A Year That Failed To Sparkle

Players across the diamond pipeline will be happy to ring the curtains down on a year that has been one of the most difficult in a very long time, perhaps even worse that the tumultous 2008-09 period! The industry will be hoping for a brighter 2016.

The rough ride that the gem and jewellery industry has witnessed through the first eleven months of 2015 continued during December. Ironically, a crisis that had begun at the retail end in early January and worked its way across the mid-segment for many months, ultimately reached the other end of the pipeline, with its impact on the mining sector becoming fully apparent as the year drew to a close.

De Beers, the largest rough diamond producer by value, announced that two of its mines were being virtually closed – Snap Lake in Canada and Damtshaa in Botswana, the latter run by a 50:50 JV between the mining giant and the government of Botswana – as a result of ‘market conditions’.

Another miner, Dominion Diamond Corp, with interests in two mines in Canada – Ekati and Diavik, also found its troubles spilling into the public domain, as a group of shareholders questioned the management on many issues.

A much smaller player, Paragon Diamonds, failed to raise funds to complete the purchase of the Mothae mine in Lesotho from Lucara Diamond Corp, and will soon be delisted.

All this reflected what had happened in other segments of the pipeline earlier. According to figures released by the Jewelers Board of Trade in the US, 727 jewellery businesses across the country closed down in the first nine months of 2015, representing a 28 per cent increase over the previous year. And in China, the largest retailers of diamond jewellery reported a year-on-year 9 per cent drop in sales during the same period.

The mid-segment has had its share of woes too. Surat has seen a few bankruptcies, more than a few closures, and fairly large scale layoffs. Even those companies that are running have reportedly reduced working hours and wages to avoid job losses.

Gem & jewellery exports from India during April-Oct 2015 have fallen by 3.43 per cent to US$ 25.90 billion. The decline in the diamond and jewellery export sectors has been more severe at 14.41 per cent and 21.01 per cent respectively. Even the Indian diamantaires’ seemingly insatiable appetite for rough (Indian companies buy about 85-90 per cent of the world’s rough diamonds by volume) has taken a beating; imports for the year to date were down 27.2 per cent with a direct impact on prices.

Moody’s estimates that prices of rough fell by 18 per cent since the beginning of 2015, while Bain & Co said that there had been a decline of nearly 23 per cent since mid 2014. Both analysts believe that further cuts will be required to restore equilibrium in the pipeline.

Yet, the year draws to a close with a few positives as well.

The most important of these is the acceptance of the proposition that the industry as whole must come together for generic promotions of diamonds as a category.

The Diamond Producers Association that was formed earlier this year has already launched some promotions in the US, perhaps the first such organised attempt since De Beers gave up its generic campaigns around the slogan ‘A Diamond is Forever’ almost a decade ago. Indications are that 2016 may see this effort spread to other markets, as the DPA forms alliances for this purpose with organisations representing the middle manufacturing segment like India’s GJEPC.

Nearer home, the opening of the IDTC which is a Special Notified Zone for trading in rough diamonds will help the Indian diamond industry not just with a direct source of supply, but also to reduce transaction costs and improve margins. And the stress on boosting Indo-Russian cooperation in the diamond sector during the Modi-Putin Summit in Russia just before Christmas will certainly boost sentiments among Indian diamantaires.

Now as the curtain rings down on the old year, all eyes will be watching for the final sales figures of the US holiday season to give an indication of the direction in which the winds will blow in 2016.