Industry at Crossroads, Tempelsman Says

The diamond industry is at a “crossroads,” with some form of correction “inevitable,” Lazare Kaplan chairman Maurice Tempelsman warned in his strikingly dire closing speech at the GIA Symposium in San Diego.

Tempelsman noted that “for well on seven decades the diamond industry sat secure on the bedrock of measured supply” but “those old familiar foundations are gone, and they are gone forever.”

He said that when De Beers changed its business model to the demand-centered Supplier of Choice, it benefited from “good luck”—a time when the world's bankers were pumping liquidity into the system. “That rising tide concealed the new dangers and difficulties that would have to be addressed when, inevitably, the high waters of liquidity began receding,” he said.

Now interest rates are rising, as are gas prices, which affects consumer spending. In addition, banks are now demanding greater transparency from companies—“and not all companies are geared or set to thrive in the spotlight,” he said. This new transparency also may lead to “increased systemic costs” and increasing bank fickleness in extending credit.

All these costs and challenges come at a time when manufacturer margins are as slim as ever—and no longer have the stability of the single-channel system.

“Does all this portend the worst?” he asked. “Not in my view, though some correction does seem inevitable. … At the end of the day, our present industry course is not sustainable. So if we do not self-correct, I very much fear that a correction will be imposed upon us.”

Tempelsman said Supplier of Choice is not the cause of all the industry's problems, but he did call SOC a “process—rather than a final destination.” He seemed to be urging De Beers to turn Supplier of Choice into a true franchise arrangement, in which De Beers would work more closely with its customers and provide them with a solid base.

“A true franchise entails more security and support for those on the downstream end of the pipeline than is now provided under SOC or any other operative model in the diamond industry,” he said.

He also made a quick reference to what he called GIA's “troubles”—the scandal in its lab that led to four graders being fired.

“The best way to deal with these problems when they arise is as directly, as forcefully, and … as openly as possible,” he said. “I think we can only applaud the leadership of GIA, starting with its chairman, Ralph Destino.”