in profits, that made use of the exceptional skills of the Indian cutters in turning nearly worthless industrial diamonds into the so-called near-gem category. Even under the present difficult circumstances following the worldwide lockdowns as a result of the Covid-19 pandemic, the diamond producers have realized that Indian manufacturers and cutters are indispensable to kick start the diamond industry after the lockdown is lifted. The diamond producers and miners have realized that they need India far more than India needs them. Unless the diamond cutters and polishers of India begin their manufacturing process soon after the lockdown is lifted, using their existing rough diamond stocks, the chances of the revival of the diamond industry are extremely slim. The moratorium on new imports of rough diamonds should be imposed to restore the confidence of the lending banks on the diamond manufacturing sector, as well as maintaining the price stability of both rough and polished diamonds.