Opening move against the Antwerp diamond industry?

[Karl_K]

Maybe my tin foil hat may be a little tight but this does not seem like good news for the Antwerp diamond industry.
http://www.idexonline.com/portal_FullNews.asp?id=38930

"China’s Yinren Group is buying the Antwerp Diamond Bank (ADB) from the KBC financial group in a deal that will enable Yinren to give ADB “access to the entire diamond value chain in Asia and Greater China, in particular”. "

"ADB is a leading market financier for the diamond trade, particularly in the large Antwerp market."

"“The acquisition of ADB will allow Yinren to leverage upon ADB’s know-how, network and brand reputation in view of the further development of the Chinese market, and to play a role in the interaction between the world’s main diamond centers (including Antwerp, Mumbai, Dubai and Hong Kong) and the upcoming centers of the Far and Middle East. The Yinren Group is now able to add financing of the diamond sector to its scope of activities.”"

 

[Karl_K]

I can see this as being used to force diamond business from Antwerp to China.
Expensive capital for Antwerp, cheap capital for joint partnerships in China with China manipulating both rates.
India has used credit advantages to build its diamond sector for a while now.
Is China following the same path but in a more ruthless manner?

 

[John P]

Hi Karl. Happy holidays.

That story has many angles. The sale is an EU requirement following state aid/bailout of KBC dating back to 2008. I believe a large portfolio of significant ADB debts will remain in the hands of KBC - and this agreement needs approval in any case. It’s been a topic of discussion in the diamond district for some time.

Paul Slegers can provide a wealth of information here. I’ll see if he can address this thread when he returns from holiday in January. More to come. Meanwhile, I have another observation that's a total sidebar.

Re this:

I can see this as being used to force diamond business from Antwerp to China. Expensive capital for Antwerp, cheap capital for joint partnerships in China with China manipulating both rates. India has used credit advantages to build its diamond sector for a while now. Is China following the same path but in a more ruthless manner?

That hype of easy credit and speculative buying in India, followed by their currency crash, caused industry-wide blowback not too long ago. In 2010-2011 rough and polished prices both screamed upward due to vigorous action in the Asia-Pacific. But when the Rupee crashed in Q3 2011 consumer buyers retreated in a negative mood and the Indian government enacted expensive import taxes. Some of the “much-anticipated” demand was killed and the wind went out of speculation sales. The effect was like turning off a locomotive and watching the train accordion-up behind it. There were actually reverse-adjustments in pricing indexes over Q3-Q4 2011. This wasn't obvious at all trading levels since many of us in the middle market who think-for-ourselves refused to follow the insanity of 1H 2011. But it happened.

When the dust settled, polished prices in 1.00 ct went up 19% in 2011 (at one point it had been 34%!?) largely fueled by the hype of A-P speculation & credit … then halted by reality.

The blowback: Although the locomotive returned to safe-speed in 2012 the prices of rough and polished stayed absurdly out of sync with each other for more than a year. Mining houses dug their heels in, pointing to the coming rough shortfall. But consumers, where the real market "lives," remained stubborn. Sure there was growth in China, but India fell short of projections and the USA stayed flat. The middle-market got squeezed hard. Some didn't make it. Everyone felt the price-resistance and belt-tightening... Rough sellers finally softened positions in March 2013 and the market has since returned to a friendlier state. But the over-reach of 2010-2011 saw too many straws hurled onto the Indian camel’s back by the industry-at-large, and that poor camel wound up at the chiropractor throughout 2012.

I began following the growing Asia-Pacific situation in 2005, and have since become a regular presenter, consultant and teacher in China. I have no doubt the future of the diamond industry is bright there. Reputable think-tanks have carefully weighed-in on Asia-Pacific diamond futures and all of them say growth and prosperity will continue in the mid to long-term.

But "ruthlessness" aside; there are predictions ~ but then there is reality: Speculation based on Twitter posts and Magic 8-Ball are not a good foundation for over-easy credit or all-in acquisitions. The trade cannot control governments, but we can collectively avoid putting too many eggs in any single basket. I'm hoping the lessons of 2011 will not be forgotten by our industry leaders.