While conditions in the diamond market are showing signs of improvement, companies still have not returned to the rates of activity that they considered normal before the onset of the global economic crisis, writes Frank Fensie, owner of the Antwerp-based diamond firm of Natisa Bvba, who also serves as chairman of the BVGD (Professional Association of Polished Diamond Dealers).

 
Not surprisingly, I was asked many times at the symposium how I see the state of the polished diamond market currently. My reply was that like a person who is suffering from the flu, the market is still weak, but we are glad to see that that there is a recovery, albeit a slow one.
 
Clearly, the diamond industry has turned around in the past year following the start of the financial crisis in October 2008. Is the market is in a stable position now, or is it still too early to determine? This is a question that is of concern to all of us. The patient is recovering, but is still ill. The industry overall has not recovered, but it is taking steps forward which are important and encouraging.
 
As for looking forward and the future state of the market, trading levels have increased. There is definitely a recovery, but we are still not fully recovered. Some people say they are at 50 percent of their previous level of activity, while others report that they are at 80 percent. Some have complained that they not able to find the goods they need for their operations, especially in the lower ranges.
 
There was concern expressed at the Antwerp Diamond Symposium that rough prices have been rising very fast, but that polished prices have been increasing much more slowly. Many people suggested that some manufacturers are buying too many rough diamonds, and that there is not enough demand for polished so they will be left with too many goods and not enough buyers.
 
It seems clear to me that part of the reason for the increased buying of rough goods can be explained by the fact that manufacturers are restarting their production which they cut back heavily for period of a few months. As a manufacturer, you have to anticipate the market, so this means that some confidence is coming back to the market.
 
Another issue raised at the symposium was that of selling diamonds at tenders which was criticized by many diamantaires, including Chaim Pluzcenik. They claimed that this system of selling rough goods is causing damage to the market by pushing prices higher. I believe that in the short term, Chaim Pluczenic is right, tenders are tending to push prices higher.  On the other hand, due to the fact that there are fewer dealers in rough diamonds, it gives an opportunity to companies who are not sightholders to access goods, and that is also important. In the long run, it seems clear that people who paid too much for rough diamonds will not be able to sustain this policy, and therefore that prices will be in accordance with profitability. This will serve to level out prices.
 
In terms of the diamond industry's finances, the banks have received a great deal of praise for their responsible moves in continuing to provide credit and thus allowing many diamond firms to keep on operating. I believe the actions that the banks took were very responsible, and were a perfect example of how banks should work with their customers. Support in difficult times, is essential in every sector, but is not always there, as some friends from other sectors have told me. We, therefore, are thankful to our banks, because they fully understand the diamond sector, and are not seeking short-term interests, but rather long-term returns. I would also emphasise the fact that a new bank came into the Antwerp market, and stated that it is here to stay, despite the difficult times.
 
Responsibility was also seen in the actions of the diamond producers who cut production heavily earlier this year to prevent the market being flooded with goods. As to whether they should now increase output to the market in line with rising demand, this is a difficult question. I find it normal that the producers should cut their production. After all, it is not in their interest that the market should be flooded with goods, and that prices would therefore plunge.
 
This has been demonstrated in other fields, such as the oil industry. I believe that production should always be in accordance with demand. However, just as with manufacturers, it is very difficult to forecast the level of demand in the future.
 
When looking at the state of certain markets, particularly the emerging markets as compared with the United States, we see that China and India are seeing increasing demand for diamond jewellery. Although this is encouraging, the question has repeatedly arisen as to whether they can make up for the fall in demand from the United States. I do not think that emerging markets can replace the world's most important market. The example of Japan comes to my mind. There was a boom in the 1980's, but is now at a very low level of demand. As for the United States, I believe that it will take some time, following the severe recession, to see some improvement.
 
In addition, there are many reports of what is being called the 'new normal,' a new economic system which is seeing a big change in the attitude of consumers. The strength and depth of the recession means that even people who have not lost their jobs and homes are less willing to spend as they did before. They are trying to save more of their earnings, and are looking for less expensive options when shopping. It is still too early to say if or how this will affect the diamond jewellery industry, but it is a concern.
 
A crucial issue which the diamond industry must deal with is that of how it markets itself. My major concern is the lack of advertising for generic diamonds in general, and especially to the youth sector.  They are not targeted, but will be, or should be, our customers for the next decade. The producers are aware of this. They are busy setting up a body that will take the role of promoting generic diamonds. I don't know why Alrosa has not joined yet, but I suppose they will.
 
I hope an independent body will be set up where no producer has any seat in it so that there will be no political games that would harm the functioning of the body. The organisation should then appoint a major advertising firm, having as its sole goal, to market generic diamonds and improve demand for it. Every producer should contribute a certain percentage of their turnover to it, in the same way that Platinum Guild is functioning. My hope is that it will not take another year to set this up, we are really in need of such a marketing tool.
 
Finally, at the Antwerp Diamond Symposium, I chaired the workshop on polished diamonds. Several issues stood out, and one that was raised was whether there are too many people and companies involved in the business. My answer to that was that it depends on the distribution of goods. You have two approaches to distributing goods. One is the delta form of distribution, and the other one is what we called the highway distribution.
 
In the first distribution chain, you need as many people as you will have offspring.  In that distribution chain, every link is important, and the chain is as strong as the weakest link. It is therefore important that one should be sure that every link is fully supported by the whole chain.
 
The highway approach is a more risky one. In other sectors, it didn't have the expected result. IBM for example was number 1 in its sector in the 1960s.  They decided in the 1980s to go, according to their words, "from manufacturer to consumer". That was a failure, they lost grip of the market, and almost went bankrupt. They came back to the traditional distribution trough dealers and are back at the top.
 
I believe that both systems will co-exist, and that it is very important that both systems work together, and not against each other.  This will optimize the selling of the goods, and make it possible to reach as many customers as possible. I still believe in the mum and dad shop, especially in small towns.
 
Frank Fensie chaired the workshop panel on polished diamonds at the Antwerp Diamond Symposium staged by the Antwerp World Diamond Centre on November 16.