IDEX Online Research: Tempelsman Takes the Temperature of the Diamond IndustrySeptember 12, 07
When Maurice Tempelsman talks, we listen. After all, he is one of the senior deans of the diamond industry. At age 77, he’s seen just about all that has occurred in the modern era of global diamond trading.
While his company, Lazare Kaplan, may be struggling to redefine itself in a changing environment, Tempelsman has maintained an ever-sharp eye – and spoken with an ever-sharp tongue – on the diamond industry.
He has been cited as the diamond industry’s consummate political ambassador, able to pick up the phone and talk with the president of just about any diamond-producing country at any time. It didn’t hurt that he maintained a relationship with Jackie Kennedy Onassis at one time; that helped cement his reputation as a global ambassador and spokesman for the diamond industry. We sense that Tempelsman relishes his role as industry ambassador, and, because of that, he has largely turned over the day-to-day operations of Lazare Kaplan to his son Leon.
The only time we saw Tempelsman falter was after the events of 9/11. His son-in-law, Bob Speisman perished on the airplane that terrorists flew into the Pentagon. That defining event in American history still weighs heavily on Tempelsman.
However, in his characteristic style, he has re-emerged into public view again, though perhaps with a slightly lower, mellower profile. Age has not slowed his thinking at all.
If Tempelsman lived in the South (of the U.S., where we were born and raised), we’d embrace him as a true Southern Gentlemen. Come visit anytime, Maurice, you’ll be welcome here.
Tempelsman Talks about the Diamond Industry
Because he is the chairman of a public company, Tempelsman has an obligation to address the owners of LKI stock at least once a year at the shareholders’ meeting. As a long-time advocate of transparency, both in the diamond industry and in his own company, Tempelsman has chosen to address Wall Street and his investors four times a year.
On a recent conference call, he summarized his outlook on the industry for investors. Here are the highlights of his comments.
- The diamond industry restructuring has gained momentum – A little over five years ago, the diamond industry moved from being supply-driven to a demand-driven industry. Tempelsman says that because of the structural flaws in the initial demand-driven model, exacerbated by increased supply-and-demand cyclicality over the past few years, it has become apparent that changes must occur in the industry’s diamond supply model.
- There is currently a better balance between diamond supply and demand – Tempelsman sees that the industry balance between supply of and demand for diamonds has moved into better balance. He sees no reason – nor any momentum – to return to a diamond industry regulator with buffer stock to take price volatility out of diamonds.
- The risk-reward ratio has not aligned properly – However, Tempelsman said, under the new demand-driven model, the risk-reward ratio is not aligned. Those who take the risks are not properly rewarded, in his opinion: “Rewards have not followed risks,” he said. Downstream players in the diamond pipeline, of which Lazare Kaplan is one of many, have assumed too much risk without the proper compensation.
- Diamantaires will have to learn to live with more volatility – We think Tempelsman is referring to both volatility of price and supply. In a demand-driven model, without the benefit of a buffer stock, the market sets the price. This is capitalism at its best. Some may say that capitalism is bad, but no one has found anything better.
- There will be demand volatility within certain diamond sizes and quality – Specifically, Tempelsman looks for long term shortages of larger, better quality diamonds.
- Synthetic diamonds won’t go away – Tempelsman was emphatic when he said that synthetic diamonds are a “looming reality.” However, he believes that they will have the most impact on the market for smaller, lower-end stones. Unfortunately, that’s a segment of the market where prices remain mired, indicating that supply and demand are in nearly perfect balance, even without synthetic stones. The introduction of cheaper synthetic stones could put a long term damper on prices of melee and other small diamonds.
- The center of the diamond industry is moving to South Africa – Botswana, Namibia, and South Africa are producing better grade diamonds, and the center of the global diamond industry is moving to Africa. In addition, Angola will become a much more important player in the diamond industry as a result of peace, stability, and high oil prices. Already, Angola is experiencing strong economic growth.
- The downstream players are over-leveraged – Tempelsman is worried about the downstream players in the diamond pipeline, whom he characterized as being financially over-leveraged, with far too much short term debt.
- The industry needs way to hedge risks – Tempelsman made a case for the need for a hedging mechanism so diamond industry participants can lay off risks. It remains to be seen if the new attempts at diamond trading transparency will lead to the creation of hedging markets.
- Supplier of Choice will change – Lazare Kaplan is a DTC Sightholder, and like the other 92 DTC Sightholders, it recently received a notification of termination. Later this year, the DTC will announce a new list of Sightholders for the next three-and-a-half year contract period. Emphatically stating that the comments were his alone, Tempelsman says the new DTC Supplier of Choice plan will likely result in a franchise-like arrangement, with fewer Sightholders. He also said it will lead to further industry consolidation.
- Tempelsman worries about the U.S. market near term – Tempelsman cited high oil prices, problems in the sub-prime housing market, and volatile financial markets as factors which have increased uncertainty among consumers in America. This could eventually lead to weaker demand for diamonds over the near term, in his opinion.