Uncertain future for global diamond trade as profits vanish


The family businesses that make up the global diamond trade have seen their profits wiped out over the past five years, hit by shaky financing, increased costs and uncertain demand from customers who prefer hi-tech gadgets to bling.

Manufacturers who cut and polish diamonds have found themselves caught between giant mining companies charging high prices for rough stones, and big retail chains that demand gems at low margins to keep sales moving.

While the $80 billion overall spent on diamond jewellery last year was a record, the manufacturers are expected to share a profit of just $100 million in 2015. That is half last year's total and down from $900 million in 2010, according to Chaim Even-Zohar of Tacy Ltd and Pranay Narvekar of Pharos Beam in Mumbai, two of the industry's top consultants.

Even-Zohar estimated that 300,000 Chinese and Indian workers had been laid off out of nearly 1 million employed in gemcutting in those two countries, where most manufacturing takes place.

“The rule of supply and demand doesn't necessarily apply to the diamond sector,” said Yoram Dvash, a high-end polisher in Israel who outsources his rough stones to smaller Israeli polishers.

Over the past year he has been sending his subcontractors 20 percent less volume.

“Manufacturing is not just work, it's out of love – taking the rough stones, with all their odd shapes, and bringing out the most precious thing in the world. But this love costs a lot of money. And rough prices have been going up and up with no connection to demand.”

In the longer term, the industry needs to sustain consumer demand at a time when the prized possession of many people with disposable income is more likely to be a smartphone than a piece of jewellery. The hottest wristwatch this year does not have diamonds on its face – it has an Apple touch screen.

“Have you ever heard of a 20-year-old standing outside a store all night to buy jewellery?” Ernest Blom, president of the World Federation of Diamond Bourses, asked delegates at an industry conference at a Tel Aviv luxury hotel.

“I haven't,” he answered. “We have fallen behind the times.”

Last month, the leading mining companies formed a Diamond Producers Association with a focus on stimulating consumer demand. But its annual budget is just $6 million, which many delegates at the conference said was not enough.

HIGH COST MINERS

The manufacturers and dealers depend on just a handful of miners, which control most of the world's diamond production and say they have had no choice but to pass on high costs further down the supply chain.

No major deposits have been discovered in about two decades. The miners say they are investing heavily to keep supplies coming.

Production in 2013 was down 26 percent since 2005, although estimates suggest it has risen slightly since.

De Beers, a unit of South Africa's Anglo-American which is the market leading diamond miner in terms of value, says current projects are costing it more than $3 billion.

Russia's Alrosa, the world's top producer by volume, just finished building three underground mines at $1 billion each.

De Beers acknowledged that high costs for rough diamonds were forcing changes on gemcutters.

“Overall, this trend is expected to affect the way the industry operates,” De Beers said a 2014 report. Less well-established midstream companies may have to close, it said, forcing a consolidation in the market.

Martin Rapaport, whose Rapaport Group is the primary source of diamond price information, said the miners had taken an unsustainable short-term approach by charging high prices.

When polishers and traders can no longer afford to buy rough diamonds, De Beers and Alrosa will suffer. To prevent this, they will have to lower prices, and “no longer make windfall profits,” he said.

De Beers has already reduced its output forecast for 2015 because of weaker demand. Alrosa's prices have fallen 6 percent this year.

Alrosa President Andrey Zharkov told Reuters the price drop “will help the manufacturers have enough oxygen in order to generate profits and keep consuming”. Nevertheless, the company said it still sees prices rising later this year.

RETAIL CONSOLIDATION

Manufacturers' margins are also being squeezed by retailers, including big chains that have been consolidating to cut costs.

Last year, the two largest U.S. mid-tier jewellery store chains combined, with Signet Jewelers buying Zale Corp for $1.46 billion. Hong Kong's Chow Tai Fook Jewellery Group , the world's largest retailer by market value, bought U.S.-based Hearts on Fire for $150 million.

Even-Zohar said that although overall retail jewellery sales were buoyant, jewellers were now putting fewer and smaller diamonds in their pieces.

“There is little comfort for a diamond manufacturer or trader if the retail jeweller sells more diamond jewellery, when the pieces contain less diamonds. So much for the retail growth figures,” he said.

The low profits make it harder for manufacturers to pay for the financing they need to buy rough diamonds and hold them until they can be sold. Even-Zohar and Narvekar estimate this debt totalled $15.4 billion at the end of last year.

The manufacturers service the debt while they work on the diamonds, bearing the risk that prices could fall before they have a finished product to sell. That risk has put off banks, which have cut back lending or pulled out entirely.

Israel's Bank Leumi closed its diamond business and Belgian group KBC said it was winding down Antwerp Diamond Bank. Lenders in Dubai, like the National Bank of Fujairah, have tried to fill the financing gap, but traders say it is not enough.

