Diamond prices and sales stabilising - WFDB

I-Net Bridge | Fri, 29 May 2009 07:16
[miningmx.com] -- Diamond prices and sales appear to be slowly stabilising as consumers realise that the sky has not fallen in and life continues, says World Federation of Diamond Bourses president Avi Paz.

"We are an experienced and resilient industry, and like with early crises we will survive this one. That is certain," Paz said in a message posted to the diamond business community.

June will mark the closing out the second quarter of 2009 and a full three quarters since the onset of the global financial crisis.

Paz said times of upheaval, while clearly complicated, also present opportunities for positive change, and the current crisis is no exception.

"For the first time in many years, we have a golden chance of correcting two standard operating procedures in our industry, which individually have placed a tremendous burden on our members and together have had a devastating effect on profitability. I am referring to memo sales and the practice of extending inordinately lengthy payment terms to our clients," said Paz.

Memo is not a new phenomenon, but Paz said the industry's reliance on it had been blown completely out of proportion.

Twenty years ago, such sales represented a few percentage points of the industry's total business but today it frequently is the norm rather than the exception.

Clients have gotten used to receiving goods on consignment, without have to make any financial commitment.

Today, more than 50% of the polished diamonds imported into the US are later returned unsold to the suppliers and while they sit in safes, they are out of circulation and financed, at no extra cost.

Rough diamond producers demand cash for what they sell while retail clients ask for generous terms of payment of up to 120 days and more.

"There was a time when the diamond industry was characterised by a rapid turnover of stock. That clearly is no longer the case. Over a two-decade period we effectively have been transformed into the jewellery sector's primary financier. It was not a role that we sought for ourselves, but circumstance and an inability to say 'no' thrust it upon us," Paz said.

He said with the markets in upheaval and as the banks reconsider their credit strategies, the time was right for change.

"The burden of financing the diamond pipeline needs to be more evenly distributed. Both the rough producers and the jewellery trade must play a more active role," Paz said.

According to figures supplied by ABN Amro, after increases in the industry's bank debt of 14% and 5% respectively in 2007 and 2008, its indebtedness fell between 8% and 18% during the first quarter of 2009.

"It is clear that we will emerge from the current crisis owing less money than we did going in, and that is a positive thing. What we must do now is discuss what needs to be done in order that it stays this way," Paz said.