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Bloomberg interview (May)
Written transcript of Bloomberg’s interview with DODAQ’s CFO Alex Fray
Appeared on the Bloomberg UK channel (20/05/2009)
Mark Barton:
Now, between a rock and a hard place: while many minerals and metals are rebounding from last year’s slump, diamonds are still on their way down. Take a look at this graph. During 2008, the valuations for diamond mining companies couldn’t keep pace with the mining industry overall. In fact, the price for polished diamonds has fallen more than 15% in the last 12 months. It’s now close to a 5-year low. If this trend goes on, diamond mines could soon become unviable. On top of that, there’s still a long way to recovery. According to Ambrian Partners, it’ll be a while before we see the shares of diamond companies rise. To get into detail with this topic, Alex Fray joins us from Brussels. He’s the Chief Finance Officer of DODAQ. Alex, good morning. Thanks for joining us.
Alex Fray:
Good morning.
Mark Barton:
DODAQ enables diamonds to be traded like all other commodities, both by industry and investors, but you’re the first online certified diamond exchange. Why has it taken so long to happen?
Alex Fray:
Well, I think there are a number of reasons for that. For this to become possible, you need a standardised product, and it’s only in recent years that certification has become the industry standard and people have been able to buy and sell diamonds on the basis of certificate without the need to inspect the physical. That’s one of the key reasons, and what we’ve really done is taken existing processes and mechanisms from other commodity exchanges and just adapted them for the complexities of the diamond industry.
Mark Barton:
Rough prices and polished prices have fallen since their peak back in August the 8th, although recently, they could by some be seen to have bottomed. Do you think prices have bottomed?
Alex Fray:
You’re right, so they peaked in August last year, and that was following a sustained period of price appreciation lasting around 5 years. Then, as the effects of the credit crunch set into an industry that is characterised by highly leveraged companies, and the recession impacted on consumer demand, particularly the US, Japanese and European economies, there is a period of about 7 or 8 months of downward pressure on prices. Now, at DODAQ, we’re in a unique position to actually analyse trading activity, and we can see that there has been price resistance over the last 5 weeks in polished diamonds. Actually, they have appreciated slightly. The picture in rough is slightly different. Since their 5 year low in mid-April, some categories have bounced back up to 15%. Now, we see that there are three principle reasons driving this. Firstly, there is emerging market demand, in particular, China. In the period that most diamond markets have contracted, Chinese consumption of diamonds has actually increased 15%. The other reason is supplydriven. In the last quarter of 2008, all of the major mining companies announced that they would be cutting supply, but this takes time to filter through to the market, because through the diamond value chain, there is quite a long pipeline. You also had a lot of companies winding down their inventories for liquidity-driven reasons. The third reason is we’ve seen a marked increase in investment demand for diamonds. This is providing some support to the prices, so we’re cautious in the short term, but there do appear to be sound reasons behind it. We know that if there is a further downturn in the global economy, the diamond industry won’t be impervious to it, but we’re cautiously optimistic.
Mark Barton:
In 20 seconds, Alex, as an asset class, diamonds do have merit, yes?
Alex Fray:
That’s correct. They are a de-correlated asset which provides investors with genuine portfolio diversification. The demand/supply picture looks increasingly favourable, with only 20 known years resources left in the ground and only 22 major mines in operation, so we foresee -
Mark Barton:
Alex, thanks for joining us. Wish we had more time, but thanks for joining us today. Alex Fray there, the CFO of DODAQ.
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