Diamond Out look FY 2009-10 Nayan Jani
This is an outlook for GJ Industry for the FY 2009-10. What we know today is blowing global crisis & not only GJ industry but also global financial system is in a hot water! Global leaders are exercising brainstorming to regularize global financial & trade-n-commerce system.
Every industry, related sectors & associates, including players are exercising to keep their company fit by learning the theory of survival - ‘survival of the fittest.’ By every means they wanted to see that they are beyond the crisis reach. Yet never know how long this crisis will last!
Well let’s focus on GJ industry scenario.
Diamond:
To conclude our outlook for the fresh FY let’s think diamond pipeline rough to retail right now that by passing through three views:
1: In a cover story, ‘Crisis: Strategies & policies’ what I inked in the month of January- the last JNI issue said this on going crisis would last even in the year 2010, “That’s what I want to say get ready until 2010...” That was about ‘Encompassing turmoil.’
2: In the month of February, in his presentation on ‘2009 Diamond Industry Scenario: A Painful Road to stabilisation’ Chaim Even Zohar get expressed: ‘under present scenarios demand for rough diamonds will drop by 60% in value term for 2009 and first few months of 2010.’
3: Stephen Lussier, De Beers' marketing director, made very clear expression to PolishedPrices,
‘Rough diamond prices may recover by Christmas 2010 after big players reduced output in response to a sharp drop in demand...’
Views above say rock hard recession is being on going & will shadow on just month away new FY to step up! Let’s glance over diamond pipeline right from rough to retail.
Scenario Rough:
According to RBC Capital analyst Des Kilalea rough diamonds demand will found depressed until June 2009. Main reason what I see behind Kilalea’s analysis is depression at mining sector. Miner’s priority is cash conservation. Meager rough demand & global volatile financial status has been insisted mines upon low production, thinking for cash saving measures and to wait until rough demand is growing at sustainable price point.
Until now rough diamond prices have tumbled up to 30% to 50% and accordingly major producers have resolved to go cool production. Under cash saving measures DeBeers Botswana learned to shut down their diamond operations & that to be effective from March 03, 2009.
Thus DeBeers could slash production by 30% during the year 2009. Des Kilalea estimates that the global production could fall from 160m carats to 120m low, in 2009 as major producers
De Beers, Alrosa and Rio Tinto limit production to meet lower demand.
By carrying these background FY 2009-10 would bring more crash in rough diamonds prices by 10% to 20%. De facto prices have already been tumbled yet Chaim Even-Zohar has analyzed that rough diamond prices are above polished level in the early 2009 by 20%-30%. What he observed that rough diamond market has become ‘Buyer’s Market’ for the time ever since World War II. Right with the Q1, FY 09-10 mining companies will start passing sour crisis fruits to bottom of their pyramid under several measures & conservations. This will hike up jobless ratio in diamond producing countries especially African Majors could be pushed down under severe economic peril. Already their diamond export have tumbled by 50% in October 2008.According to Dr Keith Jefferis, Economist – Botswana, because of deprived export the Botswana government lost about 66% of revenue in the year 2008. What if numbers of unwaged that increases against job creation movement even in the presence of Beneficiation enforced!
Scenario Polished:
While looking at polishing scenario one has to consider diamond cutting & polishing centres’ surroundings. Let’s consider two players: 1: India 2: Israel. Polished diamond exports chart have tumbled at both these centers in the month of January that opened up the year 2009. India registered -41% & Israel registered polished diamond exports lower by 59% on YoY. What common sentiments are observed is rough diamond imports of both the centres dived deep by 76% & 77% accordingly. In short diamond centres are cool on rough import front.
This blues & chilliness is the sum total slump of over past five quarters that registered in retail.
