Dear Member,
We are pleased to send you in this latest Newsletter, the speech given at the Symposium on November 17th, 2008. It summarizes the issues that the BVGD is working on.
Best regards,
Andre Gumuchdjian
Excellencies, dear Colleagues of the diamond trade, Ladies and Gentlemen,
As president of the Polished Diamond Traders Association, it is an honour to speak to you today. I would like to share with you a few points for which we feel strongly. For being small and flexible we are closest to our customers and consumers and many of the changes that are talked about today, we had raised years ago.
I would like to start by stating the intensity of my commitment to the diamond trade. My grandfather arrived one hundred years ago in this city and started his activity in this marvellous industry. Whether we are aware of it or not, we are not just purveyors of a raw material, we actually all contribute to a dream: the realisation of a powerful and enduring symbolism. Furnishing diamonds to people who want to symbolize their most precious emotions, the love for the ones they love, with our material. We are in a very special and blessed trade and it is useful to stop and pause regularly at how fortunate we are to engage in such a beautiful activity.
It is important to remember these fundamentals for they are the pillars on which we build our trade.
On the economic crisis and its effect on the polished diamond trade.
It was inevitable that the financial crisis of the preceding months would develop into an economic crisis. It is equally inevitable that prices will decrease. We witness that in the rough market prices have come down some 30%. But I’d like to remind you, that there was an intense and unwarranted speculation in the rough market, exacerbated by a few factors, I’ll come back later to that.
I do wish to attract the attention of all present that in the polished diamond market, the traders have always exercised real caution. To be sure prices were going up, but as a whole few of us engaged in reckless speculative buying. In fact as prices were increasing many of our customers refused to follow suit and purchases diminished steadily.
Those who say that the rough market plunge will translate into a polished diamond collapse miss the point that only a few months ago, rough dealers and manufacturers were overpaying rough by as much as 20% above what was actually obtainable on the market at the time. They were speculating that three months later, when the merchandise would be manufactured and ready for sale, the market would have risen enough (if not more) to catch up with the price differential.
Of course, when the music stops, not only do the lofty premiums disappear instantly but also some adjustment is made to ensure profitability. A drop of 30 or even 40% in the rough market does not surprise us and represents a realignment of rough prices to the polished diamond market.
Allow me to quote Charles Wyndham from PolishedPrices.com:
This is pretty bad news for many, but at the same time it is just this realignment of rough prices which has the seeds for the industry’s recovery.
Cheaper rough, so long as polished prices do not fall at the same rate, is bringing the chance of profitability back into the industry. It is providing the opportunity for the industry to trade out of its current situation.
However painful it will be, and it (…) will be more so for some than others, it is keeping the wheels turning that is absolutely critical.
(Graph)
This represents a normal functioning of the market. Which leads me to the next point.
Free and open markets
Unfortunately, because of the way rough diamond is distributed in our industry, artificial shortages or gluts keep occurring, unsettling the market. We have to realize that the days of controlled supplies do not work. That era is over. Since there is no turning back, the interest of the diamond trade is to move as quickly as possible to a free and open market.
In these days of turmoil and uncertainty, I would like to remind everyone that we can and should trust time tested economic fundamentals, market mechanisms and sound financial principles. This is the Trinity that we should all worship and implement without fear of the consequences.
Importance of a wide market base
Although they are important, I’d like to underline today that we should not concentrate our attention solely on the big players. It is important to be aware that there are 1200 small and medium sized companies actively trading diamonds in Antwerp. By buying and selling from one another and all over the world, these numerous economic operators are the essential guarantors that there is a functioning market out there. Furthermore by keeping some inventory themselves, they are a key part of the diamond pipeline. And last but not least, it is this group that employs the largest numbers of people.
It is of paramount importance therefore to ensure a level playing field for everyone in our industry. The big players need these numerous traders to keep their business going and liquidity flowing in difficult times.
I would also like to draw the attention - inasmuch as we can do anything about it - to the dangers of encouraging players to become too big. First of all this poses obvious competition problems, but most importantly I believe our industry is not suited to have few and big traders. Finally, the consequences of any of them failing represents too a big threat to the industry.
Banking Issues
It is also a good time to talk about banking issues and behaviours. A ballooning of the debt of the diamond trade was allowed to happen. We Belgian Polished Diamond traders appeal also to the banks to act responsibly. Not only by paying due attention to the small & medium companies and to be wary of giving huge credit in the future but also to act responsibly for the predicament they have put us all in as a consequence.
Commodity
Much as this is an issue of debate, we believe diamonds are a commodity. To be sure, a very special one, one laden with powerful symbolism, but a commodity nonetheless. I believe we can compare diamonds with gold, its closest mineral in terms of place in the economy.
There are a few conclusions we can draw from that. The first is about price: gold price fluctuates too, does it drops dramatically to the bottom? No.
Another one is about sales: does the fluctuating price seriously alter sales or the status of gold as a widely used metal in jewellery? No. And so on…
The same holds true for diamonds. I don’t know what prices will do in the future but what I can assure you is that demand for diamonds and trade will continue. We deal in a timeless product that fulfils a very important need for people who are looking for value and are looking for something as reliable as diamonds to mark important milestones in their lives.
De Beers and the Supplier of Choice program
As you are aware we have lodged a complaint against the Supplier of Choice program with the European Commission in 2005 and the matter is now pending before the European Court of First Instance in Luxembourg.
