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Antwerp’s dominance as the world’s biggest trading hub for rough diamonds is being tested by strategy changes at some of the largest gem suppliers and growing competition from rival trading centers.
In the most immediate challenge, De Beers, the biggest producer by revenue, is moving the sorting and trading of rough stones to Botswana from London to secure access to the world’s largest supplier of diamonds by value. The shift, to be completed next year, is part of the African nation’s efforts to build its own trading center in the capital of Gaborone and ends a decades-long De Beers practice of holding sales in the U.K.
“Being close to London will no longer be an advantage to the Antwerp diamond industry and some players might move to different locations,” said Jackie Morsel, vice president of Dali Diamond Co., one of De Beers’ 76 international diamond customers, known as sight holders.
For more than 40 years, Morsel has made the 200-mile (320 kilometer) trip from Antwerp to buy his supply of rough diamonds from De Beers in London. This time next year, he will have to travel more than 5,000 miles to Botswana for his purchases.
While four-fifths of rough diamonds still pass through Antwerp, the city faces growing competition from the Middle East and Asia, as well as Africa. Dubai in the United Arab Emirates and Mumbai, India, in particular are making strides in developing the gem-trading industries in those cities.
Exports of rough diamonds from the United Arab Emirates increased 17 percent to 47.2 million carats in 2011, compared with 2007, while Indian exports climbed 21 percent to 37.1 million carats over the same period, according to Kimberley Process data, which doesn’t capture trading activity within the nations. Uncut diamond exports from Antwerp fell 25 percent to 107.1 million carats over that time, Antwerp World Diamond Centre data show.
Antwerp is “less dominant than it used to be because we have seen the upcoming centers like Dubai and Mumbai,” said Pierre De Bosscher, chief executive officer of the Antwerp Diamond Bank, which finances diamond companies. “But there will always be a place for Antwerp as the leading diamond center.”
Of the 118.5 million carats of uncut diamonds mined and exported in 2011, 84 percent passed through Antwerp, 40 percent through the UAE, 39 percent the U.K., 31 percent India and 16 percent Israel, according to the trade group AWDC, citing a study by the University of Antwerp. Diamonds typically pass through more than one trading hub.
“It’s a position that we are really looking to defend,” said Ari Epstein, chief executive officer of the AWDC, which is developing a “Diamonds from Antwerp” brand as part of efforts to reinforce the city’s standing. “I’m looking at challenges and how to turn these challenges into opportunities.” The AWDC’s efforts include the start last month of the Antwerp Diamond Tender Facility, a new service for diamond-mining companies to sell their stones.
Antwerp benefits from a critical mass of producers, traders and support industries including diamond-financing, insurance and security providers. The biggest miners, including De Beers, Russia’s OAO Alrosa (ALRS), Rio Tinto Group and BHP Billiton Ltd. (BHP), have facilities in the city. It would “take a while” for other cities such as Mumbai, Dubai, Tel Aviv and Hong Kong to build comparable infrastructure, said Daniel Goldberg, managing director of diamond-trading company IDH Diamonds in Antwerp.
Potential changes at some of the biggest diamond producers could precipitate switches in strategy similar to that by De Beers. BHP and Rio are reviewing their diamond businesses, and there is a plan to sell up to 14 percent of Alrosa in a public offering.
At the same time, a global economic slowdown is putting pressure on the industry in general. Prices of uncut diamonds have fallen for the past two quarters and could show the first annual decline since 2008 after increasing at least 20 percent in each of the past three years. Worldwide diamond demand may rise just 3 percent to 5 percent this year, down from a record 10 percent in 2011, Varda Shine, chief executive officer of De Beer’s trading arm, said in August.
The De Beers move to Gaborone is part of a 10-year agreement with Botswana to build the diamond-producing nation into a trading and manufacturing center, according to De Beers, which is owned by Anglo American Plc. (AAL) Very little rough trading currently is done in Botswana.
“It is a threat for Antwerp,” said Anish Aggarwal, a partner at industry consulting firm Gemdax. “At the same time, it is an opportunity for Antwerp to reinvent itself and become a new kind of leader because the industry is changing pretty rapidly.”
Dali Diamond, which has bought its stones from De Beers in London since 1969, will need to send a buyer to Botswana 10 times a year to purchase its rough supply, trips that will take three days rather than one. From Belgium, Morsel will have to fly via Frankfurt and Johannesburg unless there are more direct flights a year from now.
At the same time, India, where costs are lower than in Europe, now accounts for about 80 percent of diamond polishing, while Dubai attracts dealers because of its zero percent tax rate. Rough diamonds can be traded several times before being cut and polished.
“The shifting of De Beers operations to Botswana will definitely improve the diamond business in Dubai” said P.N. Prasad, chief executive at State of India Bank’s Antwerp office.
“If you think in terms of the diamond business, and what are growth markets, then you have to look much more to the Asian side of this business and not so much about Belgium,” said Kurt Looyens, regional head of Europe, Middle East and Africa for ABN Amro’s International Diamond & Jewellery group.
“The biggest threat to Antwerp is Antwerp itself,” Looyens said. “You have to embrace that change now and you have to now take it to the next level.”
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