Though De Beers chairman Nicky Oppenheimer’s comments about the state of the US market and how it might impact diamond demand don’t state anything that the diamond industry didn’t already know, they’ve just confirmed the Indian cutting and polishing industry’s worst fears.
Oppenheimer was quoted in this report as saying, “Demand for better-quality diamonds is continuing in the subprime-impacted US… but, because of the ‘disproportionate’ volume of ‘lower-quality, cheaper diamonds’ sold there, the subprime crisis is ‘obviously a worry’.
Those who deal in the low end – and in India, that’s almost everybody – have been struggling with sharply reduced US demand for some time now. In many categories, the US is the only place those goods can currently be moved. So it is almost a given that the low end producers are in for a rough year.
In fact, except for the better end and the large sizes, demand has been poor almost across the board. The Indian diamond cutting and polishing industry has not yet come back up to full steam after having tapered off for the Diwali holidays last November. Now it looks like it won’t ever get up to full speed the rest of this year.
The market is now braced for the shakeout that is to come.
Gold is going to be the biggest stumbling block for the jewellery industry this year. Indian jewellery retailers from all over the country including the southern state of Tamil Nadu, considered the contry’s ‘gold sink’, have all, without exception, been saying that business has been hit (by an astonishing 70% in some cases as our report on it in the forthcoming issue of Solitaire International will tell you) badly by the high price of the yellow metal. As this report tells you, even the country’s largest brand is hurting.
Even the US jewellery consuming market, not really tied into intrinsic value the way the Indian one is, has reports of not only a consumer buying slowdown, but an actual reverse flow as people decide to turn gold into hard cash in market that is clearly in recession.
That high prices were hurting sales was proved when the price of gold dropped over the past few days. Consumers quickly leapt into the market to start buying again. But their doing so only stopped the fall in gold prices and the prices may have bottomed out where they are now. And we could still see prices go up past the $1,000 mark in the next few months.
Now more than ever, jewellery desperately needs a strong value proposition. Something that resonates with what consumers believe in or their ideas about themselves. Something that has nothing to do with intrinsic value.
Here’s more bad news for the global gem and jewellery industry. The two biggest and fastest-growing markets it is depending on to rescue it from the slump in the US market, seem to skidding off the rails themselves.
India, one of the world’s fastest-growing consumer markets, is coming off the boil. Loud newspaper headlines today made us aware of the fact that industrial growth had slipped down to 5.3%, setting off alarms. Indian finance minister P. Chidambaram had warned that a recession in the global economy and a strengthening rupee had adversely affected India’s growth outlook while high interest rates had slowed consumer spending this last year. India, the minister said, was at risk of missing its economic goals. (more…)
I’m really intrigued by this report which notes how despite the tanking US economy, Wal-Mart is thriving. While the reasons for its success in these difficult times is pretty straightforward – they mainly sell necessities that people will continue to buy no matter what the state of the economy – the report adds an interesting dimension to the question of whether low-end jewellery will sell in markets like the US in the coming months (or couple of years according to some gurus).
The fact is, specialist jewellery retailers have to depend on consumer footfalls that they have attracted with specific intent. You know you want to buy jewellery when you walk into a jewellery store. And apparently not many of the working class or lower income groups purposefully walked into jewellery stores over Christmas last year or even on Valentine’s Day this year. (more…)
The diamond industry’s leading lights have been worrying about the diamond industry’s growing bank debt for some time now. Pegged at somewhere near $12 billion worldwide, it is officially stated to be between $4.5- and $5 billion in India alone though industry insiders claim it is in fact way higher than that. So worried was the erstwhile ABN Amro (now Fortis), that Loet Kniphorst, the then global head of the bank’s diamond division, went around actively calling for the development of new instruments like derivatives and futures to mitigate some of the risk.
When questioned at the Mines to Market conference in Mumbai last year, he admitted however, that despite all his hand wringing, ABN had actually increased lending to the diamond industry in India. That answer drove home the point that banks don’t always follow the advice they dish out to others. (more…)
