COVID-19 shuts down diamond trade, but brings about big changes
Furious industry backlash to price drops by Rapaport pricelist; WFDB President Ernie Blom steps aside as Israel's Yoram Dvash takes over
It takes a trigger to bring about substantial change in any sphere of human endeavour. Ironically, it was the lack of activity in the diamond trade, due to the lockdown across the world caused by the COVID-19 crisis, which led the Rapaport group on March 20 to substantially reduce the prices of a wide range of polished stones, and which brought about far-reaching changes.
Meanwhile, another major development during the COVID-19 crisis was the decision by long-serving World Federation of Diamond Bourses (WFDB) President Ernie Blom to initially step down temporarily as head of the industry body for "medical, family and personal reasons".
A couple of days later, on April 20, a press release from the WFDB announced that during a meeting of the WFDB's Executive Committee held the day before via Zoom, Yoram Dvash, president of the Israel Diamond Exchange, was unanimously elected as the Acting President of the WFDB. There was no mention of Blom, or how long Dvash would serve as the Acting President although it would be reasonable to assume that Dvash will be formally elected as President at the planned WFDB Congress to be held in Hong Kong in November.
But first of all, let's look at the decision by the Rapaport group, led by Martin Rapaport, to slash prices on its list by a reported 5-9%. This instantly brought about a huge industry backlash, with dozens of diamond companies removing their diamond stocks from RapNet, the leading industry trading platform. Such was the response from the trade that Rapaport suspended the publication of the weekly pricelist for the first time in its 42-year history.
The firm decided that it will not publish the Rapaport Price List until May 1, after putting the issue to a vote among members of its RapNet trading network. The March 20 pricelist will be the official Rapaport Price List until then, Chairman Martin Rapaport said in a letter disclosing the results of a vote among members of its RapNet trading network.A total of 4,544 votes were cast, with 3,268 (72%) in favor of postponing the next issue of the price list to May 1, while 1,276 members (28%) supported continuing to publish on a weekly basis. Rapaport also decided to establish an advisory board to discuss future price decisions for his list.
The World Federation of Diamond Bourses (WFDB) was quick to harness their anger. The WFDB reportedly paid $5,000 for the Israel Diamond Institute's Get Diamonds platform which has not really created much traction since its inception less than decade ago despite its strong advantages in enabling buyers to pinpoint sellers at tradeshows, for example.
Then WFDB President Ernie Blom said the WFDB is making changes to the platform before launching it, and that more alterations are planned on an ongoing basis to make it more user-friendly. Any profits recorded by the platform, he said, will be reinvested into the diamond industry although there is no current indication of how this will happen.
He added that the new exchange will be operated as an independent, nonprofit body, and that a board representing a cross section of the diamond trade, to include exchange presidents, major manufacturers, and independent experts, will ensure its governance.
Blom said that usage of the exchange will be free at first, but the plan is to eventually impose a charge for members. Initially, the service will only be for members of WFDB affiliated exchanges, but the plan is to open it up to the wider trade at a future point.
He also commented that any disputes between members of the platform will be dealt with by the WFDB's arbitration process.
Meanwhile, Israel's Dvash said the Get Diamonds platform would start out with more than 600,000 listings, with the hope of an increase to 800,000–900,000.
“The WFDB is at a very historical moment as we have only recently launched the diamond trading platform, Get Diamonds, which has already become the largest such platform,” stated Dvash. “It is a time when it is absolutely essential for the diamond industry to stand together like never before to ensure the welfare of the entire diamond industry.”
It will be interesting to see how the development of Get Diamonds as a widely used trading platform develops. One Israeli source said that it had not been easy in the past to use because of the limited formats it accepted for the uploading of stocks.
New lease of life for the WFDB?
The WFDB's latest moves seemed to have given it a new lease of life at a time when it was looking to boost its role on the global stage. Its former dominant role in the diamond industry has been eroded over the past decade, with industry bodies, such as the Responsible Jewellery Council (RJC), the World Diamond Council (WDC), CIBJO, the Diamond Producers Association (DPA), and others taking on a dynamic approach as compared to the WFDB which has lacked a clear overall strategy.
While the RJC is setting standards regarding transparent trading and due diligence in the trade, the DPA is promoting natural diamonds and seen to be protecting the industry from threats coming from synthetics. Meanwhile, CIBJO plays a strong role in synchronizing jewellery trading rules, and the WDC is the diamond industry's representative at the Kimberley Process.
In June 2019, the WFDB decided to seek a way to boost its relevance and bring back the importance it held in years gone by. Given that other organisations are powering ahead and have a more vibrant set-up and are more motivated, it remains to be seen as to whether the WFDB will succeed in its mission.
Peter Meeus, the former chairman of the Dubai Diamond Exchange, was selected to run the project. "I made a master plan in February 2020, but that has since been overtaken by events. I have decided to step aside for a while," he said. "On the other hand, the Get Diamonds initiative has boosted the WFDB's relevance more than anything else. Time will tell."
