Interview: Charles Wyndham reflects on dramatic year in diamonds, 2019

Charles Wyndham has been in the diamond industry for over 40 years. He was a director of the CSO, De Beers’ selling arm, before deciding to leave De Beers to set up his own diamond businesses in 1995. He is co-founder of WWW International Diamond Consultants Ltd. (WWW) and is engaged in related businesses, mainly with others whose skills are based on the company’s expertise in technology, the gathering of detailed market information, and a wide range of contacts. WWW has had a joint venture with the Aboriginal Diamond Group through Diamonds International Canada, and since 1998 has been the Government Diamond Valuator for the Federal Government of Canada, and now for the Government of the Northwest Territories. It also acts as the diamond valuator for the Government of Ontario. In 2000, he founded U2 Diamonds Ltd., which owns www.polishedprices.com, the only polished diamond price list based on multiple-sourced, actual transactions. Wyndham holds an MA in jurisprudence from Oxford University.

The Northern Miner: What were some of the highs and lows for diamonds in 2018?

Charles Wyndham: It has been a curious year for diamonds in some ways, in fact, a bit of a “curate’s egg.” As of the end of November, according to my colleague Richard Platt in WWW Diamond Forecasts, rough [diamonds] this year have seen a 7% increase and polished, around a 4% increase. Even compared to the Forbes Luxury Index, which till the end of September saw a 2% increase, polished diamonds were up by 4.6%.

“Rough diamond prices are still 40% below their peak in 2011, and polished a more ‘modest’ 30% less.”
Charles Wyndham
Co-founder
WWW International Diamond Consultants

However, these numbers should perhaps be viewed a little bit in the context of an old saying that there are lies, and then there are statistics. First, there has been undoubted pressure on both rough and polished prices building up during November, which has accelerated in December. The actual year-end figures are likely to be less flattering. This is without recalling that rough diamond prices are still 40% below their peak in 2011, and polished a more “modest” 30% less. Gloating over the performance of diamonds compared to other luxury products might be tempered by the fact that since 1976, the Forbes Index has increased 2.2% per annum, whilst diamonds, over the same period, have decreased 1.2% per annum.

TNM: What have been some of the main issues for the industry?

CW: Looking at the performance of diamonds in 2018 and looking forward has to be done in the context of underlying trends. The two key “events” for the diamond industry in 2018 have been a growing liquidity crisis in the industry and De Beers’
“Lightbox” announcement about its laboratory-grown diamonds.

And the $1.8-billion-dollar Modi-Gitanjali fraud in India, coming when the banking industry still has painful memories about the $1-billion Winsome fraud, has done little to settle any nerves amongst the banks. There is speculation that there have been over 50 bankruptcies in India from small and medium to large companies.

TNM: What have been other problems in the industry?

CW: Pretty much all the traditional lenders to the industry are restricting credit, and some, such as Standard Chartered, are trying to exit the industry. Credit has become the immediate and burning issue, and not one that is going to go away in a hurry, as banks nurse huge declared and undeclared losses. Some in the industry say that the extent of credit available will reduce from the current $12 billion to $14 billion, to maybe even less than $8 billion. Whether such a drastic contraction takes place or not, it must have a serious impact on sentiment, if nothing else.

TNM: Can you discuss De Beers’ recent Lightbox announcement on synthetics in a bit more detail?

CW: Yes. It was a thunderbolt announcement that they, De Beers, the purveyor of natural diamonds, was entering the synthetic diamond jewellery market selling directly to the public. For De Beers to get involved in synthetic gem diamonds is in itself not that surprising, given their technical expertise in this area, but how they have decided to enter this market, is — remembering that De Beers was one of the foremost critics of synthetic gem diamonds, insisting on the description “synthetic,” which they now prefer to term Laboratory Grown Diamonds, or LGD. The advertising for Lightbox accepts that their synthetic stones are the same as natural, though man-made, but “just as sparkly.” The goal for De Beers is to ensure that there is a differentiation between natural and synthetic, and that a flat and “predatory” pricing model will inhibit the growth of the synthetic market.

The gamble that a flat pricing model, whereby the diamonds of whatever size — between a quarter and a carat, or whether white, pink or blue — are priced at $800 per carat does not undermine the price of natural is a considerable one, and one that has many doubters in the industry. There are very few in the industry that believe that this move and the reaction of other synthetic diamond producers will not have a detrimental impact on the overall demand for natural, and therefore prices, not least because of increased advertising spend on synthetics, and a lower spend on natural. Synthetics were never going to go away, but now there is a concern that their share of the market will increase sharply.

TNM: What are some of the structural issues in the industry?

CW: The historical underperformance of diamonds, compared to either other luxury goods and other commodities, such as gold, cannot be blamed on either the recent liquidity crisis or synthetics. Rather, it points to serious structural issues within the industry. Whilst the diamond industry has been at the forefront of using technology to improve its productivity through mining to manufacturing, in terms of its modus operandi, its model has fossilized.

The recent report that a merger has been proposed by a bank between four of the relatively smaller mining companies points to the obvious: whether it should happen or not. There is a desperate need for consolidation, if only to reduce costs, as margins for miners have and will be under pressure. It is not as if junior diamond mining companies’ share prices have been stellar performers over the past year or so.

This need for consolidation actually runs through the whole chain, and particularly the manufacturing element. The privatization of De Beers, which led to the rapid unloading of its diamond stockpile, in turn spawned a plethora of massive, highly advanced manufacturing operations, and there is without a doubt a substantial overcapacity. This overcapacity and the need for companies to be seen to be turning goods to maintain their credit is one of the reasons for the strength of rough prices compared to polished prices. None of the family-owned businesses want to reduce or close their factories, if only for credit reasons. This scenario cannot go on forever, though it might continue for longer than might be expected, as it has proved to be remarkably resilient to date.

TNM: What do you see happening in 2019 and beyond?

CW: Looking ahead into 2019 and further, the future is, as always, uncertain. It is the degree of uncertainty that is the issue. This in itself is not particularly unexpected, as the whole world economic scenario is particularly volatile. The diamond industry does face some of its own problems, and how they will unfold is anyone’s guess, but it is unlikely in the short term that there will be any significant increase in prices. The balance is probably weighted to some weakening. At some point the industry is going to have to face up to making some much needed structural changes, but as in any industry, the driver for this tends to come from outside the industry. For our industry, it is the financial side that might be the more immediate driver for change, with the denouement of synthetic diamonds following up.