I will surprise some of you by saying that De Beers has done and still does good things for the industry. To begin with, its strong generic campaign to convey and enhance the desirability and symbolism of diamonds. I remember seeing the presentation of a TV ad at the Las Vegas show two years ago. The message was so well made, that I, wholesaler in fine polished diamonds, felt the urge to buy a diamond for a woman on the spot! …
Yet, we opposed De Beers’ system of Supplier of Choice. We believe that this policy has been a fundamental mistake. Going back to the graph I showed you earlier, it is obvious that the much vaunted claim of Supply of Choice to increase the price of polished to become the ‘pull’ for rough has failed miserably (Charles Wyndham). By trying to - quote “ask sightholders to increase consumer demand and go downstream” unquote – one of the side effects is that it has led to an artificial shortage on the market. A natural scarcity has thus turned into an artificial shortage. This shortage and the speculation that ensued started to feed on itself and this is one more factor that has led us to where we are now.
Hopefully, the European Court will cast light on what is permissible or not for a market dominant company. As we expect our arguments to prevail, this will lead all of us (the Bourses, the Trade organizations and De Beers), to a profound reassessment of how to implement a truly functioning, competitive and efficient diamond distribution that safeguards the long term interest of our industry.
Narrow market
The diamond market is extremely narrow. There is only $12 or 13 billion of rough coming out of the ground – world wide! – in one year! We have thus to be very careful when implementing or changing anything in the diamond market as changes can have big consequences.
Generic advertising
I take this opportunity and I understand this was a clear message from the market at yesterday’s workgroup, to urge the diamond miners and producers to unite their marketing efforts in one organisation to promote generic advertising of diamonds I have witnessed the excellent work done for example by the people at the Platinum Guild and the Belgian Polished diamond traders hope the producers can go beyond their own divisions to create a similar platform. Individual branding will not work and will ultimately fail us too.
Price List
During the workgroup and subsequent meetings to this symposium, the majority of traders have expressed their strong frustration not only with what we perceive as the erroneous price reporting by the Rapaport Group, but the fact that the methodology is obscure and that as industry users, we have no input into its elaboration. We also acknowledge that there is a need for a price guideline in our industry. I am particularly happy to witness that Antwerp and the World Federation of Diamond Bourses are ready to take the future in their own hand. Obviously it will be a difficult road and many pitfalls beckon, but if there is one thing we can be sure, it is that both Martin and I are firm believers in competition -and that includes price lists- provided it’s open, free and fair. Right, Martin? I do want to emphasize that Martin Rapaport has done good things for the industry, not least of which is his generous lobbying for us to be aware of everyone in the diamond chain starting at the small alluvial miner in Africa. Martin Rapaport does what he believe is his job, we diamantaire have to do what is right, not only for ourselves but also for consumers. It is high time we take our own destiny in our own hands and not give it to any one single man or company. To paraphrase a very popular new leader: Yes We Can!
Antwerp
I cannot finish by not saying a word on the city that has welcomed us many years ago.
I am the grandson of an Armenian immigrant that arrived from the Ottoman Empire one hundred years ago. His son, my father, and myself later, all contributed to the growth of this city. My grandfather came to find a place where to conduct business freely within a secured environment. This city has welcomed him as it has welcomed thousand of others. I have full confidence in the Authorities that they will do all that is needed to allow this business to thrive and flourish in Antwerp.
Antwerp has a major role to play and I believe will have an even greater role in our industry than ever before. This is one of the most industrious city of the North See, Antwerp has been part of the Hanseatic League back in the Renaissance some 400 years ago, its ships have toiled all over the world in a spirit of entrepreneurship that was and is unparalleled elsewhere.
That spirit Ladies and Gentlemen, is still very much alive today. While there may be very little manufacturing going on in Antwerp today, it is Antwerp companies with Antwerp capital that have set up so many cutting manufactories all over the world. Diamonds come in and out every day and Antwerp entrepreneurs are eager to engage the world and develop its activities. We, polished diamond traders, are asking that Antwerp entrepreneurs be allowed to do their job without hampering their activity by adding useless bureaucratic red tape, allowing inefficiency to occur or adding abusive industry specific taxes that have been proven to be totally inefficient.
We should all strive to eliminate useless constraints in order to let this city be even more dynamic.
Responsible citizens
The rule of Law is very much in force in this country. (Even the government is not above the laws). To be sure the authorities want to stop shady practices in the diamond trade in Antwerp and we are resolutely supporting this drive. As responsible citizens, we strongly believe that people who engage in conflict diamonds or other criminal activities should be thrown out of our trade without any shadow of a doubt. But we should also be careful not to throw the baby with the bath waters. Some people may have made mistakes but are not criminals. They have the right to defend themselves in contradictory debate by an impartial Court. The Belgian justice system is based on rehabilitation not repression.
I know that those in charge at the AWDC are efficiently busy addressing this issue, separating criminal activities from other possible irregular practices in order to ensure that Justice prevails but that businesses can continue to operate.
Conclusion
In conclusion, Ladies and Gentlemen, I would like to remind everyone that although we live turbulent times, a time of economic uncertainty, there is no reason for alarm. Our industry has strong assets. Now is perhaps a good time to have patience and not take hasty decisions. I also appeal to banks to do the same.
Let us allow the market to operate without exerting excessive influence in one way or another.
Some of the suggestions by well meaning people that I have heard are not the solutions to the problems. For example, when the NYSE and other markets were collapsing around the world, some called for temporary closure of the markets. That fortunately did not happen and would have been a grave mistake. Because it would have hampered the functioning of a free and open market and thus damage confidence. I would like to point out that even as the markets were tumbling, for every 10.000 people that were selling their shares, there were 10,000 people ready to buy them! That Ladies and Gentlemen is the spirit that should guide us for the future.
I thank you.
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