Other industry bodies are also better financed than the WFDB which industry insiders say lost money as a result of its financing of the World Diamond Mark, since 2012, which apparently led to large-scale losses for the body. Sources say the WFDB has since ended its support of the World Diamond Mark. The WFDB has asked member bourses for an increase in their fees in a bid to raise money. The questions surrounding the World Diamond Mark and an increase in member bourse fees were among those sent to by The New Jeweller to Blom, but which did not reply.
The WFDB has also seen a decline in the esteem in which it is held by important global organisations in their decision-making processes, such as the Financial Action Task Force, the world's diamond producers, the US State Dept, and others.
"You only have to look at the annual meetings held in recent years, whether the World Diamond Congress or the Presidents Meetings," said one former bourse president. "We travel to far flung places for several days, at a cost to our businesses, just to discuss the same issues again and again. If a plan of action and something solid was to come out of the meetings, then that would make them worthwhile, but all we do is talk and then pledge to talk again at a later date."
Another WFDB figure asks rhetorically: "How many times have we talked about the threat of synthetic diamonds; the need for more sources of finance because banks are not interested in our sector anymore; the fact that we are hardly making a profit, if any at all; the need to persuade consumers to buy diamonds; and that we should groom young leaders and bring in more females because the industry is overwhelmingly male and middle aged, if not older. Every meeting I have attended has talked about these issues, but almost nothing has come of them."
What does the future hold for the WFDB?
What does the future hold for the WFDB? Clearly, it's too soon to know, but a new sense of vibrancy and activity is vital. It is no secret that among rank-and-file members of diamond exchanges around the globe, the activities of the WFDB are widely regarded as largely irrelevant to their needs.
The bourse presidents all run their own businesses, which must come before anything else, especially given the increasingly difficult conditions in the trade in recent years, their concentration is elsewhere. Every year a Presidents Meeting or Congress is held (they are held on alternate years). In addition, two and maybe three Executive Committee meetings are held in different global locations. That necessarily involves a substantial amount of travel and taking part in the discussion of ongoing issues by email and phone calls. There is no doubt regarding the commitment of most presidents to the WFDB, but there is a limit to how much they can be involved.
One source said that attempts to involve presidents in changes fell mostly on deaf ears. "Unfortunately, it was the same handful of presidents who showed an interest and responded. From the approximately 20 others, there was never any response. You can't run an international body like that and expect to be taken seriously. I must say that Ernie was very good at giving everyone their say in a democratic way and with consideration for a range of views, but at a certain point you have to power ahead and that simply didn't happen."
A former long-standing official of the WFDB, and other industry bodies, said the organisation had for many years taken a political stand on issues rather than what was good for members. "We had long discussions regarding certain bourse applications and looked at them from a political and financial standpoint rather than if they added value to our membership and the WFDB as a whole," he said.. There now needs to be a reconstruction of the WFDB."
As for Acting President Yoram Dvash, he has been a dynamic force at the Israel Diamond Exchange, bringing in many innovations and cutting costs which have been passed on to the bourse's members. For the good of the global diamond industry, it is to be hoped that he will also bring positive change to the WFDB.
Diamond sector: an uncertain post COVID
Deepak V. Lakhi
MD Sparklers International DMCC
How are you looking at the future - As more stock will result in less production leading to further job losses in the factories?
Secondly, Even if the market picks up - do you think excess stock would flood the market altogether leading to a price imbalance?
The lock down and the Pandemic is unprecedented.
Before we try to understand the Polished Diamond production & it's Demand, we need to understand that the world Economies are plummeting, Social distancing will become a new normal (for quite some time). Weddings, celebrations and gatherings are being put off.
Still, if the market picks up, there is ample stock of Polished Diamonds, to cater to such demand. While the Polished Diamond prices may sustain, due to the low replacement of goods from factories, the Rough prices will most likely feel the downward thrust, due to the restricted production of Polished goods.
The requirement of Rough Diamonds may drastically go down due to the compelling Government restrictions of social distancing and allowing upto 1/3 of the workforce in the offices & factories.
Not to forget that Manufacturers generally have 2 to 3 cycle of Rough Diamonds as backup and in the pipeline for uninterrupted cutting and polishing process. This itself can last for, quite a few months due to above restrictions (such as 1/3 workforce).
Adding to that, there is an appeal from GJEPC & other Diamond Trade bodies in India asking the industry,...
"To voluntarily cease import of Rough Diamonds for a month from 15 May, 2020"
This can be a month from when ever the industry starts operating and it further states that they (all the trade bodies) will review the situation towards the end of the month suggesting further course of action in this regard.
Thus, instead of Pricing Imbalance, we may see a Pricing Balance. This may fortunately result in much needed profits to the ailing Diamond cutting & polishing industry.
Unlike other industries, the Diamond industry has been procuring the Raw material, against advance payments & selling at long credits to the Polished clients. This financial system and miniscule profits, if any, has resulted in huge bank debts for the industry.
Currently the Cash flow is at it's worst. There is delay in Receivables, which in turn is blocking the fresh Bank finance for procurement & other payments, accruing bank interests on the debts, payment of salaries to office staff during the lockdown, supporting the factory workers is making the situation from bad to worse.