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 other expensive items.
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 jewelry 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, a Tel Aviv-based firm, 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.
“Have you ever heard of a 20-year-old standing outside a store all night to buy jewelry?” Ernest Blom, president of the World Federation of Diamond Bourses, asked delegates at an industry conference in Tel Aviv.
“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.
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.
Even-Zohar said that although overall retail jewelry 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 jewelry, 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.