Dilip Mehta,Â CEO of Rosy Blue, spoke with Rapaport News in Mumbai, India, for the “Mines To Market” conference. Excerpts from the interview follow:
On rising rough prices that the polished market does not keep pace with.
It is a challenge. The market has become saturated. However, South East Asia, the Far and Middle East are taking over the burden of distribution. Margins are under tremendous pressure. It is not sustainable. We cannot be doing business with such low margins. The United States is still the largest consumer. My concern is higher interest rates and rising oil prices will hit the middle class American very soon. It is already showing some signs if you look at Wal-Mart results. We should be prepared for an eventual slow-down. Whether it will happen in six months or two years. The moment US economy slows down, everybody will slow down. Chinese exports will be hit, software exports, everything will slow. A friend told me that the interest rates in the US are bound to go up as the current interest rates are far too low and not sustainable. It (rising interest rates) will have a negative impact on the (diamond) industry.
On rough price increases.Â
We are driving the market too far. Does it have any reason to go up? That remains to be seen. We can’t imagine a scenario where nobody needs diamonds. You cannot do without a luxury product like a car because it is a utility and luxury together. Similarly, dress is both utility and luxury. At some point, diamonds will have a negative impact. The consumer will make a choice at higher pricesâ€¦ I find it a very dangerous game when you start overpaying and have no room.
On the closure of small diamond businesses in India and the future of the industry in the country.
It has more to do with lack of availability and high prices of rough. There will be times when one stays on the curb and not on the main square because one will be overpaying. The intention is to keep the business profitable. But I do feel that the Indian diamond business is very accommodating. As far as the future is concerned, you will need an industry leader and skilled player to build and better (the diamond business). Smaller players will have to co-exist. Can you imagine the case of Blue-Nile? They got into internet diamond business because the diamonds are a good business. But who built it up? It is the US retailer, De Beers and many many others. Then Blue Nile comes and takes advantage. What I am trying to say that it would be challenge for all us in India and outside to improve our business.
On his statement at last year’s Rapaport International Diamond Conference that the diamond manufacturing industry and loose diamond trading community has lost nearly $1 billion in potential profits in 2004 and that diamond dealers are holding an overhang of $1.5 billion.Â
Inefficiencies in the diamond industry get covered up because there are further price rises and people pushing up prices etc. Retailers are getting affected and we will also get affected because of them. I saw the presentation of the South African minister (at the Mines To Market conference) and it is amazing that the added value in dollars from rough to sold polished has remained stagnant for the last 5 to 6 years. Stagnant gross dollars and not percentage. How do you explain that? We have definitely overpaid and we have managed the business by improving efficiencies. However, stocks are increasing. There are more retailers in India and China and therefore more stock in the pipeline if you include the retailers in the pipeline.
On whether branding is the key to survival.
The jury is still out on that. None can say that this or that model will work. If you have the American aspiration to buy diamonds and if you have the internet, we will go to extremes. The rich and the famous will continue (to buy diamonds) and other people will be looking for the best available value in the market. It is the middle person that will be the real challenge (for the diamond industry).
His take on Supplier of Choice.
It will give a fillip to growth. I do not think it will be right for a producer to take a profit and sit home. De Beers is doing it, Rio (Tinto) is doing it.
On the Belgium Polished Diamond Dealers Association (BVGD) president Andre Gumuchdjian urging members to support a complaint filed with the European Commission over Supplier Of Choice.
People have their opinions. I guess people get aggravated. De Beers must support sightholders, otherwise what good is it to be a sight holder? They (De Beers) must promote. It is only right that they do it and if people have a problem, they can go to the court.
On Black Economic Empowerment (BEE). BEE is here to stay.
I was recently in South Africa. The West has deprived them of proper training. You cannot discriminate against them. In India, we give beneficiation to the so called lower castes. How then, can we deny rights that BEE brings? We have to deal with it. We need to join forces (with the African nations). You cannot fight BEE.