Though a whopping $43 billion of rough and cut diamonds pass through Antwerp, this Belgian city's diamond market is dangerously overdrawn and reeling from the financial meltdown. The city is home to some 300 Indian families mainly hailing from Palanpur in Gujarat that are engaged in the trade
But then, the repercussions of the economic crisis on the industry are dire and widespread; some 500,000 jobs have been lost in the Indian diamond-manufacturing hub of Surat in Gujarat while big diamond houses in Israel, an important diamond centre, have already started reporting bankruptcies.
Philip Claes, spokesperson of the Antwerp World Diamond Centre (AWDC), the industry's local and international representative body, said that the market showed indications of a crisis as early as October 2008.
America's traditional Christmas shopping season has historically proven to be the most profitable and busy period for the diamond industry.
But the banking and sub prime crisis in the world's largest market for diamonds led to a 20 per cent drop in sales in the country which normally consumes about half of the world's polished diamond supply.
"After a large magnitude of shipments were returned from the US in the New Year we knew there was a problem," Claes said.
Chetan Choksi, CEO of Diminco NV, explained that the industry had stocked its highest ever level of inventory prior to the downturn.
"Everybody was caught off guard. Diamonds are a luxury commodity and make for discretionary spending so right now the industry is deeply affected; We are always last in, first out," he said.
Dilip Mehta, CEO of Rosy Blue NV, one of the world's largest diamond companies told EuAsiaNews: "The immediate impact was serious. What we are seeing now is a ripple effect."
The problem centres on the procurement of rough diamonds (the raw material), which is the first stage of the diamond's production value chain.
In the first few months post-October 2008, demand for rough diamonds dropped by 70-80 percent, which in turn led to a 50-60 percent drop in the wholesale polished output with retail diamond and diamond jewellery sales dropping by 20 percent in the month of February.
The lack of demand led to a devastating crash in the prices estimated to vary from 25 to 40 per cent.
The sweeping drop in demand has forced producers like diamond mining giant De Beers that controls 40 percent of the world's supply of diamonds to control production until prices become stable and some sign of demand appears.
On the relatively brighter side, there is a general industry-wide consensus that the bottom has already arrived. Mehta believes stability will come into the business in the next six months but a recovery to 2007 levels is difficult to predict.
A morose Claes adds, "Some industry analysts do not predict a recovery till 2010."
Consequently, the buzzing square mile that forms the world's biggest rough diamond trading centre, home to some 1,800 companies, is suffering a tight liquidity crunch and a period of inactivity that has left it drained of confidence and lost in uncertainty with the only general consensus among its multi-cultured community being that business is terrible.
The crisis has forced banks with credit problems of their own to maintain a tight vigil on client transactions and industry debt has reduced by 20 per cent due to lack of turnover on the banks borrowing base.
Claes believes the crisis will encourage greater price transparency in the future. "Only the very strong will come out of this healthy," he noted.
In the interim there are no genius solutions to remedy the situation. "It really depends on the producers and their next step, but for now we have received no good news from them," Claes said.