In his last update for World Economic Forum, Davos Edmund Conway inked Steve Schwarzman, chairman of private equity giant Blackstone. Steve said, ‘global crisis has destroyed 40% of world wealth!’ “Almost incomprehensible’ amount of cash had evaporated since the financial crisis took hold” he added. Indeed this is true. Right from rough to retail, the prime worry is cash! And this crunch mounted ‘estimated debt of US $ 13-15bn to diamond industry’ I inked in the last cover story-January, Crisis: Strategies & Policies & also inked the expressions of Avi Paz – President, WFDB, “The banks are nervous, and banks are looking at every diamond dealer, and looking at the debt how they are covered.”
Scenario Jewellery retail:
Retail that deals with end user. And virtually that end user will be lost throughout the
FY 2009-10. What crisis is being faced at the tip of pyramid that would be shifted toward pyramid bottom during the FY 09-10. Now the Mantra is, ‘Spending must go on.’ And million dollar question is who will spend on jewellery this year?
Let’s learn more detailed.
This is an outlook for GJ Industry for the FY 2009-10. What we know today is blowing global crisis & not only GJ industry but also global financial system is in a hot water! Global leaders are exercising brainstorming to regularize global financial & trade-n-commerce system.
Every industry, related sectors & associates, including players are exercising to keep their company fit by learning the theory of survival - ‘survival of the fittest.’ By every means they wanted to see that they are beyond the crisis reach. Yet never know how long this crisis will last!
Well let’s focus on GJ industry scenario.
Diamond:
To conclude our outlook for the fresh FY let’s think diamond pipeline rough to retail right now that by passing through three views:
1: In a cover story, ‘Crisis: Strategies & policies’ what I inked in the month of January- the last JNI issue said this on going crisis would last even in the year 2010, “That’s what I want to say get ready until 2010...” That was about ‘Encompassing turmoil.’
2: In the month of February, in his presentation on ‘2009 Diamond Industry Scenario: A Painful Road to stabilisation’ Chaim Even Zohar get expressed: ‘under present scenarios demand for rough diamonds will drop by 60% in value term for 2009 and first few months of 2010.’
3: Stephen Lussier, De Beers' marketing director, made very clear expression to PolishedPrices,
‘Rough diamond prices may recover by Christmas 2010 after big players reduced output in response to a sharp drop in demand...’
Views above say rock hard recession is being on going & will shadow on just month away new FY to step up! Let’s glance over diamond pipeline right from rough to retail.
Scenario Rough:
According to RBC Capital analyst Des Kilalea rough diamonds demand will found depressed until June 2009. Main reason what I see behind Kilalea’s analysis is depression at mining sector. Miner’s priority is cash conservation. Meager rough demand & global volatile financial status has been insisted mines upon low production, thinking for cash saving measures and to wait until rough demand is growing at sustainable price point.
Until now rough diamond prices have tumbled up to 30% to 50% and accordingly major producers have resolved to go cool production. Under cash saving measures DeBeers Botswana learned to shut down their diamond operations & that to be effective from March 03, 2009.
Thus DeBeers could slash production by 30% during the year 2009. Des Kilalea estimates that the global production could fall from 160m carats to 120m low, in 2009 as major producers
De Beers, Alrosa and Rio Tinto limit production to meet lower demand.
By carrying these background FY 2009-10 would bring more crash in rough diamonds prices by 10% to 20%. De facto prices have already been tumbled yet Chaim Even-Zohar has analyzed that rough diamond prices are above polished level in the early 2009 by 20%-30%. What he observed that rough diamond market has become ‘Buyer’s Market’ for the time ever since World War II. Right with the Q1, FY 09-10 mining companies will start passing sour crisis fruits to bottom of their pyramid under several measures & conservations. This will hike up jobless ratio in diamond producing countries especially African Majors could be pushed down under severe economic peril. Already their diamond export have tumbled by 50% in October 2008.According to Dr Keith Jefferis, Economist – Botswana, because of deprived export the Botswana government lost about 66% of revenue in the year 2008. What if numbers of unwaged that increases against job creation movement even in the presence of Beneficiation enforced!
