Banks lend less to diamantaires as rough stone prices soar

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Bloomberg

A rough cut diamond is evaluated in the sorting centre at Alrosa's Mir diamond mine in Mirny, Russia. Rough diamond prices gained 10 percent last year, and banks lending to the sector are worried that jewellery prices are not keeping up. Photo: Bloomberg

London - Banks lending in the $15 billion (R157bn) diamond-financing industry are cutting the amount they will offer to clients amid fears that gem prices are rising too fast.

Antwerp Diamond Bank and ABN Amro Group, two of the biggest lenders to the industry, have reduced the amount they lend to 70 percent of rough diamond purchases from 100 percent, demanding that buyers of the stones front up more of their own cash.

“It relates to concerns that we have about the industry,” Bruno Nelemans, the executive vice-president for strategy at Antwerp Diamond Bank, said yesterday. “The bank was not feeling happy about the pricing of rough diamonds compared to polished prices and diamond jewellery.”

Diamond cutters, polishers and manufacturers are being squeezed as mining houses demand they pay more for rough stones, costs that have not been fully passed on as increased jewellery prices. De Beers, the biggest producer, has cut the discount between its selling prices and the secondary cash market since Philippe Mellier became chief executive in 2011.

“Over the last 12 to 18 months, we’ve seen major diamond producers adopt more aggressive pricing policies and we expect this to very much continue,” Anish Aggarwal, a partner at Antwerp-based industry consulting firm Gemdax, said. “As trader profit margins are squeezed – in part by more aggressive producer pricing – banks are reassessing their exposure to the diamond industry.”

De Beers sells diamonds at 10 events each year at a price and to customers selected by the Anglo American unit.

Under Mellier, the company has changed its pricing policy to discourage buyers from flipping rough stones instead of polishing them.

“Speculation hurts us as much as anyone,” said Howard Davies, the commercial head for De Beers’s global sales. “The banks have played a good role this year by not providing surplus liquidity.”

Rough-diamond prices rose 10 percent last year as the US economy recovered and Chinese consumers bought more. Prices have more than doubled in the past five years, according to data from WWW International Diamond Consultants.

“They’ve pushed up prices to unreasonable levels,” Nelemans said. “The manufacturing and trading industry is less profitable than it used to be and we feel it is affecting the quality of our lending, the quality of our assets and the quality of our balance sheet.”

ABN Amro said it had reduced the ratio of its loans to better spread the risk between the bank and diamantaires, as cutters, polishers and manufacturers are known, to try to entice new lenders to the sector.

“Clients should have more skin in the game themselves,” said Erik Jens, the chief executive of the International Diamonds and Jewelry Group at ABN Amro. – Bloomberg


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