Opinion by Maxim Shkadov
It was somewhat strange to hear some industry analysts — and diamond professionals as well — declare the year 2015 an annus horribilis. While some may feel it was so, in my view, it rather was an anno veritatis, a Year of the Truth. Indeed, never before have the deficiencies of the diamond supply pipeline been laid bare so clearly, and yes, so painfully.
The arguments for profitability in diamond manufacturing that were made time and again by our organisation in the past years, which were summarily dismissed by producers and industry commentators alike, not only gained traction but were parroted by those same industry analysts and reporters who only a short while earlier ridiculed the cause of the diamond manufacturers. Of course, neither the analysts, nor the overwhelming majority of management of the diamond producers had an inkling about what it takes to be a diamond manufacturer.
But let bygones be bygones. There now seems to be across-the-board consensus in our industry that stability in the diamond manufacturing sector can only be achieved through increased profit margins. Recognising this shift, a few months ago, IDMA engaged independent industry analyst Edahn Golan to conduct a study that would determine the level of margins in the diamond industry and the manufacturing centres in a range of popular rough diamond assortments.
These goods mostly result in +1 carat, G-J colour, VVS-SI clarity polished rounds. Golan's report goes beyond these 4Cs to also include two instances of smaller goods, one instance of lower colour I-M goods, and one of I clarity goods. In terms of geography, Golan's sample data for the study represent diverse locales and the different cost of manufacturing associated with labour and other costs associated with particular locations. The data relates to January-July 2015.
In his introduction, Golan writes: "As suspected, the rough diamond assortments checked for this report have either proven to be borderline economical, on a gross margin basis, or uneconomical. Because many of the polished diamonds manufactured from the tested goods are later certified, especially those weighing one carat or more, we also examined the gross margin profitability after adding the cost of GIA certification. Under those circumstances, all of the tested polished diamonds were rated as uneconomical with one exception — the Commercial 2.5-4 carat box."
IDMA soon will make this report available shortly for the public at large.
Of course, the diamond sector can and will not return to profitability without a healthy and reliable financing structure. As the players in the supply pipeline will become positively aligned, it is our hope that the banks' will become confident enough to reinstate and strengthen financing structures of our sector.
In closing, we continue to demand that those players working with synthetic diamonds, will properly disclose and report the identity of these stones. We must do all we can to maintain and strengthen consumer confidence in natural diamonds, for the benefit of the entire diamond supply pipeline.