Scenario Polished:
While looking at polishing scenario one has to consider diamond cutting & polishing centres’ surroundings. Let’s consider two players: 1: India 2: Israel. Polished diamond exports chart have tumbled at both these centers in the month of January that opened up the year 2009. India registered -41% & Israel registered polished diamond exports lower by 59% on YoY. What common sentiments are observed is rough diamond imports of both the centres dived deep by 76% & 77% accordingly. In short diamond centres are cool on rough import front.
This blues & chilliness is the sum total slump of over past five quarters that registered in retail.
In his last update for World Economic Forum, Davos Edmund Conway inked Steve Schwarzman, chairman of private equity giant Blackstone. Steve said, ‘global crisis has destroyed 40% of world wealth!’ “Almost incomprehensible’ amount of cash had evaporated since the financial crisis took hold” he added. Indeed this is true. Right from rough to retail, the prime worry is cash! And this crunch mounted ‘estimated debt of US $ 13-15bn to diamond industry’ I inked in the last cover story-January, Crisis: Strategies & Policies & also inked the expressions of Avi Paz – President, WFDB, “The banks are nervous, and banks are looking at every diamond dealer, and looking at the debt how they are covered.”
Scenario Jewellery retail:
Retail that deals with end user. And virtually that end user will be lost throughout the
FY 2009-10. What crisis is being faced at the tip of pyramid that would be shifted toward pyramid bottom during the FY 09-10. Now the Mantra is, ‘Spending must go on.’ And million dollar question is who will spend on jewellery this year?
Let’s learn more detailed.
Market Surroundings:
IMF updated ‘Global Financial Stability Report’ in the month of January 28, 2009. That focused over two major parts 1: Writedowns Mounting 2: Financing Gaps Widening. The IMF worried upon impaired Credit Provisions and said decisive and prompt policies are needed.
‘Until now banks have managed to obtain sufficient capital to offset existing writedowns, but that is mainly due to the massive public sector injections of capital in the fourth quarter.’ IMF says estimates are quite difficult to construct, “but for European and U.S. banks, (including their exposure to assets domiciled not only in the United States, but also in Europe and emerging markets), our rough estimates for expected writedowns during 2009 and 2010, partly offset by the anticipated revenues over the same period, would result in a net capital shortfall in the order of magnitude of at least half a trillion dollars.”
IMF categorized both market & split up for views 1: advanced 2: emerging. Impact of widening financing gaps would be:
1: Advanced Market:
As corporate tap banks for short-term loans, the maturity structure for corporate debt also shortens, further raising rollover risks. Capital markets remain reluctant to lend pending large external rollover needs and corporates face the additional challenge of falling revenues as the global economy slows, raising the risk of corporate defaults.
2: Emerging Market:
Emerging market countries, particularly corporate borrowers, remain vulnerable to continued deleveraging and credit retrenchment. Syndicated lending to emerging markets dropped sharply in the fourth quarter (Year 2009), as the contagion spread, with emerging Europe suffering a particularly sharp decline.
Spending sentiment:
Globally buyer’s spending sentiment will impair intensely than the past year. In the accordance with the ILO (International Labour Organisation), about million jobs have been lost during the year 2008 amid developed economics & EU. Probably the year 2009 may add unwaged by 51mn people.
Dominique Strauss-Kahn MD-IMF said to the Daily Telegraph that the world’s advanced economies were now tipping from recession into full-blown depression, cementing fears about the scale of the economic slump in rich nations. … He warned that the economic crisis would intensify unless the financial system was repaired, saying that although he hoped the world could avoid a repeat of the Great Depression, the “worst cannot be ruled out. There’s a lot of downside risk.”
In short because of such scenarios in one hand & on the other hand swiftly cash pulling will be operated by bigger players from the tip seat of pyramid would create massive reservations upon buyer spending sentiment. In the new FY 2009-10 buyers would limit jewellery spending & related cash flow too. Since we are aware of last five quarters & also aware of blues at retail & that would be extended sharply this year. One could understand from the ‘Economic Tracking Data’ JCOC for the month of January ’09. What I have learned during the last gone five quarters that buyer sentiment is unchanged & immobile upon any spending question. Similar sentiments have reflected even in the month of January’09. Just pay attention upon two Q’s.