Calendar Picks and Clicks: August 11-17, 2012


SAT | AUG 11

NEIL DIAMOND
The Grammy-winning pop-rock icon played a series of sold-out shows at the Greek in the summer of 1972, which led to the multiplatinum double live album, “Hot August Night.” Forty years later, Diamond returns to the Greek stage to celebrate the anniversary of those concerts, performing such hits as “Sweet Caroline,” “Cracklin’ Rosie,” “Solitary Man” and “I Am…I Said.” Sat. Through Aug 25. 8 p.m. $49-$250. Greek Theatre, 2700 N. Vermont Ave., Los Angeles. (323) 665-5857. greektheatrela.com.


SUN | AUG 12

SEPHARDIC JEWISH FILM FESTIVAL WORKSHOP
Experts from the film industry—producer Robert Israel (“Ace Ventura: Pet Detective”), documentarian Bette Jane Cohen (“The Spirit in Architecture: John Lautner”) and animator Brooke Keesling (“Boobie Girl”)—present clips of their work and discuss the moments and people who have inspired them. Sun. 11 a.m.-1 p.m. Free. The Jewish Federation of Greater Los Angeles, 6505 Wilshire Blvd., Los Angeles. RSVP (323) 272-4574. sephardicfilmfestival.com.

“VOICES FROM THE SILENCE”
A new print of 1924 Yiddish silent film masterpiece “Yidishe Glik” (“Jewish Luck”)—based on Sholem Aleichem’s satiric stories about daydreaming entrepreneur Menakhem Mendl—marks today’s 60th anniversary of the executions of 13 leading Jewish literary and civic figures in the former Soviet Union. Los Angeles Times and NPR film critic Kenneth Turan appears in person to introduce the screening. Sun. 5 p.m. Free. Workmen’s Circle/Arbeter Ring, 1525 S. Robertson Blvd., Los Angeles. (213) 389-8880. yiddishkayt.org.


TUE | AUG 14

REGINA SPEKTOR
The Russian-born singer-songwriter puts her multi-instrumental chops on full display on new singles “All the Rowboats,” a haunting sample-driven number, and “Don’t Leave Me (Ne Me Quitte Pas),” an upbeat piano-pop tune, from her new album, “What We Saw From the Cheap Seats.” Spektor has proven that she hasn’t lost her touch even after six albums. Tonight, she performs with special guest Only Son. Tue. 8 p.m. $39.50-$55. Greek Theatre, 2700 N. Vermont Ave., Los Angeles. (323) 665-5857. greektheatrela.com.


WED | AUG 15

“SHALOM AMIGOS”
The migration of approximately 1,000 Jewish settlers to the Dominican Republic during World War II – and the integration of Jews into Dominican society – forever changed the Caribbean nation. Tonight at the Skirball, an interactive Web documentary examines the relatively unknown history of the Jewish community in the Dominican Republic through the memory of the settlers and their descendants. A Q-and-A with directors Adrien Walter and Emmanuel Clemenceau follows. Wed. 8 p.m. $6 (general), $5 (Skirball members, full-time students). Skirball Cultural Center, 2701 N. Sepulveda Blvd., Los Angeles. (310) 440-4500. skirball.org.


THU | AUG 16

JEWLICIOUS SUMMERFEST
Rock n’ roll meets religion at Jewlicious’ summer camp-style festival for young professionals (18 and over). Taking place over the course of four days and three nights, this annual overnighter features performances by reggae singer Pato Banton, acoustic-pop musician Ari Herstand, Mikey Pauker and others. Activities include horseback riding, mountain biking, late-night Torah learning, and discussions on social entrepreneurship and relationships, among other topics. Thu. Through Aug. 19. 3 p.m. $56-$699. Brandeis-Bardin Campus American Jewish University, 1101 Pepper Tree Lane, Brandeis. (310) 277-5544. jewliciousfestival.com.

DUDAMEL CONDUCTS COPLAND
Celebrated Venezuelan conductor Gustavo Dudamel leads the Los Angeles Philharmonic and Venezuelan pianist Sergio Tiempo in a performance of quintessential American composer Aaron Copland’s four-movement “Symphony No. 3,” which fuses jazz, neoclassicism and modernism. Thu. 8 p.m. $1-$133. Hollywood Bowl, 2301 N. Highland Ave., Hollywood. (323) 850-2000. hollywoodbowl.com.


Friday | AUG 17

“IT IS NO DREAM”
The latest production from Moriah Films, the Oscar-winning film division of the Simon Wiesenthal Center, explores of the life and times of Theodor Herzl, the father of modern political Zionism. Co-written and produced by Rabbi Marvin Hier, founder of the Simon Wiesenthal Center, and directed by Richard Trank, the film features narration by Ben Kingsley and stars Christoph Waltz as the voice of Herzl. “It Is No Dream” follows Herzl as he meets with kings, prime ministers, ambassadors, a sultan, a pope and government ministers in his quest to create a Jewish homeland. Fri. Various times. $11 (general), $8 (children under 12, seniors). Laemmle’s Music Hall 3, 9036 Wilshire Blvd., Beverly Hills. Laemmle’s Town Center 5, 17200 Ventura Blvd., Encino. (310) 478-3836. laemmle.com.