The reduction of bank credit available to the diamond industry is a game changer that will influence the market for many years to come. Therefore, this column has chosen bank credit as its most important story of 2014, rising above other strong candidates for the title.
The tone was already set in late 2013 when ABN Amro notified its diamond manufacturing clients that, effective January 1, it will only finance 70 percent of rough purchases, rather than the previously allotted full amount. Other banks were instituting similar measures as their own compliance and transparency requirements meant that they had to lend to robust and bankable companies and industries.
It emerged in 2014 that the diamond market has a long way to go to improve its “bankability” – a term coined by ABN Amro’s Eric Jens at the recent World Diamond Conference in New Delhi (see editorial “Normalizing the Diamond Trade,” published on December 19, 2014). Bankability is the sum of profitability plus transparency, he explained. Jens stressed that the industry needs to polish its operations to comply on both accounts and be attractive to lenders.
The decision to close Antwerp Diamond Bank, which lends about $1.6 billion to the industry, brought additional urgency to find new vehicles of credit. With reduced bank credit, companies have had to self-finance more of their rough purchases, thus weakening their overall position in the market.
Astonishingly, rough demand remained fairly robust for most of 2014, particularly for primary supply from the major rough mining companies. De Beers rough price index rose 7 percent during 2014, according to Anglo American, while estimates suggest that prices on the secondary market were about flat for the year having declined in the second half.
Polished prices, meanwhile, fell in all categories except 0.50-carat to 0.90-carat goods, as reflected in the RapNet Diamond Index (RAPI™) at press time on December 25. An in-depth review of polished prices will be published shortly in the upcoming Rapaport Diamond Statistics Annual Report 2014 in the January edition of Rapaport Magazine.