1: Would you say that at the present time overall business conditions are better or worse than a year ago, or about the same?
Worse now: 85% expressed out.
2: Did you purchase any jewelry this past month
2: Did you purchase any jewelry this past month
Just 8% could say “yes.”
Quite similar answers could be gathered across the globe during the FY 2009-10, especially for diamond jewellery, except China & India.
De facto, both the nations are also a global player so sufferer of the global crisis too. Though both have vibrant domestic market their spending behavior are pretty diverse than the rest of the globe. I fear growing unwaged numbers at pyramid bottom & initial saving psychology may put remarkable limit on spending class during the FY 09-10.
Including China & India global spending sentiments could carve diamond jewellery retail size by 50% in value term during the FY 09-10. This would pull down polished diamond demand by ‘33% - 36%’ is estimated by Chaim Even-Zohar.
Synopsis:
That was Asian financial crisis 1998. Big fishes smelled in the year 1996. They slashed trade or distributors’ margin & credit limit accordingly by allowing alluring cash rebate. Big fishes kept no room for further sales if any traders wish to buy goods on credit & without cash rebate. Simply big players operated CoD term even with their decade long distributors! Wherever they found ‘open market’- absence of distributors, started direct retail sales for cash. Swiftly they pulled cash from their bottom. By the end of Asian financial crisis every big player survived in-spite of experts estimate for bankruptcy of at least 65 corporate players in India. Experts estimate came true for other Asian countries including Japan in 1998.
What strategy DeBeers have adopted in this crisis? They have started selling rough to such players who are not their sightholders or say distributors! Pull out cash is most tested tool to ride out crisis.
Bottom Line:
What I referred 1998 crisis, that was limited up to Asia, buyer spending sentiment was not hurt as such layoff were prevented, probably cash saving measures that hurt small players especially wholesalers & or say distributors. Manufacturing Units & retail players did well & deal buyer efficiently to keep spending.
On going crisis is systemic indeed. Not only have a financial but also carries macro economical issues and political mileage causes among global nations that have made the crisis paradox.
Quite similar answers could be gathered across the globe during the FY 2009-10, especially for diamond jewellery, except China & India.
De facto, both the nations are also a global player so sufferer of the global crisis too. Though both have vibrant domestic market their spending behavior are pretty diverse than the rest of the globe. I fear growing unwaged numbers at pyramid bottom & initial saving psychology may put remarkable limit on spending class during the FY 09-10.
Including China & India global spending sentiments could carve diamond jewellery retail size by 50% in value term during the FY 09-10. This would pull down polished diamond demand by ‘33% - 36%’ is estimated by Chaim Even-Zohar.
Synopsis:
That was Asian financial crisis 1998. Big fishes smelled in the year 1996. They slashed trade or distributors’ margin & credit limit accordingly by allowing alluring cash rebate. Big fishes kept no room for further sales if any traders wish to buy goods on credit & without cash rebate. Simply big players operated CoD term even with their decade long distributors! Wherever they found ‘open market’- absence of distributors, started direct retail sales for cash. Swiftly they pulled cash from their bottom. By the end of Asian financial crisis every big player survived in-spite of experts estimate for bankruptcy of at least 65 corporate players in India. Experts estimate came true for other Asian countries including Japan in 1998.
What strategy DeBeers have adopted in this crisis? They have started selling rough to such players who are not their sightholders or say distributors! Pull out cash is most tested tool to ride out crisis.
Bottom Line:
What I referred 1998 crisis, that was limited up to Asia, buyer spending sentiment was not hurt as such layoff were prevented, probably cash saving measures that hurt small players especially wholesalers & or say distributors. Manufacturing Units & retail players did well & deal buyer efficiently to keep spending.
On going crisis is systemic indeed. Not only have a financial but also carries macro economical issues and political mileage causes among global nations that have made the crisis paradox.
Emerging markets could ride out the crisis by 2010
but it has long route up to 2017 for advanced markets.
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