Korean and other South-East Asian women, contemplating their country's almost worthless paper money, must be sending up little prayers of thanks as they finger their diamond ear-rings. They are now not in a position to buy any more diamonds and this is causing deep worry to the producers.
The financial crisis in east Asia has already had a domino effect on the international rough diamond sales market and this has crucial implications for Africa, which is a major source for the supply of diamonds.
With the continued recession in Japan and the economic and currency problems which emerged from mid-1997 in Korea, Taiwan, Thailand and other SE Asian countries, confidence was undermined in retail diamond sales. The strong dollar and the devaluation of Asian currencies adversely affected the disposable income of Asian retail diamond jewellery consumers, because diamonds are traded in US dollars and, for instance, the Thai baht lost two-thirds of its value.
Total global rough diamond sales by the De Beers central selling organisation (CSO), which accounts for 70% of rough diamond sales, were 39% lower for the second half of 1997 compared to the first half, when an all time record for half-year sales of $2.880bn was established. According to the CSO, sales in the second half of 1997 were $1.760bn, some 16% lower than during the same period in 1996.
Admittedly a little historic number crunching back to 1988 reveals that second half rough diamond sales are typically lower than first half. The reason for this is that in the first half of the year the rough diamond trade gains an impetus ahead of the all important year-end Christmas season when polishers and manufacturing jewellers need stock. By the second half of the year it is too late to buy rough stock for the coming Christmas.
It is the severity of the 1997 second half drop that is newsworthy. Previously a commensurate second half decline of 35% was matched in 1994 and a 32% drop in 1990. In contrast the decline was a mere 9% in 1992 and 10% in 1988. Annual sales of rough diamonds by the CSO for the whole of 1997 were $4.64bn, a mere 4% lower that the previous year's sales of $4.834bn. According to the CSO, the reduction in retail sales in SE Asian countries, the impact on trade confidence of this changed economic situation and the high level of trade inventory occasioned by the buoyant sales in the first half of the year, meant that the CSO had to reduce its supply to the market to support the trade in a decidedly difficult situation.
As mentioned, the CSO sales account for about 70%...