Post by jcline on Sept 12, 2007 11:04:59 GMT -5
Diamond Exchange Could Alter Industry
By LUKE JEFFS - The Wall Street Journal
September 10, 2007; Page A11A
Diamonds are taking on a new luster as a contract is launched on the first electronic diamond-futures exchange that opens in New York Sept. 17.
The global diamond industry saw revenue of about $120 billion last year, which is impressive for a business that has hardly progressed since the invention of the telephone. That figure is nothing compared with its potential.
The new economic powers, such as China and India, will boost demand for diamonds in the next 10 years, but suppliers can't keep up, limited by their ability to open new mines and find the stones, according to Martin Rapaport, a diamond-industry veteran who rose to fame in the commodity boom of the late 1970s. As a result, the price of diamonds will continue to rise, attracting the attention of institutional investors.
The financial sector is ready to start investing in diamonds, but the 100-carat question is whether the diamond industry is ready to let in the outside world. Mr. Rapaport, who is launching the exchange, thinks it has no choice.
He said the diamond industry must adopt the futures-exchange model. Speaking at the London Diamond Bourse, a dealing club founded in the 1940s in the heart of London's diamond district, Mr. Rapaport told the assembled dealers they have to move with the times.
"We are on the verge of a period of rapid change in the diamonds industry as demand becomes linked more tightly to economic factors such as foreign-exchange rates, and demographic changes shift demand from the U.S. to new economies such as China and India," he said. "By commoditizing the trading of diamonds, we can access more bank credit at lower rates at a time when the industry needs capital to realize the potential in the industry."
Mr. Rapaport said his exchange, which he admits may take as long as two years to establish the requisite liquidity, addresses risks in the established diamond-dealing model. "We commit to prices for diamonds in the future with no idea what is going to happen to affect their value in the meantime, which exposes us to risk," he said.
Some dealers expressed fears the most powerful diamond-producing companies, such as DeBeers, might dictate prices by the supply of diamonds.
Mr. Rapaport responded: "There are powerful companies involved in diamonds and real concerns about price manipulation, but it is supply and demand that will determine price. If I think the prices on the exchange are not fair, I will walk away from this project."
online.wsj.com/article/SB118938455180422119.html?mod=googlenews_wsj
By LUKE JEFFS - The Wall Street Journal
September 10, 2007; Page A11A
Diamonds are taking on a new luster as a contract is launched on the first electronic diamond-futures exchange that opens in New York Sept. 17.
The global diamond industry saw revenue of about $120 billion last year, which is impressive for a business that has hardly progressed since the invention of the telephone. That figure is nothing compared with its potential.
The new economic powers, such as China and India, will boost demand for diamonds in the next 10 years, but suppliers can't keep up, limited by their ability to open new mines and find the stones, according to Martin Rapaport, a diamond-industry veteran who rose to fame in the commodity boom of the late 1970s. As a result, the price of diamonds will continue to rise, attracting the attention of institutional investors.
The financial sector is ready to start investing in diamonds, but the 100-carat question is whether the diamond industry is ready to let in the outside world. Mr. Rapaport, who is launching the exchange, thinks it has no choice.
He said the diamond industry must adopt the futures-exchange model. Speaking at the London Diamond Bourse, a dealing club founded in the 1940s in the heart of London's diamond district, Mr. Rapaport told the assembled dealers they have to move with the times.
"We are on the verge of a period of rapid change in the diamonds industry as demand becomes linked more tightly to economic factors such as foreign-exchange rates, and demographic changes shift demand from the U.S. to new economies such as China and India," he said. "By commoditizing the trading of diamonds, we can access more bank credit at lower rates at a time when the industry needs capital to realize the potential in the industry."
Mr. Rapaport said his exchange, which he admits may take as long as two years to establish the requisite liquidity, addresses risks in the established diamond-dealing model. "We commit to prices for diamonds in the future with no idea what is going to happen to affect their value in the meantime, which exposes us to risk," he said.
Some dealers expressed fears the most powerful diamond-producing companies, such as DeBeers, might dictate prices by the supply of diamonds.
Mr. Rapaport responded: "There are powerful companies involved in diamonds and real concerns about price manipulation, but it is supply and demand that will determine price. If I think the prices on the exchange are not fair, I will walk away from this project."
online.wsj.com/article/SB118938455180422119.html?mod=googlenews_wsj