Extraordinary times require courage

Dali Diamond

The diamond industry, from mine to retail, is facing new challenges that are rocking it to its core. Retail stores around the world are closed and that reverberated up the diamond pipeline, bringing wholesaling activity, jewelry manufacturing, diamond polishing, and diamond mining to a complete standstill.

This unfamiliar situation is testing us. We need to protect our workforce, renegotiate our standing with the banks, realign our activities, redo our business plans, and do so blindfolded. For as much as the current situation is unprecedented, the future is even less predictable than ever before.

Over the last few years, we frequently and justly complained of the high prices miners charged us in the midstream for our rough diamond supply. While we continued to operate at near to no profitability, miners maintained their sizeable profits. On the other end of the pipeline, retailers never let go of their equally large margins, regardless of changes to the midstream’s costs.

Over the years, as veterans of the industry know, diamantaires grew weary of the closed marketing structure of the diamond pipeline’s upstream, yearning for a fragmented supply, with the hope that competition will result in lower rough diamond costs, and finally allowing for more profit.

When the number of suppliers increased, we found that our profitability continued to erode. Worse, we discovered again and again that when the industry at large faced economic challenges, the midstream remained even more exposed than before.

As COVID-19 was in progress and international travel, shipping, and consumer activity dropped to near nothing, smaller suppliers took steps that threaten us all. Small suppliers in Africa, including Angola, were so eager to sell that they dropped prices sharply, in the process endangering the entire rough diamond price structure during a fragile time. At some tenders, rough diamond parcels were offered with low or no reserve price, resulting in deep price declines and further unjustified and harmful erosion of rough pricing.

Another internal destabilizing act was caused by a drop in the Rapaport price list, although polished diamond trading activity was at full stop.

Collectively, these acts have a negative potential for the diamond industry, and may further escalate the pains of an external force majeure. This is contrary to what the diamond industry needs these days.

In stark contrast to those acts are ALROSA and De Beers. Their decision to defer all rough diamond supplies for the time being were positive acts that signaled how a responsible diamond industry should act. The two mining companies, which face our regular criticism any other day, were the only ones ready to take full responsibility for our industry during a very extraordinary time.

Doing so required courage to take the tougher route that provides long-term sustainable gains over short-term income. It took courage in the face of shareholder pressure to generate continued cash flow.

Beyond the halt of sales, the calm messages they sent out to their clients and the industry at large was deeply needed and served as a restorative agent.

I have full trust in the future of the diamond industry. If we keep our belief in the everlasting desire for our unique product, and as long as we act cool headedly, taking calculated steps as we slowly emerge from this crisis, we will thrive in the days ahead. Stores will reopen, manufacturers will return to work, and sales will be restored.

By Isi Morsel, C.E.O. Dali Diamond